The government introduces taxes and expects people to co-operate by way of proper settlement and submission of necessary returns.

At the same time, tax payers should not be harassed by the introduction of complicated tax systems. In 1977, it was stated in Parliament that a simplified tax system would be introduced and even after 32 years this promise has not been fulfilled. Even the duties payable at customs are complicated.

a) VAT is payable on value which includes excise duty computed on value which includes VAT. Mathematical formula has been introduced to compute VAT and excise duty. I presume the government wants more employment opportunities for mathematical graduates.

b) Cess for some selected items (chocolate, biscuits, etc.) are computed on 65% of maximum retail price. Retail prices are computed on the basis of landed cost which includes this cess. The argument is that this step is taken to prevent under valuation of import prices for selected items. Now we have to believe that importers of selected items like chocolate and biscuits (not all) are underinvoicing.

Tax payers are not in a position to estimate the profit after tax mainly due to disallowed expenses and claims some of which are quoted below.

a. 50% of advertising expenses are disallowed (Exporters exempted)

b. Foreign travelling expenses including training of staff are disallowed (exporters exempted)

c. No deprecation allowance is allowed for motor cars

d. Sales promotion expenses are disallowed.

In the case of VAT, there are disallowed input claims.

a. VAT on import/purchase of cars

b. 8% VAT is disallowed if VAT is paid at 20% (only 12% is allowed) effective rate is 29.60%

When GST was introduced in 1998 it was stated that the cascading effect which was in BTT systems had been obviated. Now by disallowing input claims this promise is not fulfilled. In fact, the effective VAT rate is suppressed. It is better to fix the VAT rate at 30% permitting full input claim.

NBT was introduced on 01/02/2009 at 1% and was increased to 3% on 01/05/2009. Now (after a period of 3 months) it has been announced that with effect from 01/04/2009 2/3rd of NBT paid (2%) is disallowed for tax purpose. The same practice was adopted when the defence levy was introduced on 01/01/1990.

The present tax rate of limited companies is 35% which together with SRL @ 1.5% on tax tallies up to 35.525%. Therefore the effective rate of NBT at 3% is equal to 4.102% (disguised VAT rate).

It would have been better if the rate was fixed at 4% permitting 100% allowed expenditure. Now entrepreneurs (importers, manufactures and service providers) are unable to compute proper selling prices to secure targeted net profit after tax. This results in selling prices being increased arbitrarily.

My intention is not to criticise the Department of Revenue or Customs. I wish to stress the fact that a simplified tax system including customs ensures the cooperation of tax payers and helps maximize tax revenue.

I hope corrective action would be taken by the trade ministry in the future by introducing taxes which are fully allowed for tax purposes.