ISLAMABAD – The lobby of the rich within and outside the parliament is providing stern resistance on the imposition of reformed General Sales Tax (GST) in an attempt to evade taxes at the cost of the poor, independent analysts said.
They believed that the government should keep a vigilant eye on such elements and take steps for the passage of the reformed GST Bill from the parliament. This, they believed, was necessary for the economic sovereignty of Pakistan. Reformed General Sales Tax (GST), if approved by the Parliament, would not increase inflationary pressures as the multiple tax rates range between 15 to 17 percent, they added.
The proposed General Sales Tax is not a new tax, it was an endeavouring by the government to document the economy and protect interests of the poor by bringing tax evaders and rich in the tax bracket. However, prices of items with tax exemption could rise as the new GST regime would remove exemptions, a comparative analysis by the FBR said.
Analysts said that the GST system would replace existing regimes of sales tax and excise on services. The GST will apply on both import and local supply stages, while the standard rate of 15 percent has been proposed instead of the present rate of 17 percent, analysts added. There would 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 presently stands at Rs 5.0 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 whole sellers would be brought into the tax net for documentation purposes, it added.
The reformed GST, if approved by the Parliament, will eliminate multiple tax rates from 17 to 26 percent to a single rate of 15 percent. Currently, 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 charge on services provided by hotels/clubs/caterers, custom agents, ship chandlers, stevedores, courier services and advertisements on TV and 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 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, basic food items including wheat, rice, pulses, vegetables, fruits, live animals, meat and poultry etc, chargeable to Federal Excise Duty, will remain exempted from GST as before.
Exemptions on philanthropic, charitable, educational, health or scientific research purposes or under international commitments/agreements including grants in-aid will also continue. In addition, life saving drugs, books and other printed materials including newspapers and periodicals will also stay exempted. The proposed GST system will certainly not generate a sudden increase in revenue yield.
It will, however, increase the overall tax to GDP ratio from a meagre 10 percent to about 12 percent in next 3-5 years, the FRB analysis concluded. “If the nation wanted to get rid of foreign loans than we should rely on our own resources and generate additional revenues by adopting the reformed GST from the Parliamentat the earliest”, 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. The Minister thanked the Senate Standing Committee on Finance for their valuable suggestions and approval of the reformed GST.
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 specially the poor”. He clarified that health, education, food grains, vegetables and edible items had been kept exempted from the tax in order to ensure relief for the common man.
