The effective way to implement new Value Added Tax 2010 within the entire supply chain is to exempt small and medium retailers and vendors from the revised VAT registration threshold in view of their higher compliance cost of documentation.
Munawar Iqbal, President, Pakistan Computer Association (PCA) told Business Recorder here on Tuesday that the VAT law drafting committee should facilitate speedy payment of refund, as a major function, under the VAT regime. If the Federal Board of Revenue (FBR) wants to improve revenue collection through new VAT Law, it has to ensure payment of refunds without delay.
Globally, timely payment of VAT refund is the key component of VAT along with documentation. In case of higher documentation cost of the medium and small vendors, it would cause losses for business concerns in the new VAT regime. The documented data of buyers and sellers in the supply chain is necessary for implementation of the new VAT law. A special simplified tax scheme for small retailers and vendors based on minimum tax would help in improving revenue collection.
Along with bringing more services into the VAT, timely payment of refund is equally important. Otherwise, the whole concept of VAT Law 2010 would be distorted due to delayed refunds. Within the services sector, the potential services should be brought into the VAT regime instead of focusing of small and medium size vendors in the computer industry.
During consultation with provinces, the FBR Vat Law drafting committee has to verify the exact turnover and sales of services for bringing them into the tax net. The new VAT Law would be a totally failure in case refunds were not timely paid within the supply chain.
The PCA has also sought exemption from registration threshold of the small and medium vendors of the computer industry under the new VAT Law being finalised by the concerned FBR committee. He said that since the IT industry as a whole comes under the services category, imposition of 16 percent VAT means that whatever they earn locally and internationally, gets taxed, which badly affects their profitability.
The registration threshold of the new VAT law should be higher between Rs 6-10 billion to bring potential business units within the VAT regime. Despite encouraging global trend regarding growth of IT industry, computer and IT industry in Pakistan is unable to keep the momentum due to numerous factors including energy crisis, ill conceived taxation policies, fragile currency, law & order situation and failure at official level to identify and explore new opportunities in the sector.
The IT industry is quite capable of producing phenomenal results if the government ensures an enabling business environment by rationalising taxes on this sector, he claimed. Referring to regional data, he added India earned 46.3 billion dollar from IT exports and employed 2 million people in this sector in 2008 while Pakistan earned nearly 201 million dollar from the export of software and IT-enabled services in 2008-09 whereas it could earn much more by solving problems of IT industry.
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