The revenue collection target of the Federal Board of Revenue (FBR) for 2010-11 can not be finalised till the Revenue Advisory Council works out the exact revenue implications of imposition of value-added tax (VAT) at two different rates of 15 percent and 5 percent on services/goods and essential commodities/basic food items, respectively.
A senior government official told Business Recorder here on Sunday that the Ministry of Finance had earlier conveyed tax projections of Rs 1710 billion to the FBR for the fiscal year 2010-11. Later, another figure of Rs 1696 billion was discussed among the officials of Finance Ministry, FBR and the Revenue Advisory Council. However, now the FBR is planning to introduce two different rates of VAT from next fiscal year.
The FBR may propose 5 percent VAT for all basic food items and commodities like edible oil, etc, to minimise the inflationary impact of the VAT on essential items. The calculations would be made to analyse loss in case of 5 percent VAT on basic commodities, instead of earlier rate of 15 percent.
The second standard rate of 15 percent VAT would also remain unchanged on goods and services from next fiscal year. Therefore, the exact figure of revenue collection target for 2010-11 would have to be finalised in view of revenue impact of both 15 percent and 5 percent VAT. Major changes would be introduced in the Federal Excise Act in the coming budget. This would also have revenue implications on the excisable commodities and services specified in the Federal Excise Act.
At present, officials of the RAC and FBR are regularly convening daylong meetings to work out revenue impact of VAT on different sectors, along with scientific studies for introducing lower rate of 5 percent VAT on basic food items. When the estimated revenue collection from VAT implementation is finalised, it would play the key role in determining the revenue collection target for the next fiscal year.
Sources said that introduction of VAT would be the major budgetary measure for next fiscal year. The cost of exemptions of items/services mentioned in the existing Sixth Schedule of the Sales Tax Act would also be taken into account for finalising indirect taxes projections for the next fiscal year.
Similarly, revenue impact following withdrawal of zero-rating at the domestic stage would also be finalised during the on-going exercise. The actual revenue collection target would be finalised in view of the said factors, particularly revenue gains due to enforcement of VAT from the coming financial year. Before calculating the precise impact of VAT for 12 months of 2010-11, it is premature to announce any specific target till completion of the said exercise, sources said.