‘Value added tax can be postponed’


Farhan Zaheer April 16, 2010

KARACHI: The value added tax (VAT) is compulsory, but it can be postponed for one or two years before structural problems in the economy are resolved, experts say.

Speaking at a pre-budget seminar organised by the Karachi Chamber of Commerce and Industry (KCCI) on Thursday, the experts said that Pakistan needed to resolve problems like smuggling, under-invoicing, smuggling under the Afghan Transit Trade (ATT), undocumented production, land record and valuation issues, foreign exchange movement and exemptions.

They said Pakistan was at the cross roads and industrialists and tax experts needed to find out what was in the long-term interest of the country. Adviser to the Sindh Chief Minister on Planning and Development, Dr Kaiser Bengali, said: “VAT is in contradiction to the Constitution of Pakistan and the National Finance Commission (NFC) Award.”

He said it was decided in NFC meetings that provinces would be entitled to collecting value added tax on services. “Pakistan spends most of its income on non-development expenditures. Suppose, you collect Rs100 in taxes and spend the same amount on collecting the money, then how would you progress?” he asked.

“Pakistan needs to curb its non-development expenditures,” he stressed. Speaking on the importance of local industry, he said it should be encouraged. “Local industry should come forward in policy-making. It is the manufacturing sector that pay most of the taxes then why should they be discouraged. Come up, Pakistan needs you,” Bengali said enthusiastically.

Chartered Accountant and partner of AF Ferguson and Co Shabbar Zaidi said that smuggling and undocumented economy were hurdles in the way of implementing VAT. “If we implement it this year, we will face problems in implementation. VAT can be postponed for a year or two,” he said.

He added that documentation of economy was the major task before the government. “Once we documented our major sectors, it will be easy to tax areas like agriculture and services.” Renowned economist Dr Shahid Hasan Siddiqui said that the government should engage overseas Pakistanis in local projects.

“Overseas Pakistanis will invest in Pakistan when our politicians and policy-makers bring their money back into the country,” he said. He criticised high bank profits in Pakistan. “Industrialists and businessmen should ask the State Bank of Pakistan to bring the banking spread to 3.5 per cent from 7.2 percent,” he suggested. Pakistan spent 65 percent on defence and debt servicing, which was a dilemma. “Our expenditure on education has been reduced to 1.5 percent of GDP from 2 per cent,” he added.

COMMENTS (2)

Syed Irshad | 11 years ago | Reply Value added tax is nothing but only a name change of the existing GST. The General Sales Tax in Pakistan is on the basis of value additon. There was same problem of undocumented ecocnomy and smuggling when the GST was imposed in 1990. The main difference in GST and VAT is that, that in VAT there is an extra accounting required by those businesses in the middle of the supply chain. Though, there are several beneficial provisons in the VAT law, 2010 like section 30 where a supplier can adjust VA tax already paid on supplies when it becomes bed debt and the elimnatin of day to day SROs for exemptions or zero rating to favourites whcih in VAT could only be effected by a change in the law itself, the charging of tax at the time of advance payment in considertaion of goods or serivces have again been introduced through section 19(1)(c) which was done away with in GST after lengthy deliberation of our economic set up. The thing whcih I found very painful in the Federal VAT law is the definition of "entertainment" as provided in section 2(1)(xi) which includes the provisions of unlawful entertainment (??????) in the definition of entertainment thereby legalizing an illegal thing only for the purposes of taxation which is agaisnt the spirit of our Constitution specially its "Objective Resolution". To sum up I say what is most fearful to our people is the corruption in the government departments, particularly under the managemetn of FBR, which discourages honest businessmen at each level and which corruption is rampant without any remedy, in fact.
Meekal Ahmed | 11 years ago | Reply One must assume that the undocumented economy is by definition small-scale. We should not be interested in the small-scale sectors of the economy for the purposes of the VAT. They probably all fall below the VAT threshold and are exempt from the tax. We need to focus on getting the VAT out of the fat cats.
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