The Senate standing committee on finance and revenue on Tuesday unanimously approved the General Sales Tax (GST) Bill 2010 and Finance Amendment Bill 2010 to introduce new taxation measures along with certain recommendations to expand the exemption basket including medicines, essential food items in packing, educational material and packed milk/products to minimise the inflationary impact of the Reformed General Sales Tax (RGST) on the poor masses.

The government successfully managed approval of GST Bill along with taxation measures including flood surcharge and increase in special excise duty from the committee in the presence of PML (N), PML (Q) and other opposition parties.

However, Chairman of the committee, Senator Ahmed Ali, of MQM, was unable to attend the proceedings of the meeting.

The committee in the Parliament House with Senator Islamuddin Shaikh in the chair here on Tuesday.

Finance Minister Dr Hafeez Shaikh, Minister of State for Finance Hina Rabbani Khar, Secretary Finance Salman Siddiqui and Chairman of FBR Sohail Ahmed were present in the meeting.

In the absence of the representatives of MQM, the chairman of the committee, Islam-ud-din, read a letter of the MQM that the Senate committee should reject the GST Bill 2010.

The committee termed it as a political statement of the MQM.

The chairman of the committee announced unanimous approval of the GST Bill 2010 after hearing observations of committee members, particularly Haroon Khan from PML (Q), Ilyas Bilour from Awami National Party, Ishaq Dar of PML (N), Kulsoom Parveen and Khurshid Ahmed from Jamaat-i-Islami in the second session of the meeting.

During the proceedings, Dar said he was surprised to know that the Federal Board of Revenue (FBR) had not conducted any sectoral analysis and item-wise revenue impact by bringing maximum items within the scope of the sales tax regime.

He asked the tax managers to explain whether the Board had conducted any sectoral analysis of the exempted items.

FBR Chairman Sohail Ahmed informed the committee that the list of the exempted items under the GST Bill had been drafted after thorough discussions keeping in view the best international practices.

FBR Chairman strongly supported imposition of the GST on the expensive medicines consumed by rich people.

However, he admitted that the sectoral analysis had not been conducted by the Board to give any figure about proposed collection from each and every sector.

"We will move as per systems applicable in the best tax administrations for the purpose of exemptions', he added.

"Any item has not been placed in the Exempted List of the GST Bill 2010 until or unless it is very necessary directly impacting the poor", Sohail added.

When some members asked the FBR to take away the proposal on the enhancement of the SED from one percent to 2 percent, the FBR Chairman said that the doubling of the SED would have revenue impact of Rs 9 billion to10 billion, which would be applicable for only six months of current fiscal year.

Khurshid objected that the list of exempted items under the Schedule-I of the GST Bill 2010 has been limited to a few items.

The sales tax exemption should be available to all kinds of basic food items, medicines, children uniforms, educational material and books.

While reviewing the Schedule-I of the GST Bill 2010, Haroon said that all kinds of dry fruits had been brought into the GST regime as exemption is restricted to edible oil, edible fruit, red chillies, ginger, turmeric, fruit juices, etc.

He said that the Exemption Schedule of the GST Bill also reflects that GST would be applicable on bakery products used by the general public.

However, Hina pointed out that leading bakeries are only accessible to the elite class.

About the penalty regime under Third Schedule of the GST Bill, Haroon objected that the Board has proposed harsh punishments like imprisonment for small violation of the Sales Tax Act.

He said he was shocked that imprisonment has been proposed as punishment for destruction of record or false statements.

The FBR has proposed imprisonment for violation for any embargo placed on removal of goods in connection with recovery of tax.

The FBR assured the committee to review the penalty regime under the proposals of the committee.

When Ilyas referred to section 52 of the GST Bill 2010, FBR Chairman said that it is the biggest tool for documentation and structural reforms have been introduced under this provision of the GST Bill 2010.

The manufactures would be bound under the new provision to give details of the un-registered buyers within the supply chain.

The section 52 would be used as a major reform measure to document the national economy, he added.

Under section 62 of the Bill, a registered person who makes a taxable supply to an unregistered person shall issue a sales receipt for the supply.

A sales receipt must contain the information prescribed by the Board, including the date on which it is issued; name and registration number of the supplier; a description of the goods or services supplied; total amount payable for the supply; an indication that tax is included in the amount paid and name and computerised national identity card number (CNIC) in case of individuals and national tax number (NTN) in case of other buyers.

During the first part of the committee meeting, the opposition members told the government that there were certain flaws in the language of the RGST bills by identifying loopholes and they told the ruling PPP that they would prefer to read RGST and other bills clause by clause even if they decided to consider it for approval.

The committee recommended certain amendments in the original draft but these amendments are not binding on the government due to recommendatory stature of the Upper House.

The committee recommended to impose 10 percent flood surcharge on tax liabilities exceeding Rs 5,00,000 per annum instead of Rs 3,00,000.

The committee also asked the government to keep the food items, medicines and stationery out of the tax net by exempting from the levy of 15 per cent GST.

However, the FBR opposed these recommendations on the ground that it would open 'Pandora's box' for other exemptions.

"If we start giving exemptions to every sectors, the situation would again become complicated, as happened in case of Sales Tax Act, tax authorities commented".

Earlier, in the morning session, Ministry of Law conceded before the committee that the 'Reformed General Sales Tax (RGST) bill' was not properly vetted owing to time constraint and requirement of donors to submit this legislation to the Parliament before the recently held Pakistan Development Forum (PDF).

The Ministry of Law and FBR representatives had divergent views on certain number of proposed clauses of the RGST bills.

The senators belonging to PML (N), PML (Q) and Jamaat-i-Ismali were of the view that the government had introduced the RGST bill in haste; so, there were serious anomalies in it.

Ishaq Dar pointed out that RGST bill contains definition of imports but there was nothing about exports in the GST Bill 2010 which is a major anomaly.

Safdar Abbasi of the PPP warned during the proceedings of the committee that there would be serious political ramifications attached to the GST bill and it might be challenged in the Supreme Court; so, the Upper House must consider all pros and cons before granting approval to the bill.

Ministry of Law representative said that they had got three to four opportunities to remove distortion in the legislative bills.

Copyright Business Recorder, 2010

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