Pakistan government has delayed VAT upto Oct 1, 2010 rather than implementing on
Jul 1, 2010. VAT is facing bitter opposition at all levels of state like provincial to private sector. Leading cause in implementing VAT is to increase the tax base and to cater the un-documented economy. On the other side, it will increase inflation and burden on taxation system of Pakistan. Pakistan government has already attempted to introduce VAT in 1996 but failed due to lack of follow-up and proper planning.
Majority of VAT stakeholders do not know what exactly VAT is and how it will affect?
VAT is value added tax levied on each stage of value addition to raw material in the process of finish good as well for services. VAT is ultimately payable by consumers with the provision of repayment to manufacturers who have already paid VAT at earlier stages.
Currently it is proposed at 15%. VAT will include goods and services in its base while pervailing sales tax is only meant for goods.
VAT will increase the inflation, especially in services sector and ultimately burden will be shifted to the consumers. For example, advocates are not included in the sales tax net, but with VAT, they will be payable of tax.
One major benefit of VAT will be the documentation of economy's every ingredient.
Being the student of public policy, i will suggest that VAT may be implemented in steps with low tax rate of 5% ~ 8% rather than 15%. This will be beneficial to gain the trust of stakeholders and the burden will be well managed by FBR.
