It was not the International Monetary Fund (IMF)’s demand or stipulation that the federal government recover General Sales Tax (GST). On the contrary, the federal bureaucracy had suggested the IMF that they could control the budget deficit this way, said Provincial Finance Commission-Sindh member Dr Kaiser Bengali while addressing a press conference held at the Karachi Press Club on Wednesday.
Bengali said Sindh Chief Minister (CM) Syed Qaim Ali Shah has written to Prime Minister Yousaf Raza Gilani regarding the issue of recovering GST. Sindh is the only province that believes that recovering GST is the right of the province, whereas the other provinces are opposing it, he added.
He said it would be appropriate if the Federal Finance Ministry does not reopen settled issues and implements the decision of the 7th National Finance Commission (NFC). In particular, the Finance Ministry needs to withdraw the Federal Excise Duty (FED) on Services, except on items stated in Entry 53 of the Federal Legislative List of the Constitution, he added. He also said while the Federal Board of Revenue (FBR) website states that FED has been withdrawn, the necessary notification has not been issued as yet. Withdrawal of FED is essential to ensure that taxpayers are not subjected to double taxation and the Sindh Revenue Board (SRB) is able to perform its task efficiently, he added.
Bengali said the historic 7th NFC accord was signed by the federation and all the provinces at Gwadar on December 30, 2009. He said, from Sindh’s perspective, the major gain in the accord was the collection of GST on Services by provinces, which has provided fiscal autonomy to Sindh. Accordingly, the Sindh Assembly passed the Sindh Sales Tax Services Act and established the SRB, he added.
He also said the SRB’s performance has been exemplary over the past five months. The board has collected over Rs 9 billion during July and November this year, averaging Rs 1.8 billion per month, which is 5 percent more than what the FBR transferred to Sindh in 2010-11, he added.
Bengali said SRB’s collection is certain to improve further after the existing legal and administrative bottlenecks are removed. “This accomplishment has proved sceptics wrong, who had been claiming that Sindh does not have the capacity to collect taxes. The Sindh CM who led the provincial team in the 7th NFC that gave the historic award, the Sindh government and the SBR deserve to be congratulated on this achievement,” he added.
He said the 8th NFC has now been constituted and its first meeting that was to be held on November 21 was postponed. “Item 2 of the 8th NFC’s agenda is a matter of concern. It states ‘imposition of GST on Services in an integrated mode and ancillary issue of its mode of distribution amongst the provinces’,” he added.
He also said, “The accompanying position paper relating to Item 2 recommends that ‘in order to implement reforms in GST, it is necessary that the collection authority of both GST on Services and Goods be assigned to the same agency that in turn would be able to provide input and output adjustment’.”
Bengali said the first draft of the presidential order submitted to President Asif Ali Zardari for his signature omitted Clause 12 of the accord, which is about collection of GST on Services by provinces. “It took me and the Sindh CM over 3 months of intensive efforts for the corrected presidential order to be issued,” he added.
He said after promulgation of the corrected presidential order in May last year, the Finance Ministry put forth the position that Value Added Tax (VAT) or Reformed GST requires GST on Goods as well as Services to be collected by one agency.
“During the drawn out and difficult negotiations, I managed to convince the Finance Ministry what VAT mode required was not unified collection, but unified input-output adjustment and showed that it was possible for separate collection and unified input-output adjustment to be implemented,” he added.
He also said collection of Sales Tax on Services by the SRB since July this year and smooth execution of input-output adjustment in collaboration with the FBR has proved that the task is operationally successful. “There is, thus, no justification for reverting collection of Sales Tax on Services back to the FBR,” he added.
Bengali said all parties in Sindh are united on the issue of NFC and sales tax recovery, and the federal government should support Sindh. “While the Sindh CM has written to the prime minister in this regard, the reason for holding this press conference is to make the public aware of the issue,” he added.
