Sindh had been agitating that thecollection and distribution on sales tax on services (SToS) should be de-linked from Federal Divisible Pool, shared by provinces under the National Finance Commission (NFC) awards. — File Photo

SINDH will start collecting sales tax, initially on 12 selected services from July 1. While the other federating units — Khyber Paktunkhwa, Punjab and Balochistan — still want the existing arrangements with the federal government to continue, Sindh is moving ahead to become a torch-bearer for others to follow suit.

Last year, its provincial assembly passed a bill for the setting up of Sindh Revenue Board (SRB) and early this year the provincial government issued a notification for its establishment. Now the provincial government is busy in the SRB’s capacity building and legal formalities to collect the tax.

Sindh had been agitating that the collection and distribution on sales tax on services (SToS) should be de-linked from Federal Divisible Pool, shared by provinces under the National Finance Commission (NFC) awards.

The inclusion of the SToS in the divisible pool, though a provincial tax, has deprived Sindh of its fair share calculated on the basis of population and other weightages, it was maintained. The four provinces in the year 2000 promulgated ordinances allowing the federal government to collect SToS on their behalf.

Since then it has argued by Sindh that the federal government should keep a separate account of SToS and directly transfer its proceeds to the province from where it is collected.

After the 18th constitutional amendment on April 23, 2010 the sales tax on services along with central excise duty and workers welfare fund (WWF) have come under provincial jurisdiction. However, the federal government has been collecting revenue on many services under the head of federal excise duty.

Nevertheless, there are many intricacies in jurisdiction of revenue collection under different heads of services while Sindh is set to make a debut with the SToS collection from next fiscal.

The provincial assembly passed the bill of Sindh Revenue Board (SRB) on June 3, 2010 and it became an Act after the assent given by the Governor of Sindh on June 20, 2010. The provincial government on January 7, 2011 has also notified the formation of the SRB.

While the Sindh Revenue Board (SRB) is still in its infancy and functional, it is constrained by the shortage of expertise and funds, badly needed for its smooth operation.

The SBR is headed by a chairman with four members and unlike provincial Board of Revenue---- a government department---, it is an autonomous body. Its mandate and powers are close to those of Federal Board of Revenue. The silver-lining is that it has two senior retired FBR officers who have a rich experience on tax revenue collection.

Presently, the SBR is carrying out computerisation and automation of its entire revenue collection system by launching web based recovery of taxes and fees with effect from July 1.

The SRB has yet to do a lot before it starts collecting revenue. The Board is still in the process of drafting various laws eg. Sindh Sales Tax on Services Bill including Revised Bill and the Flood Tax Bill.

SRB chairman Nazar Hussain Mahar in a recent letter to Alam Din Bullo, secretary to the chief minister, has complained that progress on the legal side has been restricted due to non- enactment of law relating to SToS.

He urged the provincial government to notify law on sales tax on services either as an Ordinance or an Act of the assembly.

Nazar Hussain Mahar said that the SBR will move into new era by initiating collection of sales tax on services with a motto of self-collection and careful spending. He said initially the SBR will collect ST on stand alone services. The Board will also start collection of WWF from the industries from next fiscal year.

Initially, he said, only 12 services are being taxed whereas around 200 large and small services are still outside the ambit. The provincial government will move to bring many small services under the sales tax net. Such services as security, health, human resource development could be brought under the tax net.

In those services where input adjustments and cross provinces border adjustments are involved, the FBR will continue to collect sales tax and transfer the same to provinces. The federal government is to collect sales tax on sales and purchase of goods, imports and exports, production, manufacturing and consumption.

But till now the federal government is also collecting sales tax on services under the mode of Central Excise Duty on telecommunication, banking, insurance and advertisement.

Mumtaz Shaikh, member SRB, said marathon meetings are currently being held with leaders of trade and industry and their representative bodies to create awareness about the SRB and its plans about collection of revenue. He hoped that with fiscal autonomy, the provinces will have financial space to cope up with their development needs and their reliance on Islamabad will be reduced.

Currently, the provinces have to look to Islamabad for funds and Islamabad looks to Washington and we are all under vicious circle which retards growth and development of provinces and the country as a whole.