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VAT debate not to risk IMF’s stand-by arrangement, says FBR

Federal Board of Revenue (FBR) has made it clear that the differences on Value Added Tax (VAT) are not likely to jeopardize the IMF’s stand-by arrangements.

The spokesman of FBR on Monday pointed out that there have been reports recently in the media trying to link the debate on VAT to the IMF’s stand-by arrangements but there is no truth whatsoever in such speculative news items which appear to be stemming from an inadequate understanding of VAT’s introduction in the country.

The spokesman said the existing sales tax in Pakistan is fundamentally based upon VAT principles. However, unnecessary tax concessions and exemptions have distorted the overall VAT character of the sales tax system and seriously damaged the tax base. The new VAT laws have already been tabled in the National and Provincial Assemblies within the existing constitutional framework and the respective Standing Committees are considering the VAT bills before their enactment. Legislation of VAT is therefore progressing as scheduled.

The spokesman also noted that the FBR had already launched a nationwide campaign to brief all the Chambers of Commerce & Industry, including FPCC&I about the forthcoming VAT system. The existing sales tax system has 12 different tax rates ranging from 16 per cent to 25 per cent, while the proposed VAT scheme will introduce a single rate at 15 per cent. Similarly, registration threshold has also been increased from Rs 5 million to Rs 7.5 million per annum turnover.

The spokesman said the VAT regime will extend the scope of tax to hitherto untaxed sectors, especially services. Withdrawal of unnecessary exemptions on commodity sector and expansion of tax scope on services will broaden the tax base. Broad-based VAT on goods and services will not only progressively bring additional revenues to the exchequer but will also accelerate economic documentation, eventually leading to improvements in other tax regimes, especially income tax. The VAT regime will also increase the tax-to-GDP besides leading to economic equity in the country.

Hamid Raza Wattoo
Secretary PR
Mar 29, 2010
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