ISLAMABAD: Government will conduct a study, worth Rs6.0 million, regarding the impact of Value-Added Tax (VAT) on inflation, Federal Board of Revenue (FBR) chairman said on Thursday.
“After the study we will have reliable data about its impact on inflation, revenue and further documentation of the economy,” FBR Chairman Sohail Ahmed told a news briefing convened to erase confusion on VAT.
Although the FBR chairman insisted that VAT would have no inflationary impact, one of his subordinates differed, saying that it would create a price-hike.
A number of other tax officials too expressed different views over VAT’s impact in background interviews.
The FBR top brass were seen speaking on assumptions regarding the impact of this controversial tax on the countryís overall revenue collection, documentation of economy and inflation.
Chairman FBR agreed to some extent that their remains confusion on this thorny issue, saying that a proper, scientific study would determine its inflationary impact. Finance Ministry has already released Rs6 million for this purpose, he said.
Ahmed said that if provinces opposed the VAT bill, it would not be enforced. However, imposition of VAT remains a key condition of the International Monetary Fund under its Standby Arrangement for Pakistan, officials say.
Earlier, FBR chairman said that retailers would prefer to come under the VAT regime to avail the facility of input tax adjustment. They would voluntarily obtain VAT registration to make purchases from the registered units, he said.
Ahmed said VAT of five to seven per cent would have minimum revenue implications for the middle-income groups.
The FBR, after its study, would be in a position to comment about the impact of introducing VAT rate below 15 per cent. There is a possibility in the flexibility of the VAT rates for consumer of goods.
Chairman reiterated that VAT is the replacement of GST and said that it will be exemptions’ free barring on the key items of education and heath sectors, including life saving drugs.
He mentioned that the GST is fraught with discrepancies and claimed that target of Rs1,380 billion revenue for the current fiscal remains achievable, though challenging.
FBR has collected Rs118 billion against the target of Rs120 billion, he said, “we will achieve the target when the March figures will be firmed up.”
Ahmed said that VAT would lead to burden sharing of the 15 per levy from production and import stage to consumption stage.
Iftikhar Qutub, chief VAT official, claimed that VAT was not inflationary and in the first year after its imposition, the country would get Rs125 billion additional revenues.
He said that exemptions under GST regime broke the supply chain and caused the increase in inflation but in case of VAT, there will be no impact because of the unbroken supply chain with zero tax exemptions.
The 8.8 per cent tax to GDP ratio would improve after VAT implementation as the reasonable chunk of undocumented economy will also be documented but at gradual pace.
Qutub said VAT would end Federal Excise Duty on services would end under Federal Excise Act.
Talking about the transition losses from GST to VAT regime, he said that there would be some losses and gains, but country will have net revenue of additional Rs125 billion in the fist year after VAT imposition.
Source The News
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