Value Added Tax: differences between federal, Sindh governments persist – Zaheer Abbasi

Source Business Recorder

ISLAMABAD (May 21 2010): The differences between Federal and Sindh governments persisted over Value Added Tax (VAT) even at a meeting in the Presidency here on Thursday as representative of Sindh did not agree to give up their right to collect VAT on services. Sources said that on the proposal of Sindh government another meeting of all the four Chief Ministers would now be convened next week to develop political consensus.

The meeting to be chaired by Prime Minister Yousaf Raza Gilani on his return from Gilgit would also be attended by the provincial Finance Ministers. They said that the Sindh government remained firm on its stance to collect VAT on services during the meeting at Presidency arguing that the VAT collection system like Brazil and Canada should be adopted in Pakistan. They said that in Brazil and Canada VAT is not implemented in integrating form.

A number of meetings were held between officials of finance Ministry and Sindh government during the last two weeks but the issue was not resolved. There was optimism in the Ministry of Finance that meeting between President and Sindh Chief Minister would yield positive result.

Advisor to Prime Minister on Finance Dr Abdul Hafeez Sheikh also held a meeting with the Sindh Chief Minister last month and tried to convince him about the economic fallout in case of failure to comply with this critical condition of the IMF. This may be mentioned here that IMF official present in the Federal Capital also wanted the settlement of the dispute so that integrated VAT could be implemented from July, 1.

Sources said that the National Assembly Standing Committee also wanted the settlement of dispute between federal and Sindh governments on VAT prior to the approval of the legislation from the Committee. The Sindh government remained adamant about setting up its Revenue Services Department that would independently collect VAT on services.

Sources in the Finance Ministry said of course VAT on services is a provincial issue but there was an understanding among all the provinces that the FBR would collect the tax on behalf of the provinces. They said the reason for this understanding was that only integrated application of VAT could be feasible.

Once the provinces develop capacity to collect VAT, the provinces could collect the levy with the help of their own tax machinery. The federal government’s sales tax collections (on services and goods) form part of the divisible pool and were then distributed among the provinces under the National Finance Commission Award formula based on population.

Meanwhile, a statement issued by the Presidency after the meeting said that a meeting was held in the Presidency today presided over by President Asif Ali Zardari and Prime Minister Syed Yousuf Raza Gilani for a briefing on issues relating to value added tax. Representatives of federal government and the provincial Sindh government made presentations on the issue.

It was decided that the Prime Minister will soon convene a meeting of the representatives from all provinces to take a consensus based decision. The meeting was attended by Syed Qaim Ali Shah, Chief Minister Sindh, Dr Abdul Hafeez Sheikh, Finance Advisor, Syed Naveed Qamar, Federal Minister for Petroleum & N.R, Ms Hina Rabbani Khar, Minister of State for Finance and Economic Affairs, Salman Faruqui, Secretary General to the President, Kaiser Bangali, Advisor to CM Sindh for Planning & Development, Salman Siddique, Secretary Finance, Suhail Ahmed, Secretary Revenue Division, Fazal ur Rehman, Chief Secretary Sindh and Secretary Finance Sindh Fazalullah Pechuho besides other senior officials.

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