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SRB versus FBR

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A dispute between the Sindh Revenue Board (SRB) and the Federal Board of Revenue (FBR) has erupted as to which entity can collect due taxes from restaurants and caterers.

Is food served in restaurants and provided by caterers a service which, according to the constitution, is the prerogative of the provincial government to impose and collect? Or is food provided by caterers or served in restaurants a manufactured item in which case the FBR is empowered to collect? This dispute follows the refusal of the Sindh government to allow the FBR to collect tax on services on its behalf, agreed by all other provinces including Punjab, which led to a major deadlock for a number of years that was legitimately resolved in favour of the Sindh government premised on the constitution.

The rationale behind the Sindh's insistence on not allowing the FBR to collect on its behalf was self-evident: collections by the FBR would automatically go to the divisible pool which would bring Sindh's share to 24.55 percent (as per the National Finance Commission award) instead of the 100 percent it could generate if it collected itself.

Other provinces with not so large services sector and huge populations like Punjab found it more convenient to allow the FBR to collect on their behalf on payment of a nominal 1 percent charge.

There can be no doubt that there is a countrywide consensus that the FBR requires a major overhaul.

Charges against its officials range from harassment of genuine taxpayers to massive corruption that defrauds the national exchequer of billions of rupees of revenue annually.

Corruption in the provincial and local tax departments is no less and harassment is even higher.

In this context, it is relevant to note that the FBR did issue notices on time, which led to the recent dispute with the SRB.

However, it goes to the credit of the latter that it jumped immediately into the fray to safeguard the interests of the government it serves.

The SRB was established in 2010 and in marked contrast to the FBR has not received a single complaint of harassment from service providers.

Additionally the Board has collected 12.2 billion rupees during the first seven months of the current fiscal year and it is forecasting total collections for the entire year at around 25 billion rupees.

In short, the Board is performing well and one would hope that other provinces look at its successful operations and take an important step towards greater provincial autonomy, which was the provinces' longstanding demand.

In fact the Sindh government needs to bring all kinds of taxes under one roof, ie the SRB.

Lease renewal of properties can stay with the Board of Revenue, as it has the land records.

However, annual tax collection on properties needs to be given to the SRB along with other provincial levies and taxes including tax on agricultural income.

This would improve enforcement and result in higher revenue for the province.

It is inexplicable that Sindh ruled by the PPP resisted the Centre's directives with respect to sales tax collections even when the co-chairman of the party President Asif Zardari recommended that the FBR collect the sales tax; while Punjab, which is led by the Opposition PML (N), continues to rely on the FBR to collect sales tax on its behalf.

There is no doubt that the PML (N) appears to have performed particularly poorly with respect to enhancing Punjab's autonomy in spite of the party's considerable contribution to the agreement on the landmark NFC award and the 18th Amendment.

The Punjab province has neither made any significant move towards increasing its own capacity to collect sales tax, thereby continuing to be hostage to FBR limitations, nor has it taken any measures to control its expenditure, thereby reducing its heavy reliance on domestic borrowing.

In short, if the Centre has shown a singular lack of good governance with respect to expenditure and the revenue side of its budget, then so has Punjab.

This must be a source of serious concern for those within the PML (N), who present themselves as the only alternative to PPP rule in the centre.

Courtesy: Business Recorder

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