Reformed GST: crucial meeting on port services Tuesday

The federal government has convened a meeting on Tuesday (October 26), a day ahead of talks with the International Monetary Fund, in an effort to resolve the differences among provinces over five major potential services relating to ports.Sources in the Finance Ministry said that a total of 198 services identified under the Reformed GST, provinces are in agreement on 193 services but there is a dispute between Sindh and Punjab on five major services which are directly related to imports, exports and ports operations.The Technical Standing Committee constituted by the National Finance Commission has not been able to resolve in a meeting held with Minister for Finance on Sunday, October 17, the issue of collection of sales tax on five major services which included courier services, customs agents, stevedores, ship chandlers and other port services.”We have convened a meeting on October 26, a day ahead of week long talks with the IMF to review performance of Pakistan economy, for reaching an agreement.” They said the legislation is ready and would be introduced in the National Assembly session starting from November 1 and expressed the hope that RGST would be implemented from December 1. Sources said that progress on RGST implementation is very critical benchmark for completion of review of the economy by the IMF and priority of the finance ministry would be that federal and provincial assemblies introduce legislation before the conclusion of negotiations with the IMF in Islamabad.

“We are hopeful that draft law would be introduced in the National Assembly and Provincial Assemblies for approval to formally move towards a process to enforce RGST,” said an official. As far as fiscal deficit is concerned, they said it is are obvious because of non-payment of dues on account of Coalition Support Fund and subsidies to the power sector for which the government initiated reforms in power sector for their elimination. The government assured the IMF in the last Letter of Intent (LoI) that it would cap the fiscal deficit at 4 percent of GDP before the impact of flood and implement reform in power sector.

A consensus was reached between federal and provincial governments on the mode of sales tax collection on services during two-day talks last month. It was agreed that implementation of RGST on services was provincial subject and they could delegate powers to collect sale tax on services to the federal government if they so desire. The FBR would collect tax on their behalf and would return it to them after deducting 1 percent collection charges. Sindh has agreed to adopt legislation to give right of sale tax collection on banking, advertising, construction and franchise to the FBR, however, on telecommunication it would collect tax by itself.

Punjab would get 60.39 percent from the total collection of sale tax on services, Sindh 50 percent, KP 15.6 percent and Balochistan 10 percent that would make the total 136.01 percent. Additional 36.01 percent would be paid by the federal government. However, Punjab and Sindh have reportedly developed differences over input adjustment on certain services during the last two days meetings of the technical committee – Becroder