Federal Board of Revenue (FBR) is all set to completely replace the Sales Tax Act 1990 with the Value Added Tax (VAT) Act, by early 2010. Sources told Business Recorder on Saturday that this was agreed with the International Monetary Fund (IMF) by Pakistan''s economic managers in a meeting held at Istanbul earlier this month.
They said that VAT act would enable FBR to collect General Sales Tax (GST) at retail level and added that the draft of the law would be ready by December 2009. They said that tax offices are presently collecting GST at a flat rate of 16 percent in general.
There is a dire need for complete adoption of VAT regime to enhance the revenue collection because the revenue collection, in GST base system, can only be increased after imposing a special tax or increasing the GST rate, which is ultimately counter-productive, the source added. They said that VAT regime would improve the tax reform progress and would also escalate tax revenue by over 3 points of GDP.
Meanwhile, the experts urged the board to withdraw the powers to grant special exemptions, saying that sales tax exemption, which was available under the Sixth Schedule of the Sales Tax act, should be removed in the VAT act. They termed the powers to give exemption through an SRO or "special exemption order" as serious distortions in the sales tax law.
They advised that the government could further enhance its revenue collection, if zero-rating was removed, which is also another major hurdle in the effective implementation of VAT mode. They urged the board to incorporate the special rule in VAT Act to remove the powers of issuing special procedures for sectors and added that there is no concept of special procedures in the best VAT administrations across the globe.
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