Sindh govt opposes VAT bills 2010

KARACHI - Finance Department of Sindh Government has expressed serious concern on the Federal and Provincial Value Added Tax (VAT) bills 2010, which had examined by legal and technical experts of Sindh Govt and reached the conclusion that the draft bills 2010, relating to federal and provincial VAT, reflect a gross violation of the constitution of Pakistan and NFC award, The Nation has learnt. Sources said that Sindh government had received the draft of federal and provincial VAT bills 2010 from FBR and after thorough examination by legal and technical experts of Sindh government, observed that the VAT bills reflect a gross violation of the constitution of Pakistan and totally contrary to the recommendations of the 7th NFC relating Sales Tax on Services. The Finance Department of Sindh government dispatched a communiquT to the federal government showing concerns and reservations of Sindh government that these bills empower FBR to collect VAT on behalf of the federation and provinces without providing any scope for provincial rights on collection of Sales Tax on Services, sources confirmed. Mentioning the violations of the VAT bills 2010, sources said that there are innumerable clauses which in a way encroach upon the provincial jurisdiction so much so that the role of the provincial government has been almost limited to promulgation of the act only, as is the case in the existing provincial Sales Tax Ordinance 2000. The draft VAT bills further involve a very complex system of input and output adjustments in such a way that it becomes impossible to ascertain what are goods and what are services. Finance Department of Sindh government objected that Tax on goods and Tax on services are two separate domains thus should be treated separately. An integration of the taxes on sales and purchase of services in the provinces and cross credit of each tax in case of Federal VAT or integration with federal taxes on sales and purchases of goods and cross-credit of each tax in case of Provincial VAT, would lead to complexity in tax structure. This is sheer contradictions of the constitutions which empowers the federation to levy only Sales Tax on Sale and Purchase of Goods This would totally spoil the achievement of the 7th NFC and would create massive criticism against the government for impinging upon provincial autonomy. The Sindh government communiquT further pointed out some of the clauses of the draft which create constitutional dichotomy. Sources said that one of the clause of draft federal VAT bill 2010, which defines Federal list of Services is simply contrary to constitution as Sales Tax on Services is exclusively under provincial domain therefore the question for a Federal list Services, should not arise. Defining Federal list Services in terms of carriage of goods or passengers by railways, sea or air seems irrational. While actually, these items pertain to the entry 53 of the Federal Legislative list. The entry 53 of the Federal Legislative list is a terminal tax and not the sales tax. The Finance department of Sindh government, mentioning it is clear that sales tax and terminal tax are two different kinds of taxes that is why two different entries have been made in the Federal Legislative list for these two taxes. Levying Terminal Tax on services would seem to be similar kind of venture of the Federation as had been done earlier in case of levying Excise Duty on service. In this behalf, the Sindh Government had already defended its case for GST on Services in 3rd meeting of 7th NFC held in Quetta. The arguments of Sindh were fully endorsed by the Federation and other provinces. As a result, the 7th National Finance Commission (NFC) recognised explicitly that Sales Tax on services is a provincial subject. The provinces can impose a tax on all services that have been recognised as services by the Federation in the first schedule of Customs Act 1969, Chapter 98 (Services) of Federal Excise Act, 2005 and on which the Federation has been levying excise duty. Levying VAT on the supply of services under section 9 of the Federal VAT Bill is clearly unconstitutional as NFC recommendations signed unanimously by all the provinces and federation and admitted that NFC recognises that sales tax on services is provincial subject under the constitution of Pakistan, and may be collected by respective provinces if they so desire. Sources in the Sindh government confirmed that officially Federal government had been informed that Sindh government has serious reservations on record and by submitting that the draft bills on VAT, both Federal and Provincial, being contrary to constitution are not acceptable to Sindh. These impinge on provincial autonomy and are also contrary to NFC award. Sources further said that Chief Minister Sindh Syed Qaim Ali Shah has also moved a reference to the Prime Minister in this regard.