Doubts about the seriousness of the federal government regarding the tax refund resurfaced when the Federal Revenue Board (FBR) recently imposed a sales tax of 7.5 percent on restaurants that many believe are outside. of your domain
The controversial movement, which is not expected to yield much in terms of additional income, is difficult to justify because of the political cost involved. It is a timely movement, to put it mildly, since the government is already mired in multiple seemingly insurmountable challenges in its economic stabilization phase.
The impact of the additional federal sales tax of 7.5pc, which increases the total restaurant tax, including the provincial sales tax and the federal special tax to more than 25pc, is not discussed here. Representatives of the All Pakistan Restaurant Association were not easily accessible.
The provinces interpreted the unilateral movement as a blow to their fiscal autonomy and read it as a sign of what awaits them. They shared with Dawn their fears and mentioned what they called a "hidden plan to finally reverse the return process, returning to the old centralized model of government."
All provinces, including Punjab and Khyber Pakhtunkhwa, were openly offended by the attempt they considered a violation of their rights. They are preparing to oppose collective resistance to all those attempts.
The federal government dismisses its position as an "exaggerated reaction" based on "invented assumptions." “People are addicted to conspiracy theories in this country. The PTI government is trying to repair the systems and the status quo beneficiaries are resisting, "said an expert committed to the PTI without corroborating its position with evidence on the issue.
The provinces consider the unilateral movement of the RBA to impose sales taxes on restaurants as a blow to their fiscal independence
FBR President Shabbar Zaidi initially defended the measure that said it was irreversible. He said that the implementation of the decision was suspended for the moment, but that he would be pressured after convincing the provinces of his merits. “No, we will not revoke the decision. But before continuing with its implementation, we will take the provinces in confidence, "he said. Dawn by phone from Islamabad.
When the UN and EU restaurant definitions, which treat it as a service, were mentioned, he admitted that there was confusion about categorization. He then referred to the Indian case where national and subnational governments share the restaurant tax.
Aware of the reserves of the provinces, he said that the perception of the usurpation of the fiscal rights of the provinces is misplaced. “The food is good and a restaurant sells food. For me, it makes perfect sense if the federal government taxes the restaurants and manages the collection, ”he argued.
The United Nations classifies the "restaurant" as a service activity in Section I of the International Standard Industrial Classification.
Currently, the federal government collects the tax on the sale of goods. But after Amendment 18 and the Seventh NFC Prize, the right to collect taxes on sales of services rests with the provinces. The provinces took the time to establish the legal framework and tax administration, although Sindh was ahead of the rest. But now the tax agencies are in place and functioning in the four provinces.
Despite initial administrative problems and problems related to capacity development at sub-national levels, the multiple increase in the collection of service sales tax, particularly by Sindh and Punjab, provides sufficient evidence that the current agreement is Better in terms of efficiency and justice.
“The facts are more convincing than the words. Do not get tired of talking about return. But we see the current movement as an attempt by the federal government to exceed its defined limit. We have recorded our views in subsequent meetings and will fight against any such attempt with nails and teeth, "said Sindh Revenue Board (SRB) president Khalid Mehmood, sharing the relevant material with Dawn. Mushtaque Kazmi, tax advisor, informed Dawn in the background.
The General Director of the Punjab Revenue Authority (PRA), Zainul Abidin Sahi, spoke extensively about how the provinces have expanded the scope and coverage of the sales tax on the service using technological solutions. From Rs22 billion five years ago, the PRA increased the collection to Rs110bn in 2018.
He said the federal government has been informed about the PRA's reservations regarding the FBR notification of September 27. Appreciates the fact that Sindh has presented a complete solid case with supporting documents against treating restaurants as suppliers of goods for tax purposes by the FBR.
“The RBA unilaterally proposed amendments to Chapter 98 (services) of the Pakistan Customs Tariff, excluding restaurants from the list of services. They imposed a tax on prepared food, food and candy supplied by restaurants, bakeries, catering companies and candy stores without consulting the provinces. "
“The provinces are discussing the issue in the interprovincial coordination committee. They will design the future strategy depending on the response of the RBA, ”he said.
The president of the Baluchistan Revenue Authority (BRA), Misri Ladhani, and the General Director of the KP Revenue Authority (KPRA), Muhammad Tahir Orakzai, could not make time for a sincere discussion. But they are on the same page with Punjab and Sindh on this issue and their offices confirmed that their correspondence took place with the FBR in this regard.
“Yes, there are problems in the return, but the solution lies in expanding, and not limiting, its scope and depth. Anyone who thinks otherwise is on the wrong side of history and logic. The days of unilateral centralized decision making are over. Any attempt to move the wheel of history back will be counterproductive. The future lies in an open, collective and collaborative approach, ”said a defender of provincial autonomy.
Published in Dawn, The Business and Finance Weekly, October 28, 2019