FBR forms body to plan for levying VAT at retail stage

[Naveed Yaseen]

By Sajid Chaudhry
ISLAMABAD: Federal Board of Revenue (FBR) has announced replacing 16 percent General Sales tax with broad-based Value Added Tax (VAT) from 2010-11 onwards and extending its scope also to the small traders.

At present, GST based on VAT mode is being collected on imports and supplies by manufacturers, wholesalers, distributors and big retailers only. With the introduction of broad-based Value Added Tax (VAT) from July 1, 2010, business transactions done by the small retailers would also be subjected to VAT.

In this regard, FBR on Monday constituted a team of senior officials to draw up a plan for the enforcement of VAT at retail stage from the next fiscal year 2010-11. The five-member committee comprising senior Customs officials, including Strategic Planning & Statistics Member Zafar-ul-Majeed and ST&FE Chief Abrar Ahmad Khan, has been directed by FBR Chairman Mr Sohail Ahmad to “come up with a comprehensive plan to fully enforce the VAT at retail stage by July 2010.”

The decision to constitute the process re-engineering team that also includes Collector Sales Tax RTO Lahore, Additional Collector LTU Islamabad and Deputy Director Customs Evaluation Karachi has been taken in view of the importance of extending VAT to the entire retail stage, allowing adjustment of tax paid at earlier stages.

The decision comes in the wake of a growing realisation of the fact that a large number of transactions in the economy take place at retail place. While existing legislation provides for levy of VAT at retail stage, its practical enforcement and collection has faced enormous problems for more than a decade and currently only retailers with threshold of Rs 5 million are required to get registered.

It may be added that the 3rd Schedule of the Sales Tax Act, 1990 provides for levy of VAT on the retail process of certain specified supplies, including e.g., cigarettes. Sales Tax Act, 1990 that was enforced in November 1996, is designed for a classical VAT Model. At present, VAT is being collected on imports and supplies by manufacturers, wholesalers, distributors and big retailers.

As per understanding reached with International Monetary Fund (IMF), an action plan to strengthen tax administration was adopted in January and steps to improve revenue collection have already been taken. The government is pursuing a major tax reform agenda. A key step will be the replacement, starting in 2010-11, of the GST with a broad-based VAT.

The plan envisages the integration of the income tax and sales tax departments and the replacement of the current general sales tax with a broad-based VAT. A technical assistance mission from the Fund is to help with the design of the VAT law, the revisions in the income tax legislation.

Over the medium-term, higher budget revenues are critical for creating fiscal space for development and social spending. Government revenue is low by international standards, which constrains capital accumulation, spending on maintenance, and social outlays. Against this background, a vigorous implementation of the government’s ambitious tax reform agenda is essential.

Other measures include the introduction of a unique taxpayer identification number, strengthening of the Large Taxpayer Unit, and improved tax audits. The World Bank is providing technical assistance to implement further tax administration reforms, including strengthening of the refunds system for the General Sales Tax (GST).

In particular, sales, excise, and income tax laws will be reviewed to minimize exemptions and zero-rating. The timing of these reforms hinges on the capacity of the tax administration to process refunds. To support tax policy reforms, the government has requested Fund and World Bank technical assistance.

http://www.dailytimes.com.pk/default.asp...2009_pg5_6