Sources told Business Recorder here on Wednesday that the WB review mission analysed the status of VAT implementation during the review of Tax Administration Reform Project (TARP) of the FBR. According to WB updated action plan on tax administration reforms and VAT implementation-2010, a successful VAT implementation will depend on several critical factors.
First, the FBR should immediately set up a task force to carry out the implementation activities at national level. Second, a detailed VAT implementation plan should be prepared by the FBR. A draft VAT implementation timetable, which was discussed with the FBR authorities in Dubai, should be considered by the Board for implementation. The FBR should pay special attention to the VAT legislation and regulations as these are complex and time consuming activities.
It should be noted that the enactment of a new VAT by mid-2010 should be seen both as a challenge and as an opportunity to speed up the introduction of best tax administration practices in FBR.
The WB further said that it is critical to clearly define the powers FBR will have to administer VAT, including establishment of withholding schemes and advance payments, rules on invoicing and bookkeeping regulations and suspension of inactive taxpayers' registration under the new VAT scheme. The WB recommended that the FBR should review the composition of the VAT task force appointed by the FBR to check if it includes the staff with the necessary skills to prepare for the introduction of VAT.
The WB action plan said that the fundamental changes recently introduced in the FBR's organisational structure, management capabilities, and the IT infrastructure should facilitate the envisioned advent of a more effective and equitable tax administration. These changes include the creation of the Inland Revenue Service (IRS), the establishment of a new functionally integrated organisation, and the amendments of domestic tax laws to make tax procedures consistent with the new FBR organisational structure. In addition, the monitoring of the Action Plan by the FBR has improved progress with tax administration reforms and the development of IT solutions to key enforcement areas is helping the FBR to transit towards a modern tax administration.
Notwithstanding the progress made, the key challenges in 2010 will be to: (a) put the new IT tools into practice in the field formations: and (b) address the Action Plan items that are considerably delayed. Action items with serious delays are (1) implementing in the field the systems developed by Pakistan Revenue Automation Limited (PRAL) and modernising the relevant business processes; (2) implementation of the 'expeditious refund system' nationally; (3) identifying dormant taxpayers and those who are not required to file regularly and (4) activating restrictions on imports and exports of taxpayers, who are not in the 'Active Taxpayer List', the WB said.
The WB updated action plan-2010 pointed out that the FBR should revise the enforcement plan to detect those who are unregistered. The enforcement plan should be reviewed to ensure recovery of arrears as well.
The FBR has recently implemented an enforcement plan to enhance voluntary compliance. In parallel, FBR is carrying out other relevant enforcement actions, such as identifying taxpayers who have sales above the sales tax registration threshold of Rs 5 million, but are not registered with the department. Moreover, the FBR is cross-checking information of sales and purchases reported by taxpayers and their suppliers and customers. The enforcement plan needs to be reviewed to include these important enforcement actions in 2010.
About the 'Active Taxpayer List', the WB review mission stated that the 'Active Taxpayer List' has been published at the FBR website and taxpayers have started contacting the FBR to include their names in the list of compliant taxpayers. The FBR now should use the 'Active Taxpayer List' as a compliance mechanism. As a first step, the FBR could consider imposing restrictions on taxpayers not included in this list. It has been recommended that the FBR should issue a notification to establish the legal framework for the 'Active Taxpayer List' operation. The FBR should impose restrictions on the imports and exports on those taxpayers not included in the 'Active Taxpayer List'.