The lobby of the rich within and outside of the parliament is opposing the Sales Tax (Reformed) to evade taxes at the cost of poor, observed independent analysts said. They said that government should keep an eye on such elements and take steps for the passage of the RGST Bill from the parliament for the economic sovereignty of the country.
Reformed General Sales Tax (RGST), if approved by the Parliament, would not result in hiking inflationary pressures because the multiple tax rates ranging from 17 to 15 percent, they added. The proposed General Sales Tax (Reformed) is not a new tax. It was an endeavour by the government to document the economy, protect the interests of the poor and marginalise section of the society by bringing tax evaders and those people who are rich but do not pay their due taxes.
However the prices of items on which there is exemption could go up as it is going to be removed under RGST regime, a comparative analysis done by the FBR said. According to analysts the RGST system would replace the existing regimes of sales tax and excise on services.
The GST will apply both at import and local supply stages and standard rate of 15% has been proposed instead of the present rate of 17% or multiple other rates going up to 25%, the analysts added. They said that there shall be no fixed tax, reduced tax, enhanced tax, retail price-based tax or special tax scheme under the new GST system.
A uniform enhanced annual exemption threshold of Rs 7.5 million (which is presently Rs 5 million) shall be applied to keep small businesses, including small traders/retailers/cottage industry out of mandatory tax compliance. The whole supply chain including distributors and wholesalers, would be brought into the tax net for documentation purposes, it added. The RGST if approved by the Parliament, will eliminate multiple tax rates from 17-26 percent to a single rate of 15 percent.
Presently, apart from sales tax on the supply and import of goods, Federal Excise Duty is charged on communication (including telecom) services, certain categories of advertisements, insurance services other than life, marine, health and crop, banking services, franchise services and services provided by property developers/promoters, stockbrokers and port/terminal operators.
Provincial sales tax is chargeable on services provided by hotels/clubs/caterers, custom agents, ship chandlers and stevedores, courier services and advertisements on TV & radio. Except franchise services, Federal Excise Duty and provincial sales tax on all the aforesaid services is being collected under GST mode with backward and forward cross-crediting (inter-tax-adjustment) with federal sales tax.
The GST Bill, 2010 will replace the present Sales Tax Act, 1990, while the issues of collection and administration of sales tax on services is being separately negotiated with the provinces in the light of recent NFC award. Under the new GST law, exemptions have been kept intact in respect of basic food items, including wheat, rice, pulses, vegetables, fruits, live animals, meat and poultry etc. Edible oil chargeable to Federal Excise Duty, will remain exempt from GST as before.
Exemptions earlier available for philanthropic, charitable, educational, health or scientific research purposes or under international commitments/ agreements including grants in-aid will also continue. Moreover, life-saving drugs, books and other printed materials, including newspapers and periodicals, have been kept exempt.
The proposed GST Bill 2010 shall take effect from such date as may be notified by the federal government. The proposed GST system will certainly not generate any sudden increase in revenue yield. It will however, increase the overall tax-to-GDP ration from the present below 10% to about 12% in next 3-5 years, the FRB analysis concluded.
"If the nation wanted to get rid of the foreign loans, then we should rely on our own resources and generate additional revenues by adopting the RGST from the Parliament as soon as possible", economic experts observed. According to Minister for Finance, Revenues and Economic Affairs Dr Abdul Hafeez Shaikh, the government has to take tough decisions in the wake of economic challenges including the recent devastating floods in the country.
He said that this tax has been imposed on rich people to help 20 million flood victims and would be in the favour of the people in the country. The Minister thanked the Senate Standing Committee on Finance for its valuable suggestions and approval of the RGST with recommendations to the National Assembly.
The Sale Tax , he said, is not a new tax which had been in place for the last 20 year only "we have refined the tax for the benefit of the country and its people, especially the poor". He clarified that no efforts has been made to impose RGST on health, education, foodgrains, vegetables, ghee and edible items for the relief of the people specially the common man.
The GST will apply on both at import and local supply stages and standard rate of 15% has been proposed instead for the present rate of 17% or multiple other rates going up to 25%, the analysis's added. It said that there shall be no fixed tax, reduced tax, enhanced tax, retail price-based tax or special tax scheme under the new GST system.
Economic experts here termed IMF nine-month extension for stand-by arrangement, an opportunity to complete the reform for General Sales Tax and correct the course of fiscal policy and amend the legislative framework for the financial sector.
Pakistan can use this period as an opportunity to further correct the fiscal policy to implement the RGST in the country, Dr Ashfaq Hassan Khan, former Advisor to the Finance Ministry, told APP here. He was of the view that Pakistan can implement the proposed RGST in two stages, firstly it can withdraw Sales Tax exemptions except on education, food items and basic medicines.
Dr Rashid Amjad also welcomed the IMF decision. He added that IMF supports Pakistan to improve the country's balance of payment position which is in the country's interest. He added he did not think that the IMF is imposing any conditionally by asking Pakistan to implement RGST as its implementation is in our own interest.