Businessmen oppose VAT propose improvements in GST to improve revenues

ISLAMABAD, May 19 : Businessmen strongly opposed the imposition of Value Added Tax (VAT) from July 01, 2010, saying it will prove highly inflationary apart from putting extra burden on taxpayers.

They proposed the government to improve existing GST regime for enhancing tax revenue.

They expressed these views in a seminar on “Understanding VAT Law”, which was organized by Islamabad Chamber of Commerce & Industry (ICCI) and attended by a large number of business community & FBR officials.

They observed that VAT will unleash a new wave of high prices in the country as it will be charged on every stage of supply chain right from the manufacturer to retailer and every affected player of this chain will pass on the burden to end consumers to recover cut in his profit margin.

Speaking on the occasion, Zahid Maqbool, President ICCI said that time is not ripe for experimenting with VAT as economy has still not recovered from slump, trade, commerce and industry are struggling for survival due to worst energy crisis, high interest rate, inflated power tariffs and security challenges.

He said in these unfavorable circumstances, VAT will create more problems for economy instead of improving revenue and stressed upon the government to defer VAT for at least one year. He also urged for creating proper awareness about this mode of taxation in taxpayers and tax collectors before its implementation.

Addressing the seminar, Israf Rauf, Member Policy Direct Taxes, FBR tried to dispel all reservations of businessmen on VAT. He said VAT will not give rise to inflation, rather it will cause reduction in prices of many items.

He said currently consumers are paying 16-17% GST at point of purchase, CNG sector is paying 25% GST, telecom services 19.5% and steel melters 21% while the 15% uniform rate of VAT should bring down the prices of these items. However, businessmen were not agreed with his version.

Israf Rauf said by introducing VAT, government will initially take a hit of Rs.50-billion in tax revenue, but added that VAT on services is expected to increase overall tax revenue by Rs.120-150 billion while some studies anticipate an increase of Rs.300 billion. He said VAT will cover all services including hotel, boutiques and many others, which were not paying tax so far.

He asked businessmen to cooperate with the government and take VAT as a positive change because it will not create problems for them, rather will facilitate them in refunds by doing away with manual works. He said public education, health and many unprocessed/unpacked food items will be exempted from VAT.