ARTICLE (May 15 2010): The Chairman, Revenue Advisory Council, Dr Hafeez Pasha, has highlighted the importance of an integrated VAT at the level of provinces. He emphasised that there would be a major breakdown in the national integration of the VAT plan in case the Sindh government insisted on collecting VAT on services.
A uniform collection mechanism is needed for all provinces for implementation of an integrated VAT in all provinces. The Finance Ministry is trying to convince the Sindh government to allow the federation to collect the VAT on services till such time the provincial government is able to develop infrastructure and enough capacity to effectively collect the levy on services.
The Prime Minister has also constituted a committee, comprising of Advisor to Prime Minister on Finance, Secretary Finance and four provincial chief secretaries. If Sindh or other provinces declined to implement the VAT, then it would not be possible to invoke integrated VAT and a major portion of the Federal Draft Bill will be required to be modified/amended.
As per present Sales Tax Act, 1990, Section 13 deals with exemptions. As per 6th Schedule, there are 71 Entries in Table I and 11 Entries of Exemption are contained in Table II. There are about 30 SROs of Exemptions.
In the proposed draft law, Section 11 provides for certain exemptions and in the 1st Schedule, 14 entries of exemption have been given like wheat, wheat flour, unprocessed peas, ice and water, table/iodised) salt, books, newspapers, Holy Qura'n, ambulances, fire fighting trucks, artificial parts of the body, infra ocular lenses and glucose testing equipment etc.
The FBR has been examining a proposal to levy lower rate of the VAT on food items and essential commodities where exemptions would be withdrawn under the 6th Schedule from 2010-11. In this way, the inflationary impact could have been avoided by imposing reduced rate of the VAT on basic consumer items and food commodities.
There was a news that the FBR may propose 5-6% VAT on supply of consumer items sold in Pakistan on which presently sales tax is charged on the basis of printed sale price, eg fruit juices, vegetable juices, ice cream, aerated water or beverages, syrups and squashes, cigarettes, toilet soap, detergents, shampoos, tooth paste, shaving cream, perfumery and cosmetics, tea, powder drinks, milky drinks, toilet paper and tissue paper, spices, sold in retail packing, bearing brand names and trade marks and shoe polish and shaving cream.
However, the final decision would be taken in view of analysing the revenue implications by the Revenue Advisory Council and the FBR. In the EU countries, supply of food items, medical and educational services and materials are exempt from the VAT. They have not specified items, but have given blanket exemption on all such food, health and educational services and material. In fact, all activities relating to day-to-day life, needed goods and those, which are required for the Socio-Economic development of the society are exempt from the VAT. In all these 27 countries, tax-to-GDP ratio is higher than 20%.
In the UK, food of all kinds used for human consumption, including products eaten as part of a meal or as snacks and products like flour are exempt. The food items for human consumption are not only exempt but entitled to input tax credit. Likewise, all unprocessed foodstuffs, such as raw meat and fish, vegetable and fruits, cereals, nuts and pulses etc are zero-rated, so almost all the agricultural Products are exempt from the VAT and entitled to tax credit paid on any goods and services used in their Production.
The exemptions available to farm products are world-over just to attract investment in this core activity of life. The GST in Australia is proving a very smooth growth engine for the Economy. Basic food, education courses, medical, health and care services, medicines, exports, childcare, religious services, charitable activities etc are exempt.
Australia has not only exempted agri products, food items and socio-economic services, but allows refund or input credit adjustment to the suppliers. This, in return, keeps them cost free of any taxes hidden or otherwise. In one decade, since the GST was introduced in Australia, it has become a success story.
There is no VAT in the US. However, in the US federating units, there is unadjustable GST. In California (largest state), grocery stores, un-prepared food items are not taxed. All other food items, eg fruits and vegetables are exempt from sales tax. The US states rely upon GST as internal revenue, ie with the federal government. For this reason, the states are continuing with non-adjustable GST instead of adopting the VAT. Despite such heavy reliance on GST, the list of exemptions is not different from European Union, UK and Australia.
Almost all food items, medicines, supplies to federal government, educational institutions are exempt from GST. The list of exemptions in the US may be very relevant to our government as we have very strong strategic partnership with the US. The Indian exemptions list is also very exhaustive. It has even exempted the supply of electrical energy and textile as well as sugar sector. None of their agri products are subjected to VAT.
Once the VAT becomes operational, (In the present shape), almost every commodity other than peas, Wheat and Wheat Floor shall be changeable to the VAT. What would happen to a common person in a country where 40% of its population lives below the poverty line?
