The provincial governments of Khyber Pakhtunkhwa and Sindh have to adopt a uniform rate of provincial sales tax on online cab services under the policy of harmonisation of taxes, as agreed between the Federal Board of Revenue (FBR) and provincial revenue authorities/boards. Tax experts told Business Recorder that the governments of Khyber Pakhtunkhwa and Sindh have adopted different legal ways and tax rates for bringing the online cab services into tax net and charge sales tax on these services.
A comparison of the two provincial laws proposed through their respective Finance Bill 2019 revealed that the Sindh government has proposed 13 percent sales tax on cab aggregators, which are online services. On the other hand, KP government has imposed 2 percent provincial sales tax on services provided by ride hailing platforms. There is a huge difference of 11 percent sales tax being charged by the two provincial revenue authorities/boards. A uniform rate of 2 percent sales tax be charged by all provinces as agreed under harmonisation of the sales tax regime between the FBR and provinces.
The proposal to charge a uniform rate of sales tax like 2 percent by the provincial revenue authorities/boards would be the right policy under the harmonisation of taxes, the experts maintained. At different forums, the Federal Board of Revenue (FBR) and provincial revenue authorities/boards had agreed on the harmonisation of taxes, facilitation of taxpayers and early resolution of sales tax collection on the third category of disputed services/ goods. The heads of the provincial revenue boards/authorities developed consensus on harmonisation of taxes during National Tax Conference "Taxation A Pathway to Prosperity" held by the Institute of Chartered Accountants of Pakistan (ICAP) in March 2019 at Islamabad.
Both the FBR and provinces agreed upon the pressing requirement of harmonising taxation system. The Sindh government has announced the imposition of a 13% tax in the Finance Bill 2019-20 on cab aggregators, which are online services like 'Careem' and 'Uber'. This would affect the growth of the industry in the province and the cost of transport, which has already been magnified by the increase in fuel prices, would see a further increment, with the already burdened middle class.
Meanwhile in KPK, Taimur Jhagra, Minister of Finance KP has imposed a 2% tax on services provided by ride hailing platforms. This will encourage entrepreneurship and protect the incomes of drivers already using the platform. It will also have a positive impact on job creation, attract investment and prove to be a sustainable revenue source for the government in the years to come. Commenting on the issue, 'Careem' representative observed, "We highly appreciate the efforts of Taimur Jhagra, the Minister of Finance KP, and the KP cabinet for understanding the business model of online marketplace platforms which has immense means to create jobs in Pakistan.
We welcome the introduction the category of ride-hailing and the measures taken to regulate it without hampering its growth potential. This will allow for the creation of thousands of new jobs and attract investment in the province. We are further partnering with the government of KP to bring their Rescue 1122 Ambulance services onto the 'Careem' platform."
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