Provision in proposed VAT law: FBR to give up powers to grant tax exemptions

The Federal Board of Revenue (FBR) has surrendered powers to issue exemption orders and Statutory Regulatory Orders (SROs) pertaining to exemptions and concessions to the Parliament under the proposed Federal Value Added Tax (VAT) Act, 2010.
Sources told Business Recorder here on Saturday that the board has incorporated best international VAT practices where tax authorities are not empowered to issue exemptions and concessions, creating distortions in the VAT chain. This bold decision has been voluntarily taken by the FBR to give up its own powers to issue exemption and SROs. The powers would be handed over to the Parliament which would have the authority to issue exemptions.
It is strange to note that the FBR is the first government department which has drastically curtailed its own powers. The biggest power of the tax officials is to grant exemptions either through an SRO or through the exemption orders. "We have not been pressurised from any government department, policy makers or parliamentarians. The powers of the FBR to withdraw exemptions has been proposed taking into account the best international practices", sources said. They said that the amendment would end pressure of different influential groups on FBR.
One of the major reasons for introducing Federal VAT Act is that the influential lobbies and powerful groups have obtained hundreds of exemptions through Statutory Regularity Orders (SROs) and special exemption orders issued under the provisions of the existing Sales Tax Act. It was a strategic decision to take away powers of the FBR for granting exemption to check the influence of the groups and lobbies enjoying hundreds of exemptions under the existing law. If the amended Sales Tax Act is enforced without exemptions, the same powerful lobbies would again become active for obtaining exemptions.
This would again create serious distortions in the sales tax law, which already exists. The proposal to introduce an entirely new Federal VAT Act would restrain powerful groups from obtaining exemptions under the Federal VAT Act. It is an easier way to block exemptions claimed by vested interests. The new VAT law would withdraw powers of the FBR to issue exemption orders or exemption SROs. Anybody, who intends to obtain exemption has to go to Parliament for this purpose, sources added.