LAHORE: In its short life the newly established Punjab Revenue Authority (PRA), has many milestones to its credit. Besides finalizing its administrative structure and developing rules and regulations and working procedures, it has also met its target of collecting revenue of Rs 37 billion Sales Tax on Services within the first year of its initiation. Before the PRA was set up, the province was dependent on Rs 22 billion which it received as its share from the federal government.
In an exclusive interview with Customs Today its first Chairman Iftikhar Qutab, was frank and forthright in answering many questions. He envisages PRA collecting Rs 100 billion in the next five years from the province on account of Sales Tax on Services.
When was the Punjab Revenue Authority set up?
Iftikhar Qutab: Through legislation, Punjab has established a semi-autonomous organization, PRA to collect and enforce sales tax on services. It has also enacted the Punjab Sales Tax on Services Act, 2012 in supersession of the Punjab Sales Tax Ordinance, 2000. The Authority was created as a result of 18th Amendment of the Constitution read with 7th NFC Award. Through these landmark instruments, the provinces were empowered to mobilize their resources by directly collecting sales tax on services. PRA started functioning w.e.f 01-07-2012. Initially, it started functioning in the Committee Room of the Punjab Finance Department in Civil Secretariat.
What is Sales Tax on services?
Sales Tax on services is a modified, modern form of Value Added Taxes or Taxation (VAT) which is a wonderful innovation of the twentieth century. Historically, VAT replaced turnover taxes and also emerged as a precursor of income tax. Typically, VAT is charged on both goods and services. There are several forms of VAT in the world but the one based on tax invoice-related credit mechanism is considered to be the ideal type because of its inbuilt automatic system of converting multi-stage tax assessments into a simple one-stage levy. At the time of independence, sales tax on goods was a provincial subject but its collection was entrusted to the Federal government. The subject was subsequently federalized in 1951. The primary responsibility to collect and enforce sales tax on goods remained with the Income Tax department till 1981, when it was shifted to the Customs and Central (later on Federal) Excise Department. Levy of sales tax on imports always remained the responsibility of Pakistan Customs. In 2009, in consequence of national tax reforms, administrative powers for collection and enforcement of all domestic taxes administered by the Federal Board of Revenue (FBR) were clubbed and a new department of “Inland Revenue” was created for their composite administration. The Federal government has never been empowered to levy sales tax on services. However, from 1971 onwards, different services were subjected to traditional Central / Federal Excise duties. But the international development partners continued to persuade Pakistan to introduce VAT-type sales tax on services. Provinces were, therefore, asked in 2000 to introduce their service tax legislations and entrust FBR the duty to collect and administer provincial sales tax on services. Excise duties were, however, kept intact on services included in the list of Federal subjects. Nevertheless, the 18th Constitutional Amendment has changed the whole landscape of national fiscal structure in Pakistan. Now the Federation is not empowered to levy (consumption) taxes on services.
How many services are being taxed by PRA?
To begin with, Punjab has kept the tax coverage limited only to nine categories of services covered under the repealed ordinance including Hotels, Clubs, Caterers, Advertisements on TV & Radio, (including Cable TV), Customs Agents, Ship Handlers, Stevedores and Telecommunication.
We kept our struggle on and have been able to identify 28 more services, including Insurance and Re-insurance, Banking companies, Non-banking financial institutions, Stock brokers and Shipping agents, Services provided by property developers and promoters, contractual execution of work or furnishing, foreign exchange dealers, beauty parlors, clinics, slimming clinics, Management consultancy services, port operators, Freight forwarding agents, software or IT-based system, development consultants, y technical, scientific & engineering consultants, exchange company or money changer, suppliers, tour operators, Manpower recruitment agents, security agencies, mining of minerals, oil & gas, advertising agents, share transfer agents, business support services, fashion designers, architects, town planners and interior decorators, rent-a-car, car/automobile dealers and manufacturing or processing on toll or job basis..
What do you think are the major achievement of PRA?
