Karachi, October 30, 2024 – In a recent appeal to Prime Minister Shehbaz Sharif, the Pakistan Tax Bar Association (PTBA) has called for urgent intervention to resolve the ongoing federal-provincial tax disputes that have created significant uncertainty and administrative burdens for compliant taxpayers.
In a letter addressed to the Prime Minister, PTBA President Anwar Kashif Mumtaz highlighted the detrimental impact these conflicts have on businesses, investors, and the economy at large.
Since the devolution of sales tax on services to the provinces under the 18th Amendment to the Constitution, disagreements have erupted between the federation and provincial governments regarding the rightful collection of taxes on services. According to the PTBA president, these disputes extend beyond sales tax on services to include issues such as the Workers Welfare Fund (WWF), toll manufacturing, and distribution business taxes. The PTBA noted that these disagreements have led to an environment where both provincial and federal authorities attempt to assert their right to collect taxes, often imposing double taxation on businesses.
“Compliant taxpayers are bearing the brunt of these disputes, facing burdensome tax compliance requirements and the threat of double taxation,” Mumtaz stated in the letter. “The resultant litigation has ended up in court, where it has languished for years, adding significant costs to businesses and portraying Pakistan unfavorably to potential investors.”
The PTBA underscored that the current tax structure has led to overlapping jurisdictions, with both provincial and federal authorities struggling to clearly delineate their boundaries. This confusion has exacerbated the challenges businesses face in forecasting tax obligations, rendering tax planning precarious and discouraging investment.
The government established the National Tax Council (NTC) to address these issues; however, the PTBA expressed concern over its sluggish progress. Although several meetings have been held, tangible progress remains limited, with only the issue of toll manufacturing resolved so far, giving provincial authorities the right to collect this tax. Other critical issues remain unresolved, casting doubt on the NTC’s effectiveness in fostering cooperation between federal and provincial tax bodies.
The PTBA has urged the Prime Minister to direct the NTC to expedite its work and to prioritize the establishment of a unified tax framework. Such a framework would encompass a single sales tax return, simplifying compliance for businesses and reducing the likelihood of double taxation. “A single, streamlined tax return would ease compliance burdens and reduce the exposure of businesses to conflicting regulations,” the PTBA suggested, adding that this measure would instill confidence among local and foreign investors, potentially revitalizing economic growth.
In his letter, Mumtaz emphasized that the trust deficit among taxpayers can only be bridged if the government demonstrates its commitment to creating a transparent and predictable tax environment. He further called for “decisive action” to mitigate these issues, stating that a coordinated tax policy would significantly improve Pakistan’s business environment.
The PTBA’s appeal to the Prime Minister comes at a crucial time, as Pakistan faces challenges in attracting foreign investment and maintaining economic stability. By prioritizing the resolution of tax jurisdiction conflicts, the government could alleviate pressures on taxpayers, create a more investor-friendly environment, and enhance revenue collection efficiency for both federal and provincial governments.