Implementation of RGST: FBR to introduce structural changes in ST system

The Federal Board of Revenue (FBR) has to introduce structural changes in the sales tax system for implementation of the revised general sales tax (GST) as so far exemptions have been withdrawn to broaden the tax base.
Sources told Business Recorder here on Friday that the structural changes would mean total revamping of the sales tax system by removing distortions and special tax schemes under the Sales Tax Act, 1990. At present, the FBR has gradually withdrawn sales tax exemptions, which has resulted in expansion of the tax base. However, structural changes in the sales tax system have yet to be introduced for implementation of the value-added tax (VAT) in its true sense.
The documentation of new sectors is a first step towards implementation of the RGST, but until or unless system is changed, the RGST cannot be enforced. The basic area of structural changes in the taxation system has not been touched, which is necessary for the RGST enforcement at national level.
According to sources, the FBR had initially withdrawn exemptions on certain sectors in March 2011. Later more exemptions have been withdrawn in budget for 2011-12. This withdrawal of exemptions has been instrumental in bringing the exempted sectors into the documented regime. Without structural changes in the sales tax system, it is not possible to implement the full-fledged VAT or RGST. Mere withdrawal of sales tax exemptions is only one component for implementation of the broad-based VAT. For this purpose, the existing system needs to be changed, which is full of distortions due to special procedures, fixed sales tax schemes and multiple rates in the existing VAT system. When the FBR would be able to introduce the structural changes in the sales tax system, the RGST or VAT would be implemented in Pakistan.
Sources admitted that presently "we are away from the RGST or VAT in the absence of the structural changes in the sales tax system". Presently, the sales tax collection system is totally distorted in the presence of Sales Tax Special Rules and Procedures having different tax treatment for different sectors. For example, the Board had issued Sales Tax Special Rules, 2007 vide Notification No SRO 480(1)/2007 containing XII (12) chapters pertaining to Retailers, Electric Power, Natural Gas, TCP, Services, Sugar supply to TCP, Advertisements, Customs Agents and Ship-handlers, Stevedore, Oil Marketing Companies, Vehicle dealers, Ginned Cotton, Commercial Exporters, Steel Melters and Re-rollers ship breakers etc, Biscuits and Confectioneries etc.
The Third Schedule of the Sales Tax Act, a major distortion in the sales tax regime, is still applicable on items on which sales tax has been collected on the basis of printed retail price. There are many other similar distortions in the sales tax regime. The FBR has to bring structural changes in the existing sales tax system for implementation of the RGST.