Unregistered buyers in VAT regime: FBR sees nearly Rs 60 billion-62 billion collection in 2010-11

The Federal Board of Revenue (FBR) estimates to collect around Rs 60-62 billion in 2010-2011 by imposing three percent penalty on un-registered buyers, who conceal their National Tax Number (NTN)/computerised national identity card number (CNIC), speaks their (retail/wholesale) intentions to remain out of the Value Added Tax (VAT) regime.
Tax experts told Business Recorder here on Monday that the FBR has estimated collection of nearly Rs 60-62 billion from un-adjustable extra tax liability of three percent on taxable supplies made by manufacturers, importers and wholesalers to unregistered buyers without disclosing their NTN/CNIC.
The three percent penalty would be imposed on those un-registered buyers, who are reluctant to disclose their identity. The figure of over and above Rs 60 billion shows that a large number of un-registered buyers would operate out of the VAT net. The revenue impact of un-registered buyers should be negligible in case maximum persons are ready to operate under the VAT net, they opined.
They said that the revenue impact of three percent penalty on un-registered buyers should not be more than Rs 15-20 billion, but huge amount of Rs 62 billion could only be collected when most of the retailers/wholesalers opt to conceal their identity. The FBR has proposed penalty for those retailers who did not declare their NTN/CNIC at the time of purchase of saleable commodities, which is likely to generate over Rs 62 billion under VAT regime.
There is also a proposal to make it mandatory for them to transact their business activity especially the purchase through banking instruments to document their activity. The cost of un-registered buyers would increase following imposition of the penalty and they would be compelled to operate under the documented regime. The Revenue Advisory Council has estimated to collect around Rs 67.3 billion, which is 0.45 percent of the GDP, from VAT implementation during 2010-2011.
On the assumption that the penalty of 3 percent on un-registered buyers would generate Rs 60-62 billion, it seems that the accumulative effect of the VAT would be Rs 129.3 billion in 2010-11. Break-up of this amount revealed that around Rs 67.3 billion would come from the VAT and Rs 60-62 billion as penalty from un-registered buyers. It seems unrealistic that the FBR would generate such a huge amount of Rs 129.3 billion from VAT during first year of its implementation. However, both the figures have been separately disclosed by the RAC and FBR Member Sales Tax at different forums.