THE Punjab government is hopeful of increasing collection of provincial sales tax on services from Rs36.56 billion to over Rs100 billion over five years as it starts doing the job from July 1.

“It is going to be a big source of revenue for Punjab’s development in five years from now, fetching more than a hundred billion rupees,” Iftikhar Qutub, head of the newly created Punjab Revenue Authority, tells Dawn.

The provincial government is expecting to generate Rs40 billion from the provincial sales tax this year and plans to substantially increase its collection every year. Last year, the provincial sales tax formed 45 per cent of the total provincial tax revenue of Rs81 billion and is projected to contribute over 43 per cent to this year’s budgeted tax revenues of Rs95 billion.

Punjab, says Iftikhar, has decided to set up the PRA for collecting the provincial sales tax because of the federal government’s inability to implement general sales tax in VAT (value added tax) mode. “VAT is now history. It is unlikely to be implemented. Our political economy doesn’t permit its implementation,” he contends.

Sindh had set up its own provincial department for collecting provincial sales tax on services two years ago, while Punjab had agreed to assign its collection by the Federal Board of Revenue (FBR) till it developed capacity to collect it on its own.

The provinces were allowed to collect this tax in the last National Finance Commission (NFC) award that also transferred greater financial resources to them.

Everyone who provides taxable services (there are 14 such services as smaller ones have been left out of the law’s purview) from his office or place of business in Punjab, should register with the PRA under the law. Any person who carries on an economic activity but is not required to be registered with the PRA may apply for voluntary registration at any time.

If the authority is satisfied that a person who is required to be registered and has not applied for it, the PRA will register the person and notify the person with 15 days of registration and registration number on the pattern of the National Tax Number (NTN) would be issued to him.

The provincial government had announced creation of the PRA in the budget for the current year to mobilise greater provincial resources for economic development in the province. The creation of the PRA, according to the provincial budget documents, is part of “fiscal management reforms” it plans to implement this year.

The documents say revenue generation can be enhanced through “better tax coverage, administrative simplifications and management reforms”.

The documents admit that the provincial tax collection is ‘beset with corruption and inefficiencies’ and expect the creation of the PRA to improve tax efficiency, promote accountability, prevent tax evasion and facilitate taxpayers, thus enhancing revenue collection.

“Further, the authority will also be able to address the issue of tax compliance and broadening of the tax base....The PRA will minimise discretion of the tax collectors and reduce interaction between assessee and the assessor.”

The PRA will function with skeleton structure borrowing main force from other provincial departments as well as the FBR and is entrusted to identify and prioritise taxes to be entrusted to it.

The taxes collected by the provincial excise and taxation department and the board of revenue will be transferred to the PRA once it is able to create its structure. “The government will carry out Business Process Reengineering (BPR) of other provincial taxes in the order of their priority. Once the BPR of a tax is completed, it will be taken out from the existing tax collection regime and assigned to the Punjab Revenue Authority.

The primary objective of BPR will be to reduce contact between the assessor and the assessed through use of information technology.

The creation of the PRA is an extremely important policy initiative of the provincial government, which is expected to improve tax administration and management besides plugging leakage in revenue collection,” the budget documents say.

Iftikhar, a former FBR official, says the FBR will share its data of taxpayers from Punjab with the PRA in order to facilitate the tax’s collection just like it had agreed to lend some of its officials to it. He does not feel the collection of the tax on cross provincial services like telecommunication or financial services by the provinces could become another bone of contention between them, especially Punjab and Sindh.

“The international rules of origin in this regard are quite clear. We have the European model to follow. I don’t think any dispute would arise between the provinces. Most issues have already been settled,” he asserts.—Nasir Jamal