As per Section 12, following local supplies would be Zero rated:
(i) Sale/transfer of an economic activity or part as an on-going concern by a registered person to another registered person (ii) Supply of stores and provisions for consumption aboard a conveyance proceeding abroad (iii) Basic Pharmaceuticals or medical supplies Specified by FBR (iv) Supply of Precious metals (v) Supply of international transport services.
As per the present Law, Section 4 deals with Zero rating. Besides all exports, there are 8 entries in the 5th Schedule where zero-rating has been allowed. About 32 SROs relating to zero-rated items are being abolished along with the 3rd Schedule. The zero-rating is being confined to exports only as per Section 23 of the proposed draft bill.
However, Section 13 provides that the new law would withdraw the powers of the FBR as well as the Ministry of Finance, regarding the exemptions through SRO or special orders and it will be the sole prerogative of the Parliament to grant exemptions whatsoever. This appears to be a positive change as the present Sales Tax Act, 1990, was also promulgated in the VAT mode but due to continuous violations, deviations and departures from the basic spirit of the VAT by the FBR as well as the Federal government, its shape has been entirely changed which has resulted into promulgation of a new law in the shape of proposed draft VAT Bill.
None is happy on proposed plan of the government regarding withdrawal of all exemptions. Recently, the Pakistan Dairy Association has tendered an appeal to the Prime Minister of Pakistan, demanding that let the milk industry survive and let Pakistan grow its dairy sector through the white revolution. The government will only get revenue if the industry survives. Continue the zero-rating for dairy and this is the part of engine of growth in the country and the market link for thousands of small farmers associated with this industry.
As per Section 95, sub-Section (4), old registrations shall be deemed to have been effected under the new law and there will be no need for any fresh registration on coming into force of the new law. The concept of voluntary registration has been introduced through Section 41. However, voluntary registration once obtained cannot be withdrawn before 12 months at least, as per sub-Section (4) of Section 46. The list of registered persons shall be published by the FBR on 1st July, 2010 and as per Section 48, it shall be available on the website of the Board.
As per Section 41, threshold has been enhanced from 5 million to 7.5 million and the decision regarding the registration or refusal will be issued within 15 days. This Section provides right of appeal against the refusal order. However, Section 79, dealing with the appeals does not provide the right of appeal to the persons whose applications for registration are refused. This anomaly is required to be redressed.
Furthermore, en-block exemption threshold of Rs 7.5 million has been provided whereas in the present law, there is no threshold for the importers, whole-sellers and exporters. Now the Government may find it difficult to collect the VAT from the importers at the import stage, if their total imports for the last 12 months remain below the threshold of 7.5 million. So, it would be better, if no threshold is provided to the importers.
The Section 9 of the proposed VAT Bill speaks about the imposition of the VAT. Only two tax rates are provided ie 0% and 15%. As per sub-section (3), the VAT will be charged on ad valorem basis. The Section 7 defines taxable supplies including supply of goods and Federal List Services. Different rates of sales tax presently prevailing would be abolished to apply a standard rate of 15% on all the taxable supplies, including retail sector abolishing multiple sales tax rates. There would be no fixed tax, reduced tax or enhanced tax, retail price based tax, or any special tax scheme.
As earlier discussed about the VAT on Federal List Services, it may be reiterated that as per present Federal Excise Act, 2005, the FED is being already paid on services by terminal operators at the rate of 16% and likewise shipping agents, inland carriage of goods by air and facilities for travel are being also taxed under the Federal Excise Act, 2005, which is being paid in the VAT mode as provided in Section 7 read with SRO 550(1)/2006 dated 5-6-2006.
As earlier stated, Entry No 53 of the Federal Legislative List of the Constitution has been incorporated in the preamble of the proposed VAT law to levy the VAT on all these services in lieu of Federal Excise Duty, despite the fact that there is no constitutional guarantee for the levy of sales tax on services by the Federal government.
In Sections 55, 56, 57 and 58 dealing with filing of returns and declarations, the taxpayers would be allowed to file their returns manually or electronically. However, FBR's permission would be required to file the return after the due date or to file revised/amended return. The time limit for furnishing amended return has been extended to three years, which was 120 days as per the present law, ie Section 26(3). However, there is a news that a provision is going to be added in the proposed law to remove the restriction of the FBR permission for furnishing the revised return.
(To be continued)
Source: http://www.brecorder.com/index.php?id=1056813&currPageNo=1&query=&search=&term=&supDate=
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment