Back-pedalling on provincial autonomy.

Byline: Afshan Subohi

Doubts about the federal government's seriousness with regard to fiscal devolution resurfaced when the Federal Board of Revenue (FBR) recently imposed a 7.5 per cent sales tax on restaurants that many believe fall beyond its domain.

The controversial move, which is not expected to yield much in terms of additional revenues, is hard to justify for the political cost it entails. It is an ill-timed move, to put it mildly, as the government is already mired in multiple seemingly insurmountable challenges in its economic stabilisation phase.

The impact of the additional 7.5pc federal sales tax, which increases the total tax on restaurants including provincial sales tax and the federal excise duty to over 25pc, is not discussed here. RepresenAtatives of the All Pakistan Restaurant Association were not readily accessible.

The provinces interpreted the unilateral move as a blow to their fiscal autonomy and read it as a sign of what lies ahead. They shared with Dawn their fears and mentioned what they called a 'hidden plan to ultimately roll back the devolution process, returning to the old centralised model of governance'.

All the provinces, including Punjab and Khyber Pakhtunkhwa, openly resented the attempt that they see as an infringement on their rights. They are gearing up to put up a collective resistance to all such attempts.

The federal government dismisses their stance as 'overreaction' based on 'cooked-up assumptions'. 'People are addicted to conspiracy theories in this country. The PTI government is trying to mend systems and the beneficiaries of the status quo are resisting it,' an expert committed to the PTI asserted without substantiating his position with evidence on the issue.

The provinces consider the unilateral move by the FBR to impose sales tax on restaurants as a blow to their fiscal independence

FBR Chairman Shabbar Zaidi initially defended the move that he said was irreversible. He said that the implementation of the decision was suspended for now but it would be pushed after convincing the provinces of its merits. 'No, we will not reverse the decision. But before going ahead with its implementation, we will take the provinces into confidence,' he told Dawn by phone from Islamabad.

When the UN and EU definitions of restaurant, which treat it as service, were mentioned, he admitted that there was confusion about the categorisation. He then referred to the Indian case where national and sub-national...