13 May 2010
“If the government of Pakistan fails to implement integrated Value Added Tax from the next financial year, it will be a problem for us,” warned Country Manager World Bank John Wall. Wall highlighted that VAT would assist the government enhance its low tax base as the Tax to GDP ratio is very low and VAT, a replacement of General Sales Tax, would expand the base. “The implementation of VAT will not only increase revenue but also bring more people into the tax net,” explained Wall.
This would also lead to greater documentation of the economy, thereby bringing more people within the formal economy and consequently widening the tax base – a phenomena witnessed in India, Vietnam and Bangladesh.
However Wall also observed that, “Tax on input results in increasing costs of production making exports uncompetitive in international markets.” He added that if Pakistan is able to provide credible reasons for failure to implement VAT, the World Bank would continue its assistance programme.
The implementation of VAT in Pakistan has been severely hampered by the disagreement between the federal government and the province of Sindh over the VAT model to be adopted.