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Pakistan: VAT Integral Part of IMF Programme - Fund Official Says
Source: http://www.brecorder.com/
Source Date: Sunday, July 04, 2010
Country: Pakistan
Created: Jul 05, 2010

The International Monetary Fund has observed that the Value Added Tax or an improved tax on sales and consumption is an integral part of the IMF programme. This was noted in the transcript of a press briefing by Caroline Atkinson, Director, External Relations Department, IMF, available on the IMF website here on Saturday.

Responding to a question, Caroline said the VAT or an improved tax on sales and consumption is one of an integral part of the IMF programme. "And what we're looking for is that there should be a broad-based tax - a VAT or a reformed general sales tax that has fewer exemptions and broader coverage. And these discussions will be going on over the summer on this and other issues with Pakistan", she added.

She was responding to a question that if there is any possibility of negotiations between the Fund and the government of Pakistan over the reform to general sales tax as the government did not implement the VAT. Meanwhile, tax officials told Business Recorder that the introduction of the reformed general sales tax (GST) from October 1, 2010 would reduce sales tax from existing rate of 17 to 15 percent, causing revenue loss of nearly Rs 50-60 billion to the national exchequer.

The changes in the sales tax regime in October 2010 would benefit business and trade due to reduction of two percent in the rate of tax. The revenue loss from the reduction in the sales tax rate would be compensated by the withdrawal of exemptions and zero-rating under the reformed GST. The FBR has estimated around Rs 30-35 billion from one percent increase in sales tax. The proposed increase in sales tax from 16 to 17 percent is an interim measure for three months.

The reduction of 2 percent sales tax would double the quantum of revenue loss to the national exchequer. However, withdrawal of exemptions under the Sixth Schedule of the Sales Tax Act, 1990 would generate revenue from second quarter of 2009-2010.

The government is suffering revenue loss to the tune of around Rs 100 billion due to special procedures, sales tax exemptions and concessions granted through various Statutory Regulatory Orders (SROs). The net impact of reduction in sales tax rate from 17 to 15 percent and withdrawal of exemptions could be around Rs 50-60 billion in 2010-11. At the same time, the scope of sales tax on services would be broadened by bringing professional service providers into the tax net. In this regard, the issue of collection of sales tax on services needs to be resolved, sources added.
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