New tax collection system of VAT encourages undocumented economy: BMP

The recently introduced new system of collection of Value Added Tax (VAT) by the federal government on goods and by the provinces on services has encouraged the undocumented economy and increased the cost of doing business in the country.

Talking to Business Recorder here on Thursday, Secretary General (Federal) of the Businessmen Panel of FPCCI Ahmad Jawad said the division of tax collection has created confusion as the Federal and provincial revenue authorities have their own conflicting definitions for goods and services which result in disputes, litigation and loss of revenue, He said the VAT is collected by a single authority in all the countries except for Pakistan. Under the 18th amendment to the constitution provinces have been given the responsibility to collect tax on services whereas some provinces are facing lack of relevant laws, human resources, paraphernalia and ability.

Jawad was of the opinion that the infrastructure and capacity constraints have resulted in low tax collection and negative impact on the overall collection. Therefore the new government should take corrective measures as the economic revival is not possible without unified VAT collection system.

Jawad who is a former Chairman Standing Committee on Horticulture of the FPCCI, said the performance of agriculture sector has also declined after shifting this strategic sector to provinces since every province has its own priorities.

Before the 18th amendment, he said, the federal government used to spend Rs60 billion on agriculture sector but now the provincial governments have become indifferent towards the rural areas. The Seed management has also became a provincial subject. He pointed out that in leading economies like Brazil, India, Israel, USA agriculture sector is the federal subject due to its contribution to the GDP growth and socio-economic stability.