"Such misgivings about the national consensus on the implementation of VAT in the country are unfounded. "The government of Pakistan, after taking on board all stakeholders including provincial governments, had decided to replace the present distorted sales tax regime with more transparent and buoyant value added tax.
"The VAT system can better achieve optimal efficiency and productivity if it is administered at the national level as an integrated unified tax regime. Even under the existing sales tax system, provincial sales tax on services is being collected and enforced by the Federal Government in terms of article 147 of the Constitution of Pakistan, 1973.
"Under the existing constitutional framework, the Federal Government can levy sales tax on goods and federal list services. It can also charge Federal excise duties on all categories of goods and services. Provinces can levy sales tax on services other than federal list services. In order to accelerate documentation of national economy and to ensure uniform application of VAT as consumption tax, the Federal Government will forgo federal excise duty on services in favour of provincial VAT.
"Where VAT is applied at national level, input tax paid by suppliers on goods on taxable services and by service providers on the acquisition of taxable goods is cross-credited to avoid cascading and reduce tax burden on the masses. Besides, inter-provincial input tax crediting is also allowed. Such self-acting input tax deductions in national VAT regime attract investment, increase aggregate production and augment future yields from divisible revenues," the clarification concluded.