The amount of value-added tax would be included in the transaction prices of goods and services under the VAT and Supplementary Duty Act 2012 which came into effect from July 1.
Traders would determine the prices of goods and services adding VAT at applicable rates and consumers would not know the actual amount of VAT without calculation as the traders would collect VAT with the prices.
Transaction prices goods and services would be determined under the fair market value methods.
VAT wing of the National Board of Revenue has framed the Determination of Fair Market Value Rules 2019 to check whether traders were undervaluing the prices to reduce the VAT incidence.
Previously, VAT was exclusive from the cost of goods and services and traders would separately collect VAT at applicable rates for respective goods and services.
Manufacturers and importers who paid 15 per cent VAT would make a declaration on the prices of goods and VAT officials would collect VAT on the approved declared prices.
In many cases, manufacturers would declare lower prices of goods to reduce VAT incidence but VAT officials had hardly any mechanism to check the irregularities once they approved the declared price.
Under the new provision, manufacturers would not require to make price declaration rather they would pay the VAT on transaction value.
They, however, would have to declare input-output coefficient with the value of raw materials required to produce a product and rate of depreciation of raw materials and the rate of value addition.
On the other hand, service providers and retailers would pay VAT on total transaction value.
In case of services and retail sales, exclusive VAT system would often create debate between traders and consumers over payment of VAT.
In many cases, traders would not collect VAT from consumers as well as evade VAT by not depositing to the government exchequer despite collection from consumers.
Officials said that the new system would solve most of the problems.
They said that the new system would reduce the risk of VAT evasion as traders would now pay VAT on transaction value on which VAT officials would have proper monitoring.
The fair market value rules would also help the VAT officials to check whether traders were paying VAT at lower prices than actual market value, they said.
VAT officials would be able to determine the fair market price following various methods incorporated in the rules if traders show transaction prices at lower rate, they added.
Consumers would also not get any chance to engage in debate with retailers and other traders on the rate and payment of VAT, they added.
According to the rules, the fair market value would be that value which is set by the normal business relation between a seller and a buyer if they are not associated in any way.
NBR would also follow a set of methods to determine the fair market price if both seller and customer were associated and the declared transaction value goes 10 per cent higher or lower than the value of identical or similar supply in the same situation.
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