The government of Azad Jammu and Kashmir (AJK) and the autonomous Assembly of Gilgit-Baltistan would also have to adopt the proposed Federal Value Added Tax (VAT) Act 2010 to make the business units/retailers in these regions operate under the VAT regime from next fiscal year.
The Federal Board of Revenue (FBR) Chairman, Sohail Ahmed, told the representatives of business community in a recently held conference on VAT, convened by Rawalpindi Chamber of Commerce and Industry (RCCI), that AJK government and Council of Gilgit-Baltistan would hopefully adopt the VAT to bring retailers under the documented regime.
The government of AJK has adopted Income Tax Ordinance, 2001 and all notifications, circulars and rules made thereunder are equally applicable in AJ&K. Similarly, the AJK government has adopted the entire Sales Tax Act and implemented the same in their territory. The AJK sales tax laws--copy of the Sales Tax Act, 1990, have been enforced in its territory on the pattern of sales tax laws applicable in Pakistan.
He said that if the Assembly of Gilgit-Baltistan does not adopt the VAT law independently, the government has to fix fence at the entry areas to collect duties and taxes on the non-duty paid goods coming into the territorial jurisdiction of the country. It is expected that the AJK government and Gilgit-Baltistan Assembly would adopt the new VAT law to authorise the FBR to collect duties and taxes.
A business representative of the Gilgit-Baltistan raised the issue that the customs department had confiscate consignments with clearance documents. Responding to this, FBR Chairman said that the customs department has to check the authenticity of the import documents to check whether duty has been paid on actual value or under-invoicing is taking place.
The customs value has to be determined on the basis of invoices and other declared documents. "However, if the business units of Gilgit-Baltistan think that the Pakistani VAT law would not apply on them, we have to seal the area to ensure collection of duties and taxes while entering into the territorial jurisdiction of the country".
It is worth mentioning that the Gilgit-Baltistan Empowerment and Self Governance Order 2009 had replaced the Northern Areas Legal Framework Order of 1994. About a question on documentation of black economy, Sohail said that it was not an easy task to bring undocumented persons into the tax net by adopting legal procedures available under the tax laws.
Under the self-assessment regime, it is difficult to penalise and punish undocumented persons having intention to go into prolonged litigation against the department. This is a fact that undocumented economy including cash money in bank accounts reflects the high level of black economy. However, it is an enormous task to bring all unregistered persons into the tax net due to legal process of appeals at different judicial fora.
In most of the cases, people went into litigation even on serving a genuine notice of filing of return. "When the FBR launches the enforcement drive, the department has to face severe criticism and allegations of harassment's against the tax officials. We are running the most difficult organisation of the country", he remarked.
Resultantly, billions of rupees have been stuck up in litigation where cases are have been filed by the taxpayers hiring well reputed lawyers. There are cases where people prefer to hire expensive lawyers to file appeals in Supreme Court instead of paying the due amount of taxes, Sohail added.
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