ISLAMABAD: The government is planning to a complete Value Added Tax (VAT) regime under its medium-term fiscal framework, aiming to make significant changes in taxation, according to sources.
This move envisions a substantial reduction in tax expenditures by eliminating exemptions and excessive tax credits from the income tax, sales tax, and federal excise duty laws.
One of the central components of this transformative initiative is the shift towards a single sales tax (VAT) regime, which will be achieved by eliminating special procedures and reduced-rate taxation. The decision to eliminate these complexities and streamline the tax system is expected to enhance efficiency and clarity in tax collections.
The government is planning to reduce the number of withholding taxes, which currently has a negative impact on the utilization of the banking sector and makes an insignificant contribution to overall revenue. This step aims to simplify the tax collection process and reduce the administrative burden on businesses.
Another consideration under this fiscal framework is to maintain corporate tax rates at either 30 percent or 29 percent. This measure will bring stability and predictability to the corporate tax structure, making it more conducive for businesses and investors.
Furthermore, the government intends to expand the scope of federal excise duties, a move that would require strengthening the field formations of the Federal Board of Revenue (FBR). This will be achieved through investments in information technology (IT) and physical infrastructure and training. The target is to increase the allocation for such purposes from the current 0.68 percent of revenue collection to at least 1.25 percent over the next three years.
The current structure, which involves four provincial authorities and one federal authority overseeing goods and services tax, has significantly increased the cost of doing business. In an effort to reduce these costs and streamline the tax collection process, the government intends to transition to a single tax collection agency within three years. This agency will have a single return and a single auditing authority, which will make compliance more straightforward and efficient.
Accompanying these structural and procedural changes are plans to revise business processes and administrative structures, as well as the development of a more efficient dispute resolution mechanism. The government is also considering enhancing taxpayer education and facilitation by creating Android apps for filing returns and paying taxes, making the process more accessible and user-friendly.
To ensure effective tax collection and address underreporting and non-reporting of incomes and sales, the government will undertake a cleansing of utilities databases and data related to immovable property ownership. The data mining process will enable the Federal Board of Revenue and provinces to identify discrepancies and take appropriate actions.
These comprehensive measures are expected to contribute significantly to the government’s revenue goals. It is anticipated that these reforms will help generate additional revenue equal to 1.1 percent of GDP in fiscal year 2020, 0.9 percent of GDP in fiscal year 2021, and 0.3 percent of GDP in fiscal year 2022. The government’s commitment to streamlining the tax system and enhancing revenue collection methods reflects its dedication to building a more efficient and transparent fiscal framework in Pakistan.
This will certainly reduce the tax collections and new botheration to tax payers.