Federal Board of Revenue Chairman Sohail Ahmed on Saturday said the draft Value Added Tax (VAT) bill has been prepared keeping in view best practices of VAT prevailing in the world. Speaking at a meeting of Federal B Area Association of Trade and Industry (FBAATI), Sohail said VAT is successfully implemented in 130 countries of the world.
He noted that the tax collection has been increased substantially in these countries after implementation of VAT. Rejecting the impression that VAT is being imposed on the directives of the IMF and World Bank, he said there is no pressure from these agencies. The VAT bill has been prepared to replace outdated and distorted Sales Tax Act, he added.
Explaining reasons behind replacing Sales Tax Act with VAT, Sohail recalled that with the passage of time several amendments were made in the Act. Initially, five sectors were zero-rated to boost export. Later, local quantum of these sectors was also zero-rated and after some time more sectors were added to the list. Beside this, the number of sales tax rates has been increased to 12, which made the Act ambiguous.
He noted that in Pakistan tax-to-GDP ratio is only 9 percent, which is lowest in the region. "We need to increase this ration without burdening the existing tax payers and added that VAT is the best way to achieve the desired target. Under VAT regime the end consumer will pay the tax, he added.
He said the draft bill was presented in the National Assembly in January 2009. At present the Senate committee is examining the bill and later an NA panel will examine it. The bill will also be discussed four provincial assemblies of the country. Sohail said the FBR has also initiated consultative process with trade bodies of the country to get their feedback and make amendments to the bill to ensure smooth implementation on the basis of those proposals. A workshop will be held on VAT in Rawalpindi on March 9, 2010, he added.
About the rate of VAT, he said a uniform rate of 15 percent has been proposed and it can be revised downward if the business gave an assurance that tax-to-GDP ratio will improve. The entire export sector has been zero-rated. He said electronic sales tax refund system has been devised in consultation with State Bank of Pakistan and some banks and this would be installed at all RTOs and LTUs on trial basis by next month.
Speaking on the occasion, Senator Abdul Haseeb Khan advised business community to send him proposals with regard to VAT so that he could take them up at Senate level. He was of the view that VAT should be implemented. Pattern-in-chief of FBAATI, Sohail Ahmed said all the policies should be implemented in letter and spirit. Recently the government announced Export Policy but neither it was implemented nor were the required SROs issued.
Chairman, FBAATI, Shahid Ismail said the manufacturing sector is facing the issue of cost of manufacturing which is extremely high in Pakistan as compared to other countries of the world. Cash flow is also a big problem besides bank mark-up rates are very high, he added. He proposed that the FBR should hold seminars and workshops on VAT to develop consensus on the issue.