Pak should improve revenue collection

Thursday July 02, 2009

ISLAMABAD: India has improved its revenue collection remarkably from service tax which has become an example for countries like Pakistan to introduce such kind of tax on services. The FBR quarterly review issued on Wednesday thoroughly analysed service tax structure in India with viable recommendations to implement the same in Pakistan.

In line with the Indian service tax, Pakistan should endeavour to improve the contribution of indirect taxes from services sector. It means during 2007-08, there was a potential to realise Rs 100 billion but only Rs 66 billion was actually collected. It implies that roughly, there is a further potential of Rs 34 billion in Pakistan, which could be generated additionally.

In India, around 63 percent of service tax collection emanated from 10 services and remaining 40 percent has been spreading on remaining services. Like Pakistan, telephone services contributed the top collection. Surprisingly, while comparing Indian service tax top 10 revenue generating services, only two categories telephone, banking and insurance services have been taxed in Pakistan.

Interestingly, the contribution of telecommunication has been 70 percent of the total collection of services in indirect taxes in Pakistan against only 17 percent in India. Prima facie, this is a case of limited tax base of services as well as enforcement issue. Interestingly, tax compliance by the taxpayers from 2001-02 has been up to the mark in services as tax returns have been regularly filed. Actual issue is the low contribution of service sector in tax revenues.

The tax base of services is extremely narrow. There is an immediate need to augment the scope of services in tax net of FED in VAT mode. The most prolific services in Indian service tax which are out of tax net in Pakistan are suggested to be brought in the fold of FED VAT mode such as business auxiliary service, goods transport agency, insurance auxiliary service, maintenance or repair services, stock broker, consulting engineers and commercial or repair service. With the passage of time, gradual extension of base would be a great source of revenue generation among the service untaxed.


(BRecorder)