An article with the title “One single VAT registration for taxpayer is way forward” published on July 21 in Star Business and authored by Mr Snehasish Barua has attracted my attention. The article is well written. The author has dealt with a very timely concern of VAT arena. Expressing my full agreement with the views of the author expressed in the article, I would like to put forward a few ideas which may serve as an addendum to Mr Barua’s article. However, only one piece of information given in the article needs to be corrected. Under ‘Higher product cost’ sub-paragraph, the author viewed that if supplementary duty (SD) is imposed on soft drinks at depot stage following its imposition at manufacturing stage, the price shall go higher. It may be mentioned here that there is no SD at trading stage under the new VAT law. Under the 1991 VAT law too, there was no SD at trading stage. Depot falls under trading stage.
In the article, the author has furnished a very good example of a company that produces electronic items, furniture and household goods. The company has three factories, four warehouses, one central depot, seven divisional depots and more than 100 retail stores around the country totaling about 115 establishments. Citing a few consequences of multiple registrations, the author has recommended for similar central registration mechanism that was in force under the 1991 VAT law or mechanism that was in the 2012 VAT law before its amendment through Finance Act, 2019. The author has finally raised three questions and sought guidelines.
Let us see the central registration mechanism under the 1991 VAT law and under the 2012 VAT law before and after the Finance Act, 2019. Under the 1991 VAT law, entities of three categories would have been entitled to obtain central VAT registration; such as: (a) when a manufacturer manufactures at one place and sells through multiple places; (b) when a commercial importer following import sells through multiple places; and (c) when a service renderer renders service through multiple places. Multiple manufacturers and traders without commercial importers were not included in this regime. Earlier times, the National Board of Revenue (NBR) was empowered to issue central registration. Later the power was vested upon the divisional officer. Under the 1991 VAT law, there was another mechanism called similar goods method under which a manufacturer or importer could pay final stage VAT at the centre and could sell the goods through own sales centres, dealers or agents without payment of further VAT. The NBR was empowered to allow such method on application of the registered entities. So, we see that there were provisions under the 1991 VAT law under which manufacturers, importers and service renderers could pay VAT centrally. In the late 1990s and in the early 2000s such method was liberally allowed. From 2009 when talks surfaced regarding the enactment of a new VAT law to the implementation of the new VAT law on July 1, 2019, such mechanism was discouraged, so to say was not allowed, saying the new VAT law will accommodate all easier things.
When the new VAT law was enacted in 2012, the registration regime was basically central, one RJSC (Registrar of Joint Stock Companies) registration, one TIN (Taxpayers Identification Number), and one BIN (Business Identification Number) was adopted as the basic principle of VAT registration. However, it was also provided that if any branch or centre keepsaccounts or records separately, it may takeseparate unit registration. Thus, it was perceived that compliance under the Companies Act 1994, the Income Tax Ordinance 1984 and the VAT and SD Act, 2012 shall come to one line. This was broader than the methods enshrined in the 1991 VAT law as mentioned above.
After the amendment of the new VAT law through the Finance Act, 2019 provisions stand that if any entity carries on economic activities of identical or similar goods or services or both from two or more places and if the books and accounts are maintained centrally, it may apply for central registration. Mr. Barua has elaborately mentioned this method in his article and the consequences associated with this. This method is a departure from two earlier methods discussed above.
If I am asked to evaluate the above three methods of central VAT registration conceptualised during the last 28 years, my opinion goes in favour of the second one i.e. one RJSC, one TIN, and one BIN principle with a few exceptions. We are talking about the ease of doing business. If entities are asked to keep same accounts for the compliance of three laws, certainly it goes in favour of ease of doing business since their compliane cost and complexity shall be reduced. We are talking about procedure simplification. The preamble of the new VAT law provides that the objective of enactment of the new VAT law is simplification of tax collection procedure inter alia. If I ask the readers which one of the above three is easy to understand, I am confident that most of the opinion shall go in favour of the method number 2 i.e. one RJSC, one TIN, and one BIN principle. Under such mechanism, VAT evasion shall become difficult since multiple agencies shall look at the same data and records.
We need to keep in mind the basic purposes of VAT registration. By registering the entities under VAT law, first we list the entities capaple of paying VAT. Second, we bring the entities under a network so that they can not evade VAT. Third, we develop data for future use. To attain all these objectives one RJSC, one TIN, and one BIN is the best method. Gradually, we need to integrate our tax management system and data with other agencies and other sectors of the economy. Three issues raised by Mr Barua at the end of his article, in my opinion can be better addressed by keeping proper books and records. Those are fundamental rights of the people. Whatever procedure is developed, those must not be thwarted.
It is learnt that the NBR is contemplating formulation of a guideline regarding central registration. May we request to give these ideas some thought. Frequent change of any regime is challenging for the subjects to comply. Any regime requires to be formulated following thorough deliberation, so that once formulated it does not require frequent changes.
The author is a specialist at a World Bank-financed VAT-related project. The views expressed are his own. He can be reached at firstname.lastname@example.org.