Feb 09 - 15, 2009

Unanimously Sindh Assembly adopted and passed a resolution plying federal government to disallow federal board of revenue from collecting general sales tax on services: electricity, gas, telephone, any other utility and direct it to return sales tax revenue collected back to the province. According to the presenter of the resolution, FBR collected around Rs. 213 billion GST on gas, power, and telephone from Sindh province during FY02 to FY06. Parliamentarians of the ruling coalition party are of the opinion that collection of sales tax by FBR is unconstitutional and it is a provincial subject. Sales tax collection takes legal guidelines from Sales Tax Act 1990, which replaced Sales Tax Act 1951, and as a result replaced sales tax with value added tax. According to FBR, although Sindh and Punjab were administering sales tax levy in early years of Pakistan's inception the power was relegated to central government following the enactment of GST Act 1948. In 1952, the federal government got hold of entire authority, it adds.

Both domestic and import sales taxes earn government substantial revenue, often higher than cumulative collection of direct taxes that include income, capital value, and corporate asset taxes. Sales tax is a creamy source of money for federal government that cannot let it miss practically. The fact is evident in the latest revenue figure. Only from sales tax, federal broad of revenue has earned over Rs. 249 billion during first seven months of current fiscal year and recorded 25% growth over Rs. 199 billion collected during corresponding period of last fiscal year. In contrast, it has recorded 22.6% increase in revenue of direct taxes to over Rs. 234 billion from an earlier above Rs. 191 billion.

During the period under review, FBR collected overall Rs. 628.22 billion from four heads including direct and indirect taxes, federal excise duties, and customs. In addition, it saw 22.6% growth in revenue figure during July-Jan FY09 over Rs. 512.61 billion collected in the similar timeline FY08. FED and customs levies posted Rs. 60.51 billion and Rs. 83.55 billion respectively during July-Jan FY09. It is clearly understood that why GST is perceived as hen laying golden egg. There is sparse argument over the fact that it is sole head, which has relatively heavy tax incidence. Moreover, there is minimal probability of tax evasion in GST.

Despite that, higher prices of consumer goods and high GST are a double whammy to consumers successive governments have taken on double-edged sword of GST to dig out revenue. Revision of sales tax levy by one percent mainly resulted in to higher growth in revenue in the period under review. It is relevant to note that rate of GST is not restricted to 16% it goes to 21% but for some services. Major revenue spinners of sales tax consist of petroleum products, telecom services, electricity, beverages, and cement. Of them, POL products and telecom services have been depicting tendency of rising sales tax revenue for last couple of years.

Since sales tax is a main cause of increase in prices of consumer goods and services, it is lashed out by masses. When basic goods and life saving drugs are incorporated percentage wise addition of sales tax, they sprout further price burden. Proponents of GST on prorate basis say this burden can be offset if tax is administered in accordance with the value of goods or service. For example, a product worth Rs.100 should be taxed a nominal amount but 16% insensibly, they contend. The point is not supposed to be included in the discourse, yet it is relevant to understand the structure of sales tax in order to take in protest of provinces against unconstitutional or constitutional GST collection rights of FBR.

The province-central rift over revenue collection and then resource disbursement is not new and dates back to rather days of emergence of Pakistan on world map. Irrespective of political motive behind revival of the demand backed by the ruling party in Sindh recently, it is worth recalling that during tenure of different governments provinces had expressed their resentments over discretion of central government on levies that tenably must have been provincial subjects. For instance, provincial lawmakers raised remonstration on federal levies of withholding tax on vehicles wearing away roads in province and incurring provincial administrative cost whilst.

It is bizarre. Difference on national finance commission formula has also widened central-province fissure. Both have dissimilar opinions about how resources should be distributed, especially Sindh and Balochistan have strong opposition against incumbent resource distributive formula: NFC. Sindh contends that resource be disbursed on the bases of revenue contribution by the province in national revenue pool while Balochistan wants criteria be mainly incorporated in province area and revenue proportion actually needed for mending people's deprivation. Central government has authority to distribute amounts from national budget annually to provinces to meet recurring expenditures. It also collects revenues from provinces by levying aforementioned and other taxes.

Critics say present central-dominated tax collection structure and resources disbursement formula are certainly in conflict with decentralized governance system. Under present circumstances, federal government determines provincial share according to predetermined set of rules and dynamics indifferent to social and economical needs of provinces. Predominately, these budget outlays take into consideration overall national funds flows. Thus, pittance often is destined to province that is otherwise in dire need of heavily funded social development programmes. Balochistan is cited as an example. It is not alone that lets provincial autonomy over provincial revenue capitulated to the centralized government.

It is crucial time that federal government looks towards its solid relation with federating units to dovetail all in one, even if it is realized at the cost of relegation of certain authorities to them.