Unregistered retailers to pay 18% VAT

Shahbaz Rana May 13, 2010

ISLAMABAD: Unregistered retailers will have to pay an 18 per cent value added tax (VAT) while purchasing goods from registered traders, said an official of the Federal Board of Revenue (FBR) on Thursday.

The FBR proposed that the retailers will pay an additional three per cent tax compared to 15 per cent VAT while purchasing goods from registered manufacturers, importers and wholesale r s if they do not disclose their national identity card numbers at the time of purchasing goods. “This is aimed at encouraging documentation of the economy,” said member VAT, FBR Abrar Ahmad at a seminar organised on the VAT issue.

The FBR will generate Rs62 billion from retailers if the tax is implemented compared to their current Rs1 billion contribution. This meagre Rs1 billion is mostly contributed by big retail chain stores while small retail shops are missed out. “The trading sector contributes 17 per cent to the total output of the country and its contribution in taxes is negligible,” he said, adding that the problem is that they have the backing of either one or another political party. The FBR is facing a gigantic task to register retailers under the new VAT system, he said. Pakistan’s tax-to-GDP ratio is one of the lowest in the world, observers say.

According to the World Bank’s estimates, annual tax theft in Pakistan amounts to a massive Rs796 billion. Former FBR chairman Abdullah Yusuf said that the FBR is not capable enough of handling implementation of the VAT system. “It is not ready to levy VAT as still there are unresolved issues like tax refunds,” he said. He said that the FBR did not make any necessary arrangements for educating taxpayers. Former finance minister Ishaq Dar opposed the implementation of VAT from July 1. “There is still a need to convince the traders and retailers plus the FBR is not fully equipped to handle the VAT system.”

Pakistan’s negotiating team failed to convince the International Monetary Fund (IMF) for continuation of the existing General Sales Tax in the VAT mode and they succumbed to the pressure of the Fund for introduction of a new law for gaining petty benefits, said Dar. “They (negotiating team) and their sons are job seekers in these institutions so they succumbed to the IMF condition,” alleged Dar. He said that if parliament opted to veto VAT on goods it would be difficult for the IMF to go against the sovereignty of the elected house.

The enforcement of the consumption tax could be stopped if parliament refused to pass it, he added. Dar proposed to put the VAT plan on hold for one to two years. He came down hard on the negotiating team and said that they put parliament and the complete system into a difficult and delicate situation. “Defying the IMF will simply mean that there will be no further tranche available to Pakistan under the existing $11.3 billion bailout package,” he said.

Published in the Express Tribune, May 14th, 2010.