The rift between the center and the provinces over a uniform sales tax system and property assessment rates across the country has delayed the approval of two foreign loans worth at least $700 million dollars amid the reluctance of federated units to accept the center’s position.
The World Bank has indicated that it will provide a minimum loan of $350 million subject to the fulfillment of two conditions precedent.
The terms are that provinces will adopt Federal Board of Revenue (FBR) property assessment rates and that there will be a uniform sales tax on goods and services across the country.
The Asian Infrastructure Investment Bank (AIIB) has also indicated that it will match the World Bank loan, bringing the total funding to $700 million.
But those two conditions remain unenforced as provinces are unwilling to comply with the finance ministry’s directive, sources said. The Express Grandstand.
“The federal government is committed to implementing these conditions and will raise the issue with provincial finance ministers at a meeting of the National Tax Council today (Wednesday),” a senior ministry official said. finances.
Even Punjab, where Pakistan Tehreek-e-Insaf (PTI) is at the helm, refused to agree to these terms under the federal government, the sources said.
It is not legally possible for the government of Punjab to adopt the RBF rating tables. If the RBF tables are adopted by Punjab, it will lead to a decrease in provincial revenue, according to a letter written by the Punjab Tax Secretary to the Ministry of Finance.
Finance Minister Shaukat Tarin met with World Bank Country Director Najy Benhassine on Tuesday to review progress on the Resilient Institution Building (RISE-II) program and discussed some prerequisite steps for completion. of the program on schedule, according to a press release from the Ministry of Finance.
Tarin said Pakistan appreciated the financial and technical support provided by the World Bank for the country’s institutional reforms and economic development.
Sources said the meeting discussed the uncooperative attitude of provincial governments in fulfilling these conditions.
Pakistan remains a desperate borrower and has signed many conditions for new foreign loans, sometimes without giving confidence to all stakeholders.
Economic Affairs Minister Omar Ayub Khan has already asked the World Bank to increase the amount of the loan to $500 million, which could result in the loan being matched by the AIIB.
The Punjab government has told the Ministry of Finance that it has the most robust system for determining property valuation rates in all 36 districts of the province, in both rural and urban areas, unlike the RBF which had limited ability to determine assessment rates for only a few urban locations in 24 districts.
The FBR recently notified new property valuation rates but had to suspend them following serious anomalies reported by real estate sector players.
Authorities also discussed on Tuesday the delay in integrating provincial and federal sales tax laws and a tax portal, which was another very crucial condition, set by the World Bank for the loan and also mentioned by the International Monetary Fund (IMF) in its latest report on Pakistan.
The condition cannot be implemented until provinces amend their general sales tax (GST) laws.
Federal and provincial finance departments are required to issue and implement new regulations following the approval of common GST laws passed by federal and provincial assemblies to generate a harmonized GST for goods and services nationwide.
Sources said Sindh and Punjab have serious reservations about the condition and want it to be implemented in a phased but incremental manner.
In response to a question, the spokeswoman for the Islamabad-based World Bank said that the Pakistani authorities had not requested the World Bank to exclude any province from the ongoing GST harmonization.
“GST harmonization requires common definitions of goods and services, common tax principles, and common place of supply rules across all federated units,” she said.
“The World Bank appreciates the efforts of the National Board of Taxation to harmonize the GST across the federal government and all provinces.
In December, the FBR also planned to launch the one-stop sales tax filing portal without first developing a law-compliant and well-integrated system. The online portal is one of the World Bank’s conditions for approving the loan.
Currently, six tax authorities operate in the country and receive sales tax returns separately. These are FBR, Punjab Revenue Authority (PRA), Sindh Revenue Board (SRB), Khyber-Pakhtunkhwa Revenue Authority (KPRA), Balochistan Revenue Authority (BRA) and Council Board of Revenue AJK.
There are different GST rates in the country with Sindh charging 13% GST on services, Punjab (15%) and FBR charging 17% GST.