The proposed Value Added Tax (VAT) will not be implemented without the approval of all legislative bodies including national and provincial assemblies. For broadening the tax to GDP ratio or improving the tax collection, the VAT is the only solution.
This was stated by Sohail Ahmed, Chairman Federal Board of Revenue, (FBR) during a meeting with the members of Federation of Pakistan Chambers of Commerce and Industry (FPCCI) here to discuss the draft VAT Act at Federation House on Monday.
He said the draft was not the final verdict and the issue would be discussed at every forum. Negating the impression that the new tax was being imposed on the dictation of International Monetary Fund (IMF) he said, "the country has gone to IMF and the broadening of tax to GDP through the new tax was suggested by us."
He further said to facilitate the poor, wheat and flour have been exempted from VAT, which are consumed by them. Besides, exports were also exempted from the new tax in order to facilitate the exporters, he added. To a query, he said that as the agriculture sector was protected from the tax under the constitution, FBR could not consider bringing the sector under the tax net.
Chairman FBR said that the VAT on goods and services separately could not be implemented, as this system has already failed in other countries. Though the services sector was a provincial subject, the issue could be resolved through the NFC, he added.
The Chairman was flanked by other officials of the board, who gave presentations regarding the new tax. On the other hand, FPCCI's member headed by President Sultan Ahmed Chawla criticised the introduction of VAT in haste, while expressing their reservations on the functioning/implications of the new tax. Chawla pointed out that that there was no distinction between the poor and middle/upper class under the new tax, which is, he said, the most unjustified aspect of the VAT.
He said being the provincial matter the collection of VAT on services was creating a serious misconception, while exemption of the whole agriculture sector from the tax was another source of concern. "Though FPCCI is not going to make any judgement on this issue at this stage, it has serious reservations on VAT," he added.
He said, "who can believe on the promises made by the government in the new tax as it has broken its promises several times." He criticised the government for being, what he said, used to of signing accords with IMF without prior consultations with the concerned stakeholders. Zakaria Usman, Vice President FPCCI, raised the refund issue that under the VAT, how FBR would ensure payment of refunds as the taxpayers was already facing the issue.
He said a tax invoice would be prepared which would contain a plethora of information about the buyer such as NTN, CNIC etc. However, the supplier will be implicated/panellised if he is given fake or forge CNIC. Moreover, nowhere in the world such information is given by the supplier/buyer. The job of business community is to undertake economic activities not collection of unnecessary information from the purchasers, he added.
Engineer Javed Jabbar, member FPCCI, said that why the government was not considering to remove the deficiencies in the General Sales Tax (GST) instead of introducing a new tax, which might create hurdles.
Ghayas Paracha, another member FPCCI and representative of Pharma sector, said that the condition of security deposit under the new tax has no justification for the sector, which already pays Rs 18 billion to the government in advance. The members also criticised FBR for, what they said, its failure to discuss the draft VAT Act with the stakeholders and create consensus on its measures well in time.
The FBR started consultation process very late, March 15, 2010, which is just two months before the announcement of Federal Budget (2010-11) on May 15, 2010. During this period FBR is required to hold consultative meetings with more than 150 associations and chambers, and incorporate their proposals in the Act which is a giant task. There are reasons to believe that the FBR will not be able to get the comprehensive feedback from trade and industry due to shortage of time and any haste in enforcement of VAT Act with effect from July 2010 will prove as counter productive.
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