Tax experts, gathered under the banner of the Karachi Tax Bar Association (KTBA), have strongly recommended the implementation of a comprehensive Value Added Tax (VAT) by the Federal Board of Revenue (FBR).
This proposal is part of an initiative aimed at expanding the tax base and aligning the tax system with global best practices.
During discussions on sales tax laws, tax experts emphasized the importance of embracing the VAT concept as a means to document the economy. They highlighted that globally, VAT-based sales tax laws serve as a fundamental tool for economic documentation, providing transparency and accountability in financial transactions.
Currently, the sales tax laws in Pakistan exhibit several deviations from the core principles of VAT. These include numerous exemptions, reduced/fixed rate regimes, and unnecessary disallowances of input tax. Such deviations create opportunities for tax evaders to operate in undocumented sectors and avoid tax liabilities.
In light of these considerations, the tax experts recommended the adoption of a full-fledged VAT concept within the sales tax laws. This move is seen as crucial for reaping the benefits of economic documentation and increasing the tax-to-GDP ratio. By eliminating deviations and aligning with the principles of VAT, the tax system can become more robust, efficient, and capable of capturing a wider range of economic activities.
The implementation of a comprehensive VAT system is expected to bring about several advantages. One of the key benefits is the documentation of economic transactions, ensuring that a broader spectrum of economic activities is accounted for in the tax net. This not only enhances transparency but also aids in the identification and curbing of tax evasion.
Moreover, a well-structured VAT system provides a steady and predictable source of revenue for the government. The broader tax base resulting from VAT implementation can contribute to increased revenue, which is vital for funding public services, infrastructure development, and other essential government functions.
The tax experts’ recommendation aligns with the global trend of transitioning towards VAT systems, which have proven to be effective in promoting economic growth and enhancing revenue collection. Many countries around the world have successfully implemented VAT as a fair and efficient method of taxation.
As Pakistan navigates its economic landscape and works towards fiscal sustainability, the call for a comprehensive VAT system reflects a commitment to modernizing the tax structure. The proposed changes, if adopted, could contribute to a more equitable and resilient tax system, bringing Pakistan’s tax framework in line with international standards.
While the implementation of a full-fledged VAT system requires careful planning and considerations, the endorsement by tax experts, particularly those associated with the Karachi Tax Bar Association, adds weight to the proposal. It remains to be seen how the FBR responds to these recommendations and whether such a shift in the tax system will be included in the upcoming budget for the fiscal year 2021/2022.
