Govt criticised for failure to draft framework for jurisdictions of tax authorities
ISLAMABAD: Businessmen and tax experts have criticised the government for its failure to draft framework for jurisdictions of federal and provincial tax authorities.
The government has not yet drafted a framework that clearly outlines the federal and provincial tax authorities’ jurisdictions in taxing the services sector.
The absence of framework is resulting in overlapping, double taxation and confusion among the taxpayers and revenue collection machinery, businessmen said on Wednesday.
After the passage of 18th Amendment, Sindh, Punjab and Khyber-Pakhtunkhwa established their own tax authorities for collection of sales tax on services, but the absence of the government’s framework for outlining provincial jurisdictions for taxing a service sector has been creating problems, including overlapping between federal and provincial tax authorities and also creating double taxation problems.
Representatives of the business community and tax professionals gave this gist in a seminar on “Sales tax on services and interprovincial harmonization”, which was organised by the Islamabad Chamber of Commerce and Industry (ICCI) in collaboration with the Association of Chartered Certified Accountants (ACCA).
Although, it is the provincial right to collect sales tax on services and which is enshrined in the constitution, yet the federal government is encroaching on the provincial rights of collections like sales tax on retail, wholesale and distribution services and sale tax on insurance and freight on imported goods.
The federal government has also been collecting withholding tax on banking transactions and vehicle registration.
The federal government has also been collecting federal excise duty (FED) on some services, which had already been taxed by provinces. The Federal Board of Revenue (FBR) is also taxing banking insurance, franchise services at the federal level despite sales tax is being paid at the provincial level.
Experts said, “Without cross provincial consensus and interprovincial harmonisation on tax collection of sales tax on services, there would be issues of double taxation and excessive administration burden both on the businesses and tax authorities.”
They said that very high tax rates in Pakistan were promoting culture of tax evasion and government should focus on low tax rates for enhancing tax base and improving tax revenue of the country.
“Tax regime in Pakistan was very complicated with multiple tax rates as taxpayers were paying almost 10 different taxes in addition to many indirect taxes,” they said. Businessmen wanted to pay tax, but high taxes and difficult tax system were the main hurdles in better tax compliance.
The government should simplify tax system and introduce single-digit sales tax rate in order to attract more taxpayers into the tax net.
The ICCI president Atif Ikram Sheikh said that positive changes were happening gradually in the tax system and stressed that government should make tax policies in consultation with trade bodies by addressing their key concerns on tax matters.
Chas Roy-Chowdhury ACCA’s Head of Global Taxation, Arif Masud Mirza Regional Head of Policy MENASA ACCA Hammad Siddiqui Acting Country Director Centre for International Private Enterprise (CIPE), Muhammad Yasir Technical Advisor Tax Compliance FBR and others also addressed the event and called for simplified tax system.
They stressed that the Small and medium-sized Enterprises (SMEs) should also focus on improving their financial management skills to deal with tax matters more effectively.