ISLAMABAD, Nov 25: In a major breakthrough, the Sindh government has agreed to surrender its rights over collection of general sales tax on 10 crucial services to the Federal Board of Revenue for one year, paving the way for the smooth adoption of new tax laws by four provincial assemblies.
Sindh’s insistence on its right to collect tax on seven services has been a major hurdle in the introduction of an integrated reformed GST across the country as desired by the International Monetary Fund. It delayed the implementation of RGST till Jan 1 next year, instead of October 1 as announced in the federal budget.
The three other provinces have already agreed to give collection responsibilities to the FBR.
Sources in the federal and provincial governments told Dawn that the breakthrough was reached after a number of backchannel consultations between the leadership in Islamabad and Karachi, also involving President Asif Ali Zardari and Chief Minister Qaim Ali Shah.
A formal announcement is expected in a couple of days.
The sources said the Sindh government would start in a few days work on legislations to enforce the RGST on services and flood surcharge from Jan 1 and empower the FBR to collect the tax on 10 services on its behalf.
Other provinces will start the process over the next two weeks.
The sources said that Sindh had agreed to surrender to the FBR its claim over GST collection on six services — stewards, shipping agents, freight forwarding agents, courier services, customs agents and stock brokers — and get its share under an arrangement outside the National Finance Commission. The centre and Sindh had already agreed in September to empower the FBR to collect on behalf of the provincial government sales tax on four major services — finance, banking and insurance, construction, franchises and advertisements.
The federal government will collect sales tax on 10 services on behalf of the provincial governments and keep them in a single account. Punjab will get 60 per cent of the proceeds, Sindh 50 per cent, Khyber Pakhtunkhwa 15 per cent, Balochistan 10 per cent and Islamabad, Gilgit-Baltistan and Azad Kashmir one per cent, making a total of 136 per cent.
The federal government will meet the shortfall of 36 per cent from its resources to resolve the inter-provincial dispute.
Sindh, however, succeeded in retaining tax collection rights on commission agents, but the total collection (countrywide) on this service has been estimated at about Rs200,000 per month.
The centre and provinces had earlier reached an agreement on the treatment of services in the new RGST legislation, recognising the provinces’ right to levy tax on services.