The government is considering easing the rules on easing the penalty for evading value added tax (VAT) and its interest on delayed payments in the upcoming national budget.

The move, sources say, is to encourage businesses to pay their dues to the state coffers.

They also said that the penalty may be reduced by even half. On the other hand, the term of interest payment might be capped at 24 months or 36 months, with the monthly interest rate kept unchanged at 1%.

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The National Board of Revenue (NBR) has put forth a proposal in this regard, NBR sources involved in preparing budget proposals told the media.

If the proposal gets final approval, it may be included in the upcoming budget– scheduled to be presented in parliament by the finance minister on 9 June.

The sources mentioned that at present the amount of fine and interest often exceeds the amount of the evaded VAT or the amount claimed by the NBR.

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Because of this, the companies accused of evading fines opt for moving the court without paying VAT, causing the NBR’s collection of revenue to get stuck in limbo.

If the amount of interest and penalty is less, the NBR will have an opportunity to get the evaded VAT easily and quickly, the NBR officials observed, adding, “Basically, the VAT-payers who are not real fraudsters but are in arrears due to a lack of knowledge or owing to making mistakes will be encouraged to pay the government.”

VAT officials, however, fear that such an initiative could encourage fraudsters and those who want to delay making government revenue payments.

In FY21, the rate of penalty on any case of VAT evasion was 200%.

The rate was brought down to 100% last year.

On the other hand, up until FY21, a VAT payer would have to pay 2% monthly interest on delayed payments of VAT.

The rate was reduced to 1% last year.

But the amount of interest would go up as the term of payment got longer. In some cases, taxpayers would have to pay large sums of money in fines and interest, other than the NBR-claimed amount.

Therefore, the time limit for payment of interest may be reduced in the upcoming budget.

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