The Transparency International Pakistan (TIP) has sought the attention of Punjab Chief Minister Shahbaz Sharif over news reports that authorities were considering exempting hotels earning up to Rs 3.6 million per annum from sales tax, and asked him to reject any such proposal.
In his letter addressing the Punjab CM, TIP Advisor Adil Gilani reminded him that the Punjab government had established the Punjab Revenue Authority (PRA) on the strong recommendations of TIP when its delegation last met him in 2011. He said the TIP had suggested that the Punjab province should also have its own revenue board to collect General Sales Tax (GST), on the pattern of Sindh Board of Revenue (SRB). “Transparency International Pakistan signed an MOU with SBR in 2011, and agreed to suggest and implement ways and means to enhance SBR annual revenue manifold in tree years time,” said the TIP letter, a copy of which is available with Pakistan Today.
The TIP advisor asked the chief minister to consider the fact that Sindh was given Rs 15 billion as its share on services by FBR in FY 2010-2011, and in the first year 2011-2012, its direct collection was over Rs 25 billion. “Sir, the governments all over the world operate on revenue collections, and TIP strongly recommends that the culture of exemptions should be eliminated, as such “Exemptions” are always mis-used by unscrupulous elements to evade taxes. The general trend is that businesses reports less revenue than the actual revenue they generate. Hence hotels & restaurants whose revenues are many time more than the exempted amount, will claim that their revenue is within the exemption limits, with collusion of tax collectors.”
He further said that the tax being paid by the public was not reaching the government. “It is common knowledge that Serviced Providers such as Telecom/utility industries collect sales tax from the general public but fail to pass it on to government. Public has not objected to sales tax on hotels and restaurants and are in fact sincerely paying the sales tax, with the understanding that they are contributing to the government revenue, and it is the duty of Provinces to collect it from the service providers.” The TIP asked the PRA to consider the following recommendations, instead of allowing an exemption, which, according to Gilani, would destroy the revenue authority by rendering it incapable of checking misuses under political and bureaucratic pressures in Pakistan.
GST on Hotels and Restaurants:
1. All Hotel and Restaurants invoices shall be stamped and numbered from PRA.
2. All Hotel and Restaurants invoices, PRA shall also print prizes hidden under scratchable sliver panel, which can be scratched by payer. (This is practiced in China).
3. Every week a draw is also held and sales tax (ST) paid, invoice holders win lucrative prizes.
4. These schemes would encourage people to obtain sales tax invoice for each transaction, which is presently not being insisted. Evasion of sales tax is mutually beneficial. If sales tax payers are given the above incentive, they would insist on a sales tax invoice and the government without expending any money or making extra efforts would be able to expand the tax net manifold.
5. All Hotel and Restaurants shall be given share in their ST collection say 10%.
6. Any person who pays sales tax may be allowed to claim credit of part of the sales tax paid say 10% of the sales tax paid against income tax liability by producing all sales tax invoices obtained throughout the year. A detailed mechanism can be devised to cater to the situation where income tax liability is less than the amount of credit of sales tax.
“These initiatives are quoted from international best practices and are not new. They were successfully implemented in Taiwan, Turkey and Venezuela. In India, the government of Kerala introduced 5% sales tax for all retail sales with incentives to both the shopkeepers and buyers. The shopkeepers got a 10-15% refund of tax collected and paid to the government while the buyers retrieved VAT coupon of Rs 5 for every purchase of Rs 100.” The TIP expressed its confidence that Punjab government’s annual revenue on this account would become the major revenue source in next two years, and that it would be able to collect over Rs 500 billion annually under GST collection on services.