Complete VAT system planned under medium term fiscal framework

Complete VAT system planned under medium term fiscal framework

ISLAMABAD: The government has decided to eliminate special procedures and reduced rate taxation for moving towards complete Value Added Tax (VAT) regime under medium term fiscal framework, sources told
 The sources said that the framework will envisage drastic reduction in tax expenditures by removing exemptions and excessive tax credits from incomes tax, sales tax and federal excise duty law.

It is also planned for moving to a single sales tax (VAT) regime by doing away with special procedures and reduced rate taxation.

The other policy initiatives will include reduction of number of with holding taxes (which are negatively effecting the use of banking sector or have an insignificant contribution towards revenue).

Besides, freezing the corporate tax rates at 30 percent or 29 percent is also under consideration.

Further, the government is planning to increase the expanse of federal excise duties.

This will also need strengthening field formations of Federal Board of Revenue (FBR) through investment in IT / physical infrastructure and training (from current 0.68 percent of revenue collection to at least 1.25 percent in three years time).

The present arrangement of four provincial and one federal authority looking at the goods and services tax has increased the cost of doing business in an exponential manner.

In three years’ time, the government is also planned moving to a single tax collection agency with single return and single auditing authority to cut down on compliance costs.

A revision of business processes, administrative structures and efficient dispute resolution mechanism will also be made.

These efforts will be coupled with tax payer education and facilitation by developing android apps for filing of returns and payment of taxes.

Cleansing of utilities database and data of immovable property ownership will be done to help FBR in identifying under reporting and non-reporting of incomes and sales through use of data mining.

All these measures are likely to help FBR and provinces to achieve the additional targeted revenue of 1.1 percent of GDP in FY 2020, 0.9 percent of GDP in FY 2021 and 0.3 percent of GDP in FY 2022.

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