LAHORE – Federal Board of Revenue’s (FBR) consultant German International Cooperation (GIZ – formerly known as GTZ) has presented its study on the reformed General Sales Tax (GST), proposing a uniform tax regime for all sectors. It believes that GST reforms will have two primary facets, namely inflationary and distributional effect.
Official documents made available with Pakistan Today reveal that the GIZ study indicates that GST reforms will put one time inflationary pressure by removing exemptions or increasing tax rates for certain goods. It proposes that the standard GST rate should be reduced from 17 percent to 15 percent that will cover a bigger share of total consumption than the removal of exemptions or of tax rate rebates.
The study said the revenue threshold for registering for GST would be raised by half, from Rs 5 billion to Rs 7.5 billion, which exempt a large larger share of small businesses from sales taxation. It proposes that basic foodstuff should also be kept exempted from GST. The GIZ study suggests that price effects of GST in general and GST reforms in particular depend on the ability of suppliers to pass on any higher GST rate to consumers by raising sales prices.
It points out that though suppliers (apart from sectors with price regulations) are in principle free to set sales prices, but several factors, including market competition, consumer reaction and purchasing power will determine that how sharply prices for certain kind of goods rise if GST is levied or tax rate is increased.
