On Tuesday, the Federal Board of Revenue and provincial revenue agencies reached an agreement on a unified definition of goods/services and uniform regulations for the location of supply.
Through a video connection, an important meeting between the FBR and provinces on sales tax harmonization was conducted at the Ministry of Finance. The meeting was also attended by FBR Chairman Asim Ahmad and key officials from the Ministry of Finance.
According to senior Ministry of Finance officials, there is a schism between the FBR and the provinces over the uniform definition of goods/services, as well as shared regulations for supply and data sharing.
During the meeting, it was decided that the National Tax Council (NTC) would address the issues raised by federal and provincial agencies regarding sales tax harmonization, distinguish the FBR’s taxing powers from those of the provinces, and agree on a common definition of goods/services as well as common rules for supply and data sharing.
In this regard, the National Tax Council would include common norms in lieu of supply as part of its determinations.
According to sources, one critical factor in harmonizing Pakistan’s sales tax was the necessity to separate the federal government’s taxing authorities from those of the provinces, and then from the provinces themselves.
The sales tax base is split under the Constitution between the supply of commodities (taxable by the federal government) and the provision of services (taxable by the provinces), thus it is critical to define what constitutes an item and what defines a service as clearly as possible.
Furthermore, in the case of the provision of services, since provinces have the authority to tax the supply of services happening inside their province when services are delivered across various provinces, specific “Place of Supply Rules” are required to provide the appropriate province the taxing power.
According to sources, the harmonization also necessitated data sharing, and a clearing house to facilitate cross-agency tax credits, uniform returns, and standards. Furthermore, harmonization necessitates the seamless operation of the National Tax Council, which was established to help in such efforts.
According to sources, the ultimate objective is to resolve the challenges highlighted by federal and provincial agencies, agree on a single definition of goods/services and common norms in place of supply, and data exchange, and provide advice to members of the National Tax Council on particular topics.
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