The politically ambitious Sindh government would see its tax revenues contracting by at least by Rs 1.58 billion on various accounts during FY14 after proposed taxes equaling the said amount were set aside from the provincial budget.
Of the above total, some Rs 1.34 billion would be lost under the head of the federal government’s one percent hike in general sales tax (GST) that the Pakistan People’s Party (PPP)-led Sindh government did not pass on to the poverty-stricken consumers in its budget for 2013-2014.
“We do not want to burden our people nor want businesses to suffer from the negative impact of taxation,” a statement quoted Sindh Information Minister Sharjeel Memon as saying.
According to the Finance Bill 2013-14 passed by Sindh Assembly on Saturday, relief measures taken by the provincial government encompass non-enhancement in GST rate, which is to remain at 16 percent despite being raised to 17 percent by the federal government and other provinces. This, Memon said, would cost Sindh at least Rs 1.34 billion in terms of tax revenues.
The government is said to have issued strict directives that any new taxation should be enforced only if the common man was not impacted by it.
It was pointed out that sales tax was a “pass-on” tax on sales of services provided and should not be confused with income tax, which is tax on profits of the operation of a business.
“In this regard, the policy of revenue resource mobilisation has been embarked upon in strict compliance of government directives,” the minister said.
The abolition of bed tax on hotels is another head under which the Sindh government would be giving up Rs 140 million in the form of abolished taxes during FY14.
According to the Finance Bill, tax on utility bills is being abolished to remove the anomaly of taxing utility bill collection service by National Database and Registration Authority (NADRA) since other providers of the service were not taxed.
This would cost the provincial exchequer another Rs 10 million.
There are a few positives however. The budget indicates new sectors for sales tax collection on services, as proposed in the budget at 16 percent. This includes tax on advertising agents.
The levy, according to the information minister, was introduced to remove an anomaly due to which advertising service was taxed, but agents remained outside the bracket. Introduction of the levy means advertising agents will be taxed which will not only remove the anomaly but also help in taxing the service provider and increasing revenue by up to Rs 3 million.
Beauty parlors and beauty clinics, gyms, body massage centres, pedicure and manicure centres are the other service providers that have been brought into the tax net through imposition of sales tax. Services including hair cutting, hair dyeing, shaving, plastic or cosmetic surgery, therapeutic massage and non-air-conditioned parlors and centres are exempted from the tax however. This will bring a positive financial impact of Rs 30 million.
Furthermore, tax on race clubs will add Rs 20 million to the Sindh exchequer, on security agencies Rs 100 million, on freight forwarding agents Rs 20 million, on commodity brokers Rs 100 million, on marriage halls and lawns Rs 300 million (with the exception of lawns under and up to 800 sq. yards), on public bonded warehouses Rs100 million, on event management services, event photography and video services, and tents/catering services Rs 300 million.
Moreover, tax on sponsorship services, business support services, management consultants, software and IT-based development consultants, market research agency, surveyors, auto workshops having annual turnover of more than Rs 3.6 million, workshops of industrial and construction machineries, exhibition and convention services, labour and manpower supply services, services provided in manufacturing or processing for others on toll basis will add a total of Rs 100 million in revenues.
Taxing internet services of more than Rs 1,500 per month (to provide relief to home users and students) is expected to add Rs 300 million to provincial revenues.
Per Finance Bill, the rate of infrastructure tax has been changed to 0.90-0.95 percent from 0.80-0.85 percent which was adjusted in 2008, resulting in a positive impact of Rs 2 billion.
As on property tax, the Annual Rental Value (ARV) rate has been changed to 25% from 20% which was last revised in 2001 and this will result in a positive impact of Rs 370 million.
The trade and import of potable liquor license fee was increased from Rs 600,000 to Rs 800,000 and retail off liquor license fee increased from Rs 350,000 to Rs 500,000. The last revision in this license fee was carried out in 2008. This will result in a positive impact of Rs 23.3 million.
The Finance Bill also shows some services taxed at a reduced rate of 4 percent.
Memon said it was the endeavor of the provincial government to make Sindh financially independent and increase its revenues by taking advantage of devolution of power under the 7th NFC Award.
“We have decided to tax the following services at a lower rate of 4 percent after listening to recommendations of stakeholders,” Memon said, adding that construction services have been taxed at 4 percent.
“This tax has been reduced as a result of our policy of continued discussions with stakeholders, which in this case is Constructions Association of Pakistan (CAP),” Memon said. The minister said the government had agreed that in order not to burden constructors and construction industry, which stimulate economic growth, the tax rate will be at a reduced rate of 4% with no input adjustment. It will result in a positive impact of Rs 300 million.
A four percent tax has been levied on services of legal practitioners and consultants, accountants and auditors and tax consultants also.
“Based on our policy of increasing the tax net and to incorporate sales tax recommendation of our consultants, it has been decided that this sector will be taxed at a reduced rate with no input adjustments,” said Memon.
“It has to be understood that this tax is a pass-on tax for people and businesses using the services provider,” said the provincial information minister. The levy to this effect would have a positive financial impact Rs 900 million.
