Sindh taxes 17 more Services

Having set its tax receipts target at Rs 144.12 billion for FY16, the Sindh government has extended the Sindh Sales Tax (SST) to 17 more untaxed services to be taxed at a rate ranging from 6-14 percent. Also, Sindh Revenue Board (SRB) would be substituting the existing positive list of taxable services with a negative list implying that all services shall be liable to tax except the ones specified in the negative list schedule.
Further, having prepared a three-year Budget Strategy Paper (BSP), the provincial government has started governance reforms with the assistance of the World Bank and the European Union (EU) to address systematic weaknesses and missing links in the public financial management. Proposing various fiscal measures while unveiling over Rs 739 billion fiscal budget for FY16 at Sindh Assembly Saturday, Finance Minister Syed Murad Ali Shah announced that the government has slashed the SST on services from 15 to 14 percent.
The provincial government proposed to the legislature some fiscal measures under which it plans to extend the SST to 17 more categories including travel agents (10 percent), credit rating agencies (14 percent), underwriters (14 percent), indenters (14 percent), commission agents (14 percent), auctioneers (14 percent), dredging and de-silting (10 percent), copyright or intellectual property right services (10 percent), technical inspection and certification services, quality control and testing and erection srviices (14 percent), packers and movers services (14 percent), services of shares/derivatives/custodianship (14 percent), valuation services (14 percent), labs (14 percent), utility bill collection by banks and NADRA (14 percent), renting of commercial property (6 percent) and ready mix concrete services (14 percent).
The broadening of tax net is aimed at achieving the FY16's higher Rs 61 billion SST target. To gradually move towards uniform rate of taxation, minimum rate of SST has been proposed to increase from 5 to 6 percent. Cutting tax on telecommunication sector from 19.5 to 18 percent, the levy would be charged at the rate of six and not 10 percent from program producers. The construction and building industry would be given the option of selecting between higher rate of 14% with input adjustments and lower rate without input adjustments on a financial year basis.
Besides advertisements in newspapers, education and medical services have been exempted from SST on services for what the minister said the benefit of the common man. On Excise and Taxation front, the rate of Infrastructure Cess has been revised upward from existing 0.9-0.95 to 1-1.05 percent to collect an additional Rs 2.5 billion for the maintenance and development of infrastructure of the province. The exemption of Property Tax to the properties, owned by retired government servants, having gross annual rental value up to Rs 48,000, is proposed with a retrospective date effective from June 30, 2010. The stamp duty is proposed to be increased on every Rs 100 by five-paisa on contract and purchase order.
"We also intend to rationalize the rate of stamp duty on policies of insurance as well as to impose duty on transfer of shares of CDC account holders at the rate of one paisa for each share. This will result in an additional revenue generation of Rs 175 million," said Shah. To further improve collection, the SRB has devised a program to substitute the existing positive list of taxable services with a negative list. "This would make the tariff Schedule simpler and dispute-free, which, in turn, would reduce litigations and classification disputes," said Shah. The Negative List Schedule is expected to be introduced during FY16.
An initiative has been started with the help of the World Bank and the EU to reform Public Financial Management such as credibility of the budget, budget predictability, policy-based budgeting, transparency, predictability, accounting and reporting.
Budget Strategy Paper Backed by the World Bank, the provincial government also has prepared Budget Strategy Paper 2015-16 for the first time under Sindh Public Sector Management Reform Program. The BSP is a three-year rolling plan that sets policies and priorities of the government in the medium term.
The paper presents the fiscal performance of the government over the last two financial years and provides insight into the fiscal performance of current financial year. Once approved by the provincial cabinet, the BSP is expected to become the guiding policy document for consolidation of budgetary proposals. Also, the Sindh government is implementing Sindh Tax Revenue Mobilization Plan and Public Financial Management Strategy (PFMS) for revenue mobilization and expenditure management.
Under Sindh Tax Revenue Mobilization Plan (STRMP), a Tax Reform Unit would be set up for evidence-based tax policy formulation, administration and coordination; re-engineering and simplification of business process with the use of ICT to enhance tax revenues; tax-payer education and facilitation to increase tax base; and a policy dialogue to create and sustain tax reforms.
Another initiative is the Public Financial Management Strategy which aims to improve budgeting and planning process, strengthen budget execution, reporting, accountability and transparency. It also aims at enhancing revenue generation, and strengthening institutional framework for oversight.