An expert team of the Federal Board of Revenue (FBR) would start working on the new Value Added Tax (VAT) law for fully implementation of the VAT as agreed with the IMF. It has been agreed between the FBR and the IMF that the government will initiate a process to implement a full VAT with minimal exemptions, to be administered by the FBR.
Following the seminar in December 2008, the FBR had to start the work. It has been learnt here on Thursday that FBR expert committee comprises officials from the FBR Sales Tax Wing; FBR Legal Wing and other tax officials for reviewing the existing Sales Tax Act, 1990.
This committee has the mandate to implement a new VAT Law in consultation with the stakeholders. However, implementation of a new VAT Law is not an easy task. If there is a need to bring services under the VAT regime, it also requires legislation. It would be done systematically to propose new legislation for the VAT Law, sources added.
Three expert committees are working on harmonisation of tax laws, revamping of tax machinery/ legal issues and another committee would start work on reviewing the existing sales tax law. When contacted, tax experts said that the FBR would have to amend the Sixth Schedule of the Sales Tax Act, 1990 for withdrawing exemptions.
Presently, most of the sales tax exemptions under the Sixth Schedule are related to the food items, machinery and local supplies. The Sixth Schedule has to be further reduced for abolishing sales tax exemptions.
According to the Sixth Schedule, sales tax exemption is available on pulses, edible fruits, cereals and products of milling industry, seeds, fruit, building blocks of cement including ready mix concrete blocks, ambulances, firefighting vehicles, waste disposal trucks, brake down lorries, special purposes vehicles and other sales tax exemptions specified in the Sixth Schedule.
Experts said that some sales tax exemptions available under the Sixth Schedule could be misused due to less documentation required under the exemption regime. It is not possible to collect complete information on the exempted items/supplies.
Secondly, sales tax exemption on computer hardware has already been withdrawn. If the government wants to minimise sales tax exemptions, it might abolish exemption on computer software. Experts criticised that the exemption should be item and commodity specific and sales tax exemption should not specify the particular buyer of exempted goods, which might result in misuse of the facility.
For example, exemption granted on goods supplied to government hospitals has wider scope covering furniture, vehicles and other items supplies to hospitals with specification in the Sixth Schedule of the Sales Tax Act.
This exemption was granted in budget 2008-2009 with the rationale that the government hospitals, institutions were allowed duty free import under PCT code 9914, Chapter 99 of the Customs Act and exemption of sales tax under S. No 52 of the Sixth Schedule of the Sales Tax Act but the same institutions were unable to purchase the same product without paying sales tax from the local industry. Hence this discrimination has made the local industry uncompetitive by 15 per cent. The local manufacturers had requested to remove this dichotomy by exempting the local supply of equipment, apparatus, reagents, disposable and spares to the government hospitals, or charitable hospitals having more than 50 beds.
The board had granted this exemption in budget 2008-2009. However, experts claimed that exemption could be misused due to wider scope of the facility which is not item/commodity specific. Experts said that sales tax exemption is available on aircrafts under Sixth Schedule. However, now some firms/individuals have owned small aircrafts. The sales tax exemptions should be withdrawn from such kind of smaller aircrafts. The exemption could be withdrawn on the import of machinery, as specified in the Sixth Schedule of the Sales Tax Act, sales tax experts added.