FBR expects to suffer Rs1 trillion revenue loss on tax collection

The Federal Board of Revenue (FBR) has estimated that it will suffer an astronomical revenue loss of Rs1 trillion on its tax collection if it accepts the stance of the provincial revenue authorities on disputed areas of sales tax collection on goods and services, including restaurants, transportation of petroleum products, toll manufacturing, and the construction business.

According to sources who talked to Business Recorder, the FBR made this claim during the last meeting of the Executive Committee of the National Tax Council (NTC), which was held last month in the Finance Division, Islamabad, to review progress on the GST harmonization. The Executive Committee of the NTC decided to constitute a Technical Committee representing the FBR and the provincial revenue authorities to study and settle disputes in the gray areas.

During the meeting, the FBR Member IR Operations stated that the Board had performed the necessary calculations and determined that if it were to accept the stance of the provincial revenue authorities on these disputed areas, it stood to lose a massive one trillion rupees in revenue generation.

Since the revenue generated by the FBR is ultimately shared between the federation and the provinces under the NFC award, the Board will end up severely denting the shares of the smaller federating units (due to insufficient business activity) if it transfers this right to the provinces.

Upon hearing the claim, the chairman Sindh Revenue Board (SRB) proposed that a Technical Committee be set up to study and settle the disputed areas. This proposal was unanimously agreed upon by the meeting participants.

The special secretary for the Finance Division suggested that the meeting attempt to identify the aforementioned gray areas of dispute and try to develop an agreement on them.

He stated that as discussed with the FBR, the main gray areas of sales tax on goods and services are restaurants, transportation of petroleum products, toll manufacturing, and the construction business.

He added that the main goal was to improve ease of doing business in Pakistan and capitalize on the full potential of industrial activities in the nation.

When asked for views on the collection of sales tax on restaurants, the FBR Member IR Operations pointed out that the harmonization of GST is unique to India and Pakistan. In Pakistan, sales tax on goods has been assigned to the federal government while sales tax on services is collected by the provinces.

It was agreed that GST harmonization is critical for good governance and a conducive business environment.

The meeting concluded with the agreements that the FBR can start collection of sales tax on construction business anytime, while the issue of toll manufacturing requires deeper consideration and discussion.