One of the key objectives of organising the international 'Value-Added Tax (VAT) Conference' is to develop consensus among the federal government and the provinces on chalking out a uniform mechanism for collection of VAT on services. Sources told Business Recorder here on Saturday that drafting of the new VAT law would be started after considering recommendations of provinces and international VAT experts during the upcoming conference in September.
There is need of a uniform collection mechanism of VAT in all four provinces by a single agency. The entire VAT chain could not be completed till services are brought within the VAT regime. The new VAT law would be enforced from July 1, 2010, covering all goods and services.
The Federal Board of Revenue (FBR) has invited provinces to explore possibility to form an integrated system through proper legislation for collection of VAT on services. In this regard, the viewpoint of provinces would be given due consideration for implementation of the VAT at the retail stage.
There is a need to monitor and manage the VAT collection by one agency/department on national level. The VAT conference would discuss the overall framework for compliance and monitoring of the levy at the retail stage. Once the framework would be chalked out in view of provinces' recommendations, an FBR committee would start drafting new VAT law with the help of experts.
According to sources, the implementation of VAT regime at retail stage would not be an easy task in view of selling of smuggled goods at retail outlets. The purchase invoices could not be submitted pertaining to smuggled goods sold by retailers and shops across the country.
The FBR has already committed with the IMF that the authorities had renewed their commitment to press ahead with the program, especially the introduction of a broad-based VAT to correct the structural shortcomings in Pakistan's tax system, which relies on a very narrow tax base.
The introduction of a broad-based VAT in mid-2010 is a key pillar of their fiscal strategy. The structural performance criterion on the submission to parliament of legislative amendments to harmonise the income tax and GST laws, for tax administration purposes, and reduce exemptions for both taxes was not observed.
As a corrective measure, the authorities will submit to parliament by end-September 2009 legislative amendments to harmonise the sales tax, income tax, and federal excise tax laws with a view to facilitating tax administration (structural benchmark). However, meaningful progress in reducing tax exemptions will be achieved only with the introduction of the new broad-based VAT regime, which is scheduled to become effective on July 1, 2010.
The adoption of a broad-based VAT is the cornerstone of the revenue effort over the medium term, and a crucial component of the authorities' strategy to finance the needed increase in public investment without recourse to external borrowing or crowding out domestic private investment, sources added. Pakistan's tax authorities have recognised that time is the essence and emphasised that the introduction of a broad-based VAT in mid-2010 was a key pillar of their medium-term fiscal strategy.
To help build a consensus for the VAT within the government and discuss options for its introduction, the authorities will organise a conference in September with federal and provincial participation. To ensure its timely introduction, the authorities will 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.