PESHAWAR: The Khyber Pakhtunkhwa government has formally complained to the federal government about the recent readjustment in federal taxes fearing the move will reduce the province’s share in the National Finance Commission Award.

Chief Minister Pervez Khattak had written a letter to Prime Minister Shahid Khaqan Abbasi on May 22 protesting the unilateral tax readjustments in the federal budget.

The letter was also dispatched to National Assembly opposition leader Syed Khursheed Shah, Senate chairman Sadiq Sanjrani and Senate opposition leader Sherry Rehman.

In the letter, he said it was unfortunate that the federal government had made readjustment in various taxes and levies without consulting the provincial government.

CM formally conveys concerns about 2018-19 federal budget to premier

“My government requested the federal government time and again that any decision, which either reduces the share of the provinces as per the National Finance Commission award or circumvent the same, should be discussed threadbare before making it part of the finance bill,” he insisted.

The chief minister also informed the premier about its concerns about the 2018-19 federal budget and measures affecting the province’s share in the NFC.

The six-page objections of the province to the federal budget were about petroleum levy, reduction in the rate of income tax, restrictions on the purchase of property and vehicles, high rate of withholding tax, high sales tax, and health levy among others.

“The budget has been formulated in such a way that it adversely affects the shares of the provinces from the divisible pool under the NFC,” the letter said, adding that it was evident from the projected 12.71pc increase in the size of divisible pool against revenue increase of 17.88pc.

The letter noted that increase in the rate of petroleum levy and gas infrastructure development cess (GIDC), both non-divisible items was likely to generate for the centre Rs430 billion per annum but the provinces would not benefit from it.

It added that on the other hand, the Natural Gas Development Surcharge, a divisible item, had been decreased from Rs23 billion to Rs16 billion, while royalty on natural gas had been projected to be stagnant.

The letter said the matter was a matter of concern for the province and therefore, either petroleum levy should be made part of the divisible pool or it should not be increased.

It added that as far the GIDC was concerned, the government should increase federal excise duty on natural gas, which was a provincial receipt under Article 161(1)(a) of the Constitution.

The letter said the income tax rate on individuals had been drastically reduced but the income tax on associations of persons and corporate persons remained higher, which was likely to encourage fragmentation of business and investments.

It said ban on the acquisition of property and vehicles under the 2018-19 federal budget by non-filers of income tax was likely to affect provincial receipts on account of stamp duty, CVT, motor vehicle tax as people would be encouraged to transact such deals against powers of attorney defeating the intent and purpose ban.

The letter said under the Income Tax Ordinance, 2001, non-filers had to pay a higher rate of withholding tax, the ban on purchasing immovable property and vehicles should be withdrawn.

It said the federal budget proposed a health levy of Rs10 per kilogramme on tobacco to be collected by the Pakistan Tobacco Board in a manner similar to tobacco cess.

The letter said the levy would be imposed on unmanufactured tobacco, which was ultimately consumed by smokers all over the country causing injury to the health of the active and passive smokers and resulting in an expenditure on health, which was a provincial domain.

It said the ‘health levy’ was part of non-divisible pool, which would go to the federation, while the ‘health’ (for which it was a levy) and the expenditure relating thereto would be the responsibility of the provinces.

“It may be suggested that the health levy may be levied and collected by the Federal Government/PTB subject to the condition that this is made a part of divisible pool in terms of Article 160(3)(v) of the Constitution read with Article 3(1)(h) of the 7TH National Finance Commission Award (President’s Order No 5 of 2010),” it said.

Published in Dawn, May 24th, 2018