ISLAMABAD: The Federal Board of Revenue (FBR) has estimated that the value-added tax (VAT) gap in Pakistan is nearly $3.5 billion, which is approximately 21 percent of the actual VAT collected up to 2020.

According to the Tax Expenditure Report 2021 issued by the FBR, the VAT compliance gap is the difference between this potential VAT collectible under the current regime and the actual VAT collection.

The VAT compliance gap estimates the gap in the VAT due to non-compliance by taxpayers.

On the other hand, the VAT policy gap is the difference between the potential VAT collectible under a benchmark of the VAT (where there are no exemptions, lower rates or special treatment of any type of consumption or sector/class of taxpayers), and the potential VAT collectible under the current regime (which includes any special treatment of consumption or sector/class of taxpayers).

Copyright Business Recorder, 2021