"There is only 'Plan-A' to introduce VAT, which would be implemented in the budget", he added. While addressing the seminar, he said that there would be no subsidy for rich, and the budget would carry only subsidies for genuine poor. The VAT would not be applicable on essential commodities including edible items, and retailers operating below the registration threshold of Rs 7.5 million would be exempted from the VAT.
He said that consultation with the provinces is underway for enforcement of VAT from July 1, 2010 and results of such negotiations would be visible in due course of time. Some issues between the federation and provinces during ongoing consultation with the provinces on VAT could not be disclosed at this stage of time.
He said that there have been some concerns of the business and trade on VAT, but genuine businessmen know about the basic concepts and advantages of the VAT. The VAT regime would not only increase revenue but documentation would also help the authorities to tax actual income of the businessmen. Due to this reason certain persons are criticising VAT. If businessmen are law abiding citizens of the country they would not find VAT difficult for them. On the other hand, criticism on the VAT is mostly coming from those persons who still prefer to operate out of the documented regime. Such businessmen would continue to criticise the VAT. People having vested interests are criticising the VAT due to their own motives, he added.
Dispelling negative impression about the VAT, the Advisor to Prime Minister on Finance said that "there is nothing to fear", as the VAT would increase tax to-GDP ratio in its first year only by 0.5 percent, and not more than that. However, with the documentation of the businesses it would be an effective tool for future revenue generation. The government would also have concerns over VAT on education, as the government would also like the promotion of quality education in the country. He said that VAT scheme would be implemented in a manner acceptable to the business community and they should not have fears about its applicability.
Speaking about the budget he said that this would be a budget under an environment of new NFC award and "it's for the first time in the history of the country that federal PSDP is below the provincial development plans". He also made it clear that "what we have committed for PSDP would be released, and there would be no cut on PSDP", and there is also a possibility that PSDP might increase in case inflows were streamlined during the next fiscal year.
The government, he said, would not neglect the poor segment of society in the budget and subsidies would be only for the poor. There would no policy of allowing subsidies to rich in the name of poor, he added.
Sohail Ahmed, Chairman of Federal Board of Revenue (FBR) said that there has been progress on the issue of VAT on services, and provinces have come forward, partly, and they would come more forward soon. The Ministry of Finance is resolving the issues between the federation and the provinces. However, unless or until all provinces authorise the FBR to collect VAT on services, the broad-based integrated VAT would not be implemented.
He said that food items, health and education, charitable institutions and exports would remain exempt from VAT and there would be no price hike in the country due to VAT implementation. There would be nominal inflationary impact of the VAT.
He said that the concept of self-assessment in VAT would continue, and VAT registered persons would have the facility to file their returns electronically and they would receive their refunds electronically. There is no logic for linking VAT with large-scale inflation as a recent study has revealed that there would be a minimal inflationary impact, he added.
Former Special Secretary, Finance, and at present Dean of NUST School of Business Administration, Dr Ashfaque Hassan Khan opined that the new budget should be aiming at stabilisation of economy and not to growth. In case the stabilisation gains are not protected and current account as well as budget deficit remained at 5 percent of the GDP in the next two years, the country would default in foreign payments.
Dr Hafeez Pasha, Chairman of Economic Advisory Council, said that the EAC has proposed increasing income tax exemption for salaried class from Rs 200,000 to Rs 250,000 for the salaried class. It has also proposed to the government to exempt food items, health and education from value-added tax. It has also recommended exemption from customs duty on the import of tea. The EAC has also asked the government to increase the coverage of Benazir Income Support Programme to 6 million families as well as increase in per month amount from Rs 1000 to Rs 1200, at least. Abdullah Yusuf, Dr Nadeem ul Haq, Omer Ayub Khan, Dr Rashid Amjad and Yasin Lakhani also spoke on the occasion.