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Punjab looks to expand service tax net

August 21, 2017

The Punjab Revenue Authority (PRA) is implementing a programme to expand its organisational network across the province in order to bring potential taxpayers from the districts into the tax net.

The move aims to collect provincial GST (general sales tax) on services, which has in the last few years emerged as a major source of the province’s own tax resource.

“We are considering setting up smaller field offices across the province. In the first phase of the plan, we are going to create our offices in Sahiwal, Bahawalpur and Gujrat,” PRA Chairman Dr Raheal Ahmed Siddiqui told Dawn in an interview.

“We have already recruited 20 officers and plan to induct as many in the next phase for expanding our network coverage.”

The authority with its headquarters in Lahore has already established its collectorates in Gujranwala, Rawalpindi, Faisalabad and Multan along with a sub-office in Murree. In the rest of the districts, the PRA registers taxpayers and collects tax with the help of the local administration.

Dr Siddiqui is also hopeful of doubling the provincial services tax in the next two to three years. “We have almost doubled our tax collection from Rs43.6 billion in 2015 to Rs82.4bn in 2017. We are trying to repeat our performance in the next couple of years.”

The Punjab government targets to raise a hefty Rs130bn in provincial services tax during the present financial year to June 2018, up by almost 58pc from what it had collected last fiscal year. “It is indeed an ambitious target. You never know we may achieve it or get quite close to it,” the chairman noted.

“We now plan to open limited audits starting from the registered restaurants. We are also going to approach banks to check the bank accounts of the services taxpayers,” says PRA chairman

The PRA had proposed a target of Rs110bn for the present financial year but the government told the authority to aim for a bigger goal.

“The PRA has raised the provincial services tax collection by four times since its formation in 2012 and increased the registered taxpayers to around 40,000 from just a few hundred,” the PRA boss claimed.

The last time the federal government had collected the services tax on behalf of Punjab before the creation of the PRA, it had transferred just Rs22bn to the province under the head.

Also at that time, telecom used to be the largest contributor to the services tax collection in Punjab with a share of 80pc in total collection.

In five years, its share in the total collection has diminished to just 27pc (Rs17.9bn) with the inclusion of several other new services to the scope of the tax.

Other major services include withholding agents (Rs16.9bn), banking and insurance services (Rs10.1bn), restaurants and hotels (Rs3.7bn) and so on.

Compared with Sindh, which taxes 104 services, Punjab has imposed the tax on 80 services. But Dr Siddiqui says the province has clubbed several services together, “which gives the impression as if we are not taxing enough number of services”.

He said only a few services were now left undefined (in the GST on services law) in the province and added that both the food and construction sectors had the potential for massive growth and could become major source of services tax collection in Punjab over the next few years.

The PRA chairman said service providers in certain sectors — like motor showroom owners — had been resisting implementation of the tax on one pretext or the other.

“We have addressed all their reservations and told them to start paying their share of taxes to the province. If someone is earning taxable income, he should pay it.”

Dr Siddiqui admits the fact that several registered service providers were still stealing tax from the government.

“Pilferage is still going on. That is a fact. We know it and we have received many complaints in this regard. Until now we had ignored it because we were targeting to broaden our base.

“But now we plan to open limited audits starting from the registered restaurants. We are also going to approach banks to check the bank accounts of the services taxpayers.”

He said the authority had also started an internship programme for school children as well as college/university students.

“This has helped us spread awareness among the masses and pinpoint flaws in tax collection. We are working to improve our efficiency and collection, as well as bring informal economies into the tax net.”

Published in Dawn, The Business and Finance Weekly, August 21st, 2017