Before the creation of PRA, the Punjab received a share of only Rs.22 billion on account of sales tax on services as collected by Federal Board of Revenue (FBR) on behalf of the province. Despite initial hiccups, PRA managed to collect Rs.37 billion during the first year of its operations. This by no means is a small achievement. The most astonishing fact about PRA is that at present it is operating with a minimum of financial and human resources. During 2012-13, PRA spent only Rs.95 million which included payment of Rs.50 million to PRAL for IT-related support acquired under formal contractual arrangements. This year the total expenditure is likely to be not more than Rs.200 million.
What is the administrative structure of the Authority?
As an authority under the overall administrative control of the Finance Department, it has a legal status of a corporate body and is headed by a Chairperson who has been appointed by the Chief Minister, Punjab through open, transparent selection on the basis of professional excellence and experience as envisaged by PRA, Act, 2012. The Authority was envisaged to consist of a Chairperson and four members supported by an Advisory Council, consisting of Finance Minister, the Chief Secretary, Chairperson, (PRA), Secretary Finance and four members from the private sector.
How does PRA trace and assess the taxpayers?
Well, the system of collection and enforcement is based upon the universally accepted principles of self-documentation, self-assessment and self-compliance and several other time-tested VAT doctrines. PRA has now entered into its expansionist phase which will eventually increase institutional delivery and revenue productivity.
What facilitations have you extended to the taxpayers?
PRA is running its own website/e-portal and has created a maximum paperless environment to facilitate the taxpayers without impacting the natural freedom of their business decisions and commercial affairs. The Authority expects to raise revenue to the tune of Rs.50 billion for the financial year 2013-14.
Where do you see PRA in the next five years?
The PRA plans to expand its network to nine Civil Divisions of the province during the current financial year. This will not only expand the tax base of the province but will also provide added facilitation to the existing and new taxpayers. The PRA believes that tax is an instrument of development and contribution of the public towards development deserves to be respected. PRA is observing very efficient norms of strong work ethics. The aim of PRA as an institution responsible for revenue management is to become a model tax organization in the region.
The Authority is progressing in line with its own vision, mission, and core values and 6Gs strategy in order to reach and stabilize itself at a level where maximum judicious revenue mobilization for sustainable development could be accomplished. Establishment of a durable, modern and responsive tax management is another axis upon which the edifice of sub-national revenue actualization is built upon in the shape of PRA. I am optimistic that in the next five years PRA will be able to collect a hefty amount of Rs 100 billion even if the number of services remains at 37.
Mr. Iftikhar Qutab, originally belonging to Customs and Excise Group and now posted as Chairperson, Punjab Revenue Authority (PRA), Government of Punjab, has an illustrious civil service career spanning a period of more than 30 years. Qutab did his Master’s in sociology with distinction from the University of Punjab. He has also done LLB from Sindh Muslim Law College, Karachi, again with distinction. Mr. Qutab has the honour of winning two Gold Medals and one academic Roll of Honour besides several other awards.
Tax Policy, Tax Management, Revenue Budget Making and Legal Drafting his major areas of interest besides several other disciplines about society and culture. He has tremendous interest in social philosophy and political economy. He has lectured in several specialized training institutes and academies in and outside Pakistan.
He has an experience of over 15 years in tax policy formulation in the Federal Board of Revenue, Islamabad and almost 15 years experience in tax administration in the field, working as Assistant Collector, Customs & Central Excise to Chief Commissioner, Inland Revenue. His experience in tax management is wide and diverse. He has vast experience in drafting Sales Tax Laws, Federal Excise and Customs Laws. He has drafted Federal Excise Act 2005, Federal Excise Rules 2005, Value Added Tax (VAT) Bill 2010, Reformed General Sales Tax (RGST) Bill 2011 and numerous other rules, regulations, notifications and general orders. He has substantially contributed towards the drafting of Punjab Revenue Authority Act 2012, Punjab Sales Tax on Services Act 2012 and Punjab Sales Tax on Services Rules 2012.
His professional knowledge and acumen has also been acknowledged at international level. Mr. Qutab has been honoured with Meritorious Service Award (Certificate) by the World Customs Organization (2004).
Mr. Qutab has authored three books on social philosophy. He was awarded Gold Medal by Pakistan Intellectuals Forum for one of his books. He has got a ‘Dr. Saleem-uz-Zaman Siddique Award’ from Karachi University.