NBR drops plan to introduce new VAT law

The National Board of Revenue (NBR) has backtracked from its move to introduce a new VAT law from 2012 following the instruction it received from Prime Minister's Office (PMO) about not scrapping the existing law. Earlier, the draft VAT law evoked a strong resentment from among the businesses. The NBR officials said the government will amend the existing VAT law-1991, instead of replacing it with an entirely new piece of legislation. The new law was earlier scheduled to be placed before parliament in the budget session for fiscal 2011-12. "Businesses reacted sharply after the draft new VAT law was made public. Major businesses and chamber bodies feared a signification rise in cost of doing business with the introduction of the proposed VAT law," a senior revenue board official told the FE Monday. The NBR uploaded the draft of the new VAT law on its website January 15 for eliciting public opinion. The government planned to introduce the new VAT law, replacing existing one as experts had considered it 'distorted' due to frequent changes. "In a recent meeting, the PM has instructed the NBR not to go ahead further with its move on preparing a new VAT law at this stage, and asked the board to amend, instead, the existing one. The PM said the new law might create "public misgiving," the revenue board official said. The VAT law-1991 will be amended every year, instead of introducing a new piece of legislation he added. The government high-ups considered that the after-effects of implementation of the new VAT law might lead to enhancement of the tax burden on small and medium businesses, he said. A raft of changes was proposed in the draft VAT law. These included elimination of all types of lowered rates and special tax benefit packages for industry. Businessmen feared that small and medium industries would be seriously affected as the fall-out from the proposed law. The government will not take any move that might affect growth of businesses in a situation of economic slowdown due to infrastructural deficit and low level of investment, the official said. Several meetings and workshops with the businessmen and chamber leaders were earlier held to discuss the proposed new VAT law. "We have received strong opposition on all major aspects of the proposed VAT law in those meetings. All chamber bodies and business leaders proposed that the government should only amend the existing VAT law," said another NBR official. The revenue board has achieved the highest-ever revenue growth -- at 33 per cent -- by enforcing the existing VAT law, he said. The existing law has been amended several times in the last 20 years in the light of demands of the local businesses, he said. The government should not scrap the law as it is working smoothly and contributing to increased highest revenue collections for the public exchequer, he added. The move to introduce new VAT law was earlier taken at the recommendations of the International Monetary Fund (IMF) as part of the conditions attached to its disbursement of a US$ 1.0 billion fund under the extended credit facility (ECF).