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.
In Italy, all business entities are under the centralized taxation system. Computerized machines are available on each cash counter either it is the smallest business i have seen here. If anyone is to buy a 50 cent thing only, the receipt will be generated and this sale will be documented in the system. At gross root level, even the food items (most cheapest ones) are also bound to use those electronic machines.
ReplyDeleteThis shows that the economy's activities are documented because all segments of the economy are brought under the tax base.
The same model is proposed for Pakistan under VAT but do not know when it will be implemented successfully.
I was amazed to see that road side small stalls also have these machines.
Pakistan needs to revise its implementation policy for VAT. The benefits of VAT can only be in the case, if it is implemented.
ReplyDeleteTaxation implementation policy needs a review on the basis of ground realities, giving some leverage to the pakistani economy for the acceptance to VAT, with enforceability in stages. It can top-down approach.
VAT is unbearable for the country, government should enhance and reform the taxes mechanism
ReplyDeleteVAT is the enhancement and reformation of the Tax Mechanism, no?
ReplyDeleteAll services and private sector on which government is imposing VAT will abolish the GST.so it should be implemented by the government because the system will be more transparent.
ReplyDeleteVAT is good for developed countries not for developing countries like Pakistan. Documentation of economy can be possible in the existing tax system through improvement of tax system by tax authorities.
ReplyDelete@ Respected Fellow Siddique with reference to the comments of Respected Umar...!!!
ReplyDeleteUmar you are saying that VAT is unbearable and also you are saying that Government should enhance and improve taxes. Brother VAT is all about the enhancement and improvement of Taxation in Pakistan.
@ Mohib Baloch
ReplyDeleteThe objective of VAT are as under;
1. Documentation of national economy
2. Replacement of Sales Tax Regime with VAT
Broadening of tax base
3. Improvement in GDP ratio
4. Progressive revenue increase
5. Enhancement in taxes on income
6. Stable and transparent tax system
7. Promotion of tax culture
8. Attraction for investments
Value added tax (VAT) is similar to a sales tax. It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer. Maurice Lauré, Joint Director of the French Tax Authority, the Direction générale des impôts, was first to introduce VAT on April 10, 1954, although German industrialist Dr. Wilhelm von Siemens proposed the concept in 1918. Initially directed at large businesses, it was extended over time to include all business sectors. In France, it is the most important source of state finance, accounting for nearly 50% of state revenues.[1]
ReplyDeleteVAT has to be implemented because in Pakistan has problem in collection of taxes, VAT make it easy by imposing tax in each stage of production so that will enable government to collect more taxes through VAT.
ReplyDelete@Adeela, VAT is not going to be implement because of documentation problem with GST, it is in order to implement the tax at every stage of production, and there are so many countries which have good experience with VAT, our economy is activity is slow because of less spending by government because of low revenue, if the revenue of government will improve by VAT government spending will also increase which is a good sigh, and I still can’t understand how VAT shifts the burden to the ultimate consumers. Guys should not have problem with VAT, if it was implemented early we could have done well.
ReplyDelete