The Federal Board of Revenue (FBR) has decided to amend the proposed Federal-Value Added Tax (VAT) Act 2010 to collect VAT only on goods or withdraw all exemptions/zero-ratings under the Sales Tax Act 1990 in case the Provincial Assembly of Sindh opted to collect VAT on services from 2010-11.
Sources told Business Recorder here on Monday that the decisions had been taken in the last meeting of the FBR Board-in-Council, chaired by Chairman Sohail Ahmed here at the FBR Headquarters. According to sources, the FBR has finalised alternative arrangements to effectively deal with the situation where Sindh assembly passes provincial law for imposition of VAT on services.
In case one or more Provincial Assemblies opt to implement VAT on services through their respective governments, the FBR has decided to amend the existing draft of the VAT Bill to impose VAT only on goods. Accordingly, necessary amendments in the VAT law would also be proposed to offset any revenue implications during 2010-11.
The standby arrangement for collecting VAT only on goods by the FBR would require drafting of an entirely revised Federal VAT Act. The above said decision would be implemented in case provincial assembly implements its Sindh Sales Tax on Services Act, 2010.
Under the second option, the FBR may drop the idea to implement the Federal and Provincial VAT Bills and continue with the existing Sales Tax Act which would be amended to bring it in line with the spirit of the draft VAT Bill through streamlining tax rates and doing away with all exemptions.
In this situation, all distortions in the present Sales Tax Act would be removed with minimum list of exemptions under the Sixth Schedule of the Act. This idea is only workable when the present Sales Tax Act would be completely converted into VAT Act.
Sources said that the FBR will proceed as already planned to implement the Federal/Provincial VAT Bills 2010, Provided that the National Assembly and Provincial Assemblies pass the respective Federal/Provincial VAT Bills drafted by the FBR from 2010-11.
Moreover, the FBR has decided to amend the Federal Value Added Tax (VAT) Act 2010 for extension of the VAT to the Islamabad Capital Territory. During the last board-in-council meeting, sources said, the FBR Chairman informed the members about the progress, major issues and problems along with possible options and solutions on the implementation of the VAT from July 1, 2010.
He said that the draft Bill has already been passed by the Senate with certain amendments. He also explained that the provincial draft VAT Bills has been discussed with the provincial governments and they may adopt it as per National Finance Commission (NFC) Award Agreement.
FBR Chairman further informed the tax managers about the constitutional stance of the Sindh government that jurisdiction of taxing services rest with the provincial governments. The Sindh government is also considering the option of collecting itself VAT on services.
In view of this situation, the FBR Chairman stressed on pre-emptive strategy in the form of other options to meet not only the target date for VAT implementation, but also avoid any implications for the revenue projections for 2010-11. In this regard, the Revenue Advisory Council would finalise the strategy with the help of the senior tax managers of the FBR.