The federal government would soon resolve the issue of value-added tax (VAT) collection on services between Sindh and the Centre by equally distributing total services listed in the Federal Excise Act 2005.
This was stated by S M Shabbar Zaidi, Partner of AFF Chartered Accountants and member Revenue Advisory Committee (RAC) Federal Board of Revenue (FBR) at a pre-budget seminar organised by Karachi Branch Council (KBC) under the aegis of Institute of Cost and Management Accountants of Pakistan (ICMAP).
"Collection of VAT on services is the right of provincial governments and they already dissolved their right to the federal government, but the issue with Sindh government would be resolved soon, he said, adding that if the Sindh province refused to dissolve its right then VAT law would need to be changed.
He said there are one federal and four provincial VAT laws, which are likely to be implemented and it would be the only financial law which would be enacted after approval from the standing committees of the National Assembly and the Senate and finally enforced after approval from the parliament. "Before VAT, the government approved finance bills for implementation," he added.
He said the country's five major sectors, including textile, leather, carpets, sports and goods and surgical instrument, are exempted and there are zero tax collections of the goods of these sectors, which are used domestically. "It is not possible to exempt the whole sector, but certain export goods would be exempted," he added.
He stressed that certain daily use commodities, on which imposition of VAT impacts heavily the common man, should be exempted; under-invoicing should be removed; Afghan Transit Trade Agreement (ATTA) should be reviewed; and the government should remove exemption on sectors, and impose tax on goods which are used domestically to enhance tax-to-GDP ratio for development of economy.
Sultan Ahmed Chawala, President of the Federation of Pakistan Chambers of Commerce and Industry (FPERCENTCI), said that the collected tax is used to pay off mark-ups, security and procurement of security gadgets, and the little remaining part is served on the development projects. Globally, there would not be a single country that has literacy rate as low, and listed with developed countries, he added. "By improving tax-to-GDP ratio, Pakistan can reduce the burden of loans and end dependence of the country on international donor agencies," he said, adding that Pakistan "needs to improve literacy rate for development of economy."
Asif Kasbati, Director Tax Services-AFF Chartered Accountants, in his presentation said that in the population of 160 million people, there are 2.75 million National Tax Number (NTN) holders, 1.6 percent of the population have NTNs, while the actual return filers are 2 million, and 1.25 percent of population with NTN number. "Share of taxpayers to population in India is 4.70 percent, Argentina 16.50 percent, France 58 percent and Canada more than 80 percent," he added.
He proposed that corporate tax rate of listed and other companies should be reduced from 35 percent to 20 percent by 2015; tax credit for reinvestment of retained earnings for the purpose of balancing, modernisation, replacement and expansion should be introduced; tax credit for personal expenditure on medical and education of children should also be introduced with submission of evidence, payment with particulars.
He recommended that for promotion and encouragement of export of services a deduction is available for the expenditure incurred for establishment of hospital, educational institutions. "Reduced rate of withholding tax of 1 percent should be introduced on import of the raw material by the manufacturers," he added.
In his address of welcome, Hammad Raza Zaidi, Chairman of KBC of ICMAP, proposed to the Ministry of Finance and Federal Board of Revenue that the immediate budgetary measures of taxation must be juxtaposed in broader perspective of tax reforms including shift from sales tax to VAT.
He suggested changes in the Sales Tax Act, 1990 and Rules including reduction in the tax rate, abolition of multiple rates, rationalisation of zero-rating and exemptions, abolishment of capping on input tax under 8B of the Sales Tax Act, 1990, streamlined registration and audit, restoration of expression, sales tax officer and ancillary expressions in the act and separation of Quasi judicial functions.
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