Three percent extra tax liability on taxable supplies: FBR estimates Rs 60-62 billion collection in 2010-11

The Federal Board of Revenue (FBR) has estimated collection of around Rs 60-62 billion in 2010-2011 from un-adjustable extra tax liability of 3 percent on taxable supplies made by manufacturers, importers and wholesalers to unregistered buyers without disclosing their National Tax Number (NTN) or computerised national identity card number (CNIC).
During a seminar organised by the Pakistan Institute of Legislative Development and Transparency (Pildat) on Federal Value Added Tax (VAT) Bill 2010, FBR Member Sales Tax Abrar Ahmed Khan said that the penalty of 3 percent would generate approximately Rs 60-62 billion from the un-registered buyers reluctant to operate under the documented regime.
The penalty is for those retailers who did not declare their NTN/CNIC at the time of purchase of saleable commodities, which is likely to generate over Rs 62 billion under VAT regime. There is also a proposal to make it mandatory for them to transect their business activity especially the purchase through banking instruments to document their activity. The cost of un-registered buyers would increase following imposition of the penalty and they would be compelled to operate under the documented regime, he added.
Responding to a query, FBR Member Sales Tax said that the VAT would not have inflationary impact, as he rate would be reduced from standard 16 percent to a uniform rate of 15 percent on both goods and services. However, he boldly admitted that present taxation system is putting immense burden on poor people as compared to elite class. In this regard, he quoted several examples where poor people have to pay more taxes under higher slabs as compared to lower slabs for rich people.
Abrar Ahmed stated that VAT regime could only be introduced after approval of National Assembly as well as all four Provincial assemblies. The provinces would have to authorise the FBR to collect VAT on goods and services. He clarified that the VAT was proposed by Pakistan itself for raising revenues, however, its implementation is now a conditionality of IMF programme. Government of Pakistan has not made any commitment with IMF for its passage from parliament, but, VAT implementation is subject to the parliament approval and parliament is sovereign to approve it or otherwise.
He pointed out that the retail sector constitutes nearly 17 percent of the Gross Domestic Product (GDP) and its contribution in national kitty is negligible. Around 15,000 to 20,000 persons are doing business transactions with big companies but are not paying any tax, VAT would also cover their activities.
He observed that the challenge before the government is; which exemptions to be withdrawn in the budget and how to tackle the issue of taxing domestic sales of the five export-oriented sectors ie textile, leather, surgical instruments, sports goods and carpets. There is a proposal to impose a low rate of tax on domestic sales of such industries to avoid fake refund phenomena as well as to keep intact liquidity for meeting their exports orders in time. Zero rating at import stage is actually making local industry un-competitive against the imported items. Once, the zero-rating on import stage is withdrawn under the proposed VAT regime, it would improve the competitiveness of the local industry.
He was of the view that at present fertiliser and pesticides are exempted from sales tax, however, their inputs like raw materials, gas and electricity are subject to sales tax. He said that under integrated VAT Act, the government intends to broaden the base of services. The 18th amendment passed by the parliament as well as National Finance Commission has empowered the provinces to impose and collect the VAT on services themselves. However, he was of the view that federal government strongly feels that organisation established by province of Sindh for collection of VAT on services is small and have no experience, Sindh should allow the FBR to collect VAT on services for few years in near future, he added. Federal government is hopeful of settlement of the issue with Sindh government in days to come.
Commenting on the performance of new refund system, Abrar Ahmed Khan said that the FBR has made it mandatory for the tax officials to issue refund cheques to the taxpayers within a period of seven days under the Expeditious Refund System (ERS) being tested at Regional Tax Office (RTO), Lahore. This would check unnecessary delays in issuance of refund cheques to the business and trade.
Similarly, the RTO Lahore has to give intimations to the refund claimants within 48 hours about processing and status of the claim. The FBR would also allow the registered units to electronically file refund applications to avoid manual interaction with the tax officials. The refund claims could be filed through FBR Web Portal to ensure processing of claims through speedy electronic system. In this way, the discretion to withhold the refund cheques would be automatically abolished using web-based refund payment system, he added.