The Federal Board of Revenue (FBR) has met the key performance benchmarks set by International Monetary Fund (IMF) under the Stand-By Arrangement (SBA). FBR Chairman Sohail Ahmed told reporters here on Tuesday that the draft law on harmonisation of all taxes is ready as vetting has already been completed by respective forum, and Prime Minister Yousuf Raza Gilani has also accorded approval to the draft.
The draft legislation would be presented before the Parliament and it would be done in due course as the IMF authorities are well aware of all these developments. Explaining the second performance criterion ie, revenue collection, he said that FBR is expected to meet its quarterly collection target of Rs 270 billion and provisional collection has already crossed Rs 262 billion, whereas final figures will be available by the end of this week.
He said that introduction of value-added tax (VAT) is the most important condition for Pakistan under IMF program, and "the implementation of the broad-based VAT is necessary to raise tax-to-GDP ratio to 15 percent". The drafting of the VAT law would be discussed in a 'workshop' which has been convened at Islamabad on October 19-21, whereafter having detailed input, draft would be finalised for formal presentation to the government.
He said that the workshop, a performance benchmark, is scheduled to be held in Dubai due to the domestic security reasons. However, IMF officials have agreed that if the security arrangements at Islamabad are satisfactory the workshop could be held here, Sohail added.
He said that to bridge the foreign exchange gap "we are required to rectify the imbalance between imports and exports of the country". Budget deficit is due to the wide gap between income and expenditures and measures are being taken to bring down expenditures and increase revenue.
The implementation of VAT is one of the key initiatives for increasing revenue collection to keep budget deficit within bearable limits. Sohail categorically said that Pakistan Customs Computerised System (PACCs) would not be rolled back, and each and every process of automation would continue.
The importers, having clean record of goods declaration and duty payments, would continue to enjoy Green Channel facility under the speedy clearance system. The high-risk consignments would be checked through the system and risk profiling of importers would be further improved.
It is worth mentioning that the IMF and Pakistan's tax officials had renewed their commitment to press ahead with the introduction of a broad-based VAT in 2009-10. Tax authorities have recognised that time is of the essence and emphasised that the introduction of a broad-based VAT in mid-2010 was a key pillar of their medium-term strategy.
To help build consensus for the VAT within the government and discuss options for its introduction, the authorities had organised a conference in September with federal and provincial participation. To ensure its timely introduction, Pakistan's tax authorities had also committed with the IMF to prepare by end-September 2009 a detailed time-bound action plan for VAT implementation. A draft VAT law will be submitted to Parliament by end-December 2009.
Sources confirmed to Business Recorder that FBR has submitted a detailed time-bound action plan to the IMF for implementation of the VAT at the retail stage. They said that the draft legislation on VAT would be done during the upcoming workshop from October 19-21 at Islamabad.
The workshop having selected participants would purely focus on drafting of VAT law in view of consensus between the federation and provinces for collection of VAT on services. The input of provinces has already been taken during the last international VAT conference and now law would be written by team of experts. Following completion of the draft in October, the proposed VAT law would be released for general debate by the stakeholders in November.
By end-December, the draft law would be tabled before the Parliament for approval. Sources said that the key issue of VAT is the minimum registration threshold for the retailers and small traders. It is yet to be decided about the threshold for retailers under the proposed VAT law. During drafting of VAT law, it would be seen whether separate laws are needed for federation and provinces.
Another most important issue relating to VAT is the input/output system and sectoral treatment with different sectors and industries including textile, real estate and other industrial sectors, etc. These important issues like VAT registration threshold as compared to existing threshold of Rs 5 million would be decided in view of suggestions of the provinces and practical business environment of Pakistan, sources added.
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