The Impact of Sales Tax on the National Economy of Pakistan

Abstract

The Federal Board of Revenue has been collecting sales tax on goods since long. The 18th Amendment devolved ‘sales tax on services’ upon the provinces. Taking the first initiative Sindh build up the capacity of tax collection on services at the provincial level. Value Added Tax (VAT) is a multistage form of collection of sales tax. In Pakistan VAT is being implemented on the principle of destination based tax, charging import and domestic consumption at standard rate and the exports are zero-rated. Self-policing and self-enforcing are its main characteristics. Slow release of refund, weak audit procedure, special treatment and a long list of exemption are its achilles heel. Pakistani economy is mainly undocumented, frequent breakage of supply chain is adversely affecting its performance. Royal orders like frequent SRO’s, notifications and rulings cause frustration and non-compliance issues. Statutory flaws needs to be suitably amended to make VAT more compliant and equitable form of taxation. ______