ISLAMABAD: Federal Board of Revenue (FBR) has assured provinces of full assistance towards strengthening provincial revenue authorities through introduction of tax reforms including drafting of tax laws/regulations for tax enforcement and increasing sales tax collection from services’ sector, sources said.
Sources say that the issue of FBR’s co-ordination with provinces in fiscal matters was discussed during the last meeting of the provincial finance secretaries on ‘Creation and Appropriate Use of Additional Fiscal Space by provinces’. The tax authorities assured that the FBR is ready to facilitate all four provinces to increase their revenue collection mechanism.
As services is provincial subject, FBR will assist provinces by helping them in drafting effective rules and regulations for implementation at the provincial level for expanding the tax base with increased revenue collections, sources said.
According to sources, tax authorities gave valuable suggestions for improving the general sales tax (GST) collection and assured full co-operation to strengthen provincial revenue authorities in terms of framing appropriate tax laws/regulations, further refinement of definition of tax bases, risk based audits, tax enforcement and sharing of data. FBR’s officials have assured the provinces of full co-operation in improving GST on services.
On the issue of increasing revenue from the traditional provincial taxes (UIPT, AIT, Stamp duties, MVT, etc), FBR authorities underscored the importance of proper valuation of properties as per prevailing market rates which could provide the provincial governments a sizeable and predictable revenue stream.
The meeting decided that provinces will provide one-page briefs to Finance Division on proposed reforms for increasing revenues from GST and traditional sources.
The meeting also decided that the provinces will calculate the non-salary expenditures in education and health sectors to come up with exact figures of such spending in the said sectors. This will give a clearer picture on the required efforts from provincial governments.
It has also been decided that Inter-Provincial Revenue Committee would be formally notified along with their terms of references.
During the meeting, Finance Secretary highlighted that external inflows have decreased over the last few years. He added that 7th NFC Award and the 18th Constitutional amendment have resulted in transfer of a larger portion of divisible pool taxes to the provinces. This has increased the consolidated fiscal deficit (both federal and provincial) to unsustainable levels and lowering the deficit to more sustainable levels requires urgent actions from each government in the federation.
The Finance Secretary informed the meeting that Finance Division is currently in discussion with the World Bank for a Development Policy Credit (DPC). The policy matrix being finalized with the bank requires preparation of a roadmap to be finalized with provinces for (i) generating additional revenues from the harmonized expansion of the scope of services taxed by the General Sales Tax on Services; (ii) increasing by no less than 20% the budget allocations to non-salary education and health spending; and (iii) expanding the primary education linked conditional cash transfers in no less than 20 districts covering all provinces with a benefit of Rs 200 per child with effective co-financing arrangements with provincial governments.
Chairman FBR pointed out that given large increase in salary bills and non-salary expenditures continue to be inadequate. Tax authorities, therefore, emphasized the need of curtailing salary bills by provinces to create more fiscal space.