FBR and Provincial Revenue Agencies Develop Consensus Over Taxation Issues

The Federal Board of Revenue and provincial revenue agencies Tuesday developed consensus over the common definition of goods/services and common rules in place of supply. An important meeting between the FBR and provinces on the harmonization of sales tax was held at the Ministry of Finance through a video link. FBR Chairman Asim Ahmad and top officials of the Ministry of Finance also participated in the meeting. Highly placed officials of the Ministry of Finance told ProPakistani that there was a disagreement between the FBR and the provinces on the issues of the common definition of goods/services and common rules in place of supply and data sharing. During the meeting, it was decided that the National Tax Council (NTC) would address the issues raised by the federal and provincial agencies on the harmonization of sales tax, distinguish the taxing powers of the FBR and that of the provinces, and agree on a common definition of goods/services and common rules in place of supply and data sharing. In this connection, the National Tax Council would incorporate common rules in place of supply, as part of the decisions of the NTC. Sources said that a key aspect in harmonizing Pakistan’s sales tax was the need to distinguish the taxing powers of the federal government vis-à-vis that of the provinces, and further between the provinces themselves. Under the Constitution, the sales tax base is divided between the supply of goods (taxable by the federal government) and supply of services (taxable by the provinces), and hence, it is very important to define as unambiguously as possible the definition of what constitutes a good, and what constitutes a service. Moreover, in the case of the supply of services, as provinces have the right to tax the supply of services occurring within their province when services are provided across different provinces, clear “Place of Supply Rules” are needed to give the taxing power to the relevant province. Sources said that the harmonization also required data sharing, a clearing house to allow cross-agency tax credits, common returns, and rules. Further, harmonization requires the smooth functioning of the National Tax Council, which has been set up to aid in such efforts. According to sources, the ultimate goal is to address the questions raised by the federal and provincial agencies, and agree on a common definition of goods/services and common rules in place of supply, data sharing, and give guidance to members of the National Tax Council on specific issues.