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Implementation of VAT: Pakistanís Experience Free essay! Download now

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Implementation of VAT: Pakistanís Experience

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Downloads to date: N/A | Words: 3364 | Submitted: 30-Jan-2012
Spelling accuracy: 98.8% | Number of pages: 12 | Filetype: Word .doc

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Implementation of VAT: Pakistanís Experience


Implementation of VAT: Pakistanís Experience

I. Introduction
The emergence of the consumption based Value-Added Tax (VAT) and its unprecedented success in the developed world, motivated largely by its greater efficiency and buoyancy, encouraged the developing countries to adopt VAT during the decades of the eighties and nineties. However, with the exception of a few, many countries faced multiple difficulties in the adoption and implementation of VAT. Pakistan, undeterred by the concern generally expressed in the developing countries, decided to take the bold initiative and move forward with the introduction of VAT in the country, the goal being to develop it into a major national tax. The move launched more than a decade ago was initially confronted with resistance from some of the stakeholders but owing to the efforts on public awareness about the progressive and futuristic dimensions of the tax and political recognition of its significance, the desired support eventually came in. The confidence-building measures introduced over the period helped to further improve the operational environment with the result that VAT is now an accepted part of the countryís fiscal landscape. The efforts to address the issues spurred by its introduction, whether concerning the legislative side or the operational element, remain a part of the continuous reform process.

This paper briefly traces the development of VAT in Pakistan and provides an exposition on its introduction as well as implementation. Starting from its historical context, the paper briefly dilates upon the issues of taxpayersí registration, adoption of basic threshold, structure of tax rate, audit, refund payments etc. It also encompasses the contentious areas where the tax administration and the taxpayers are trying to develop uniform solutions consistent with the overall philosophy of VAT. These areas include selection of audit including investigative audit and improvement in tax compliance.

II. Historical Context

In 1947, when Pakistan attained independence, the sales tax was a provincial levy covering a limited area of commercial activity. With its conversion to a federal tax in 1951, its scope was extended to imports and domestic sale of goods by manufacturers and licensed wholesalers. The enactment of the Sales Tax Act, 1990 introduced its value added version renamed as General Sales Tax (GST). This was levied on goods only (with many exemptions) and that too at the manufacturing and import stages. A major leap forward was taken in 1995-96 when GST was converted into a full-fledged VAT mode tax with all its basic features; self-assessment, functional distribution, input tax credit facility and audit based procedures. To further increase its base, its coverage was extended to importers in 1997 and to wholesalers and retailers in 1998. Following the trend observed in many less developed economies where documentation was limited, Pakistan also ...

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