RGST: Another cross from the public to bear

People of all income levels will pay taxes on more items but the burden will mostly increase on low income groups.

Tehreem Mahmood November 16, 2010
The other day I was watching a show on Dunya TV that was discussing the latest General Sales Tax reform introduced by the government. To my shock, one of the proponents was renowned journalist Mr Ansar Abbasi.

According to him and the other pro-GST reform person, the recent Reform General Sales Tax will:
1. Be used to broaden the tax base

2. Decrease GST by two percent. The tax is 17 per cent now and after the new RGST implementation it will be 15 per cent.  The excise duty shall be increased from 1 per cent to 2 per cent.

Thus, Ansari explained the taxes being 2 per cent less, where people shall pay 15 per cent tax on more items, rather paying 17 per cent of it on lesser products.

What is GST?

It is a Value Added Tax that is applied on a number of products where some (as at present) are exempted from such taxes.

What will the new reform do?

It shall increase the number of products on which GST will be applied on.

A system that works - if you are an industrialist

In Pakistan, we have a system running. Industrialists include their taxes in the product costing. So, no matter how much taxes they get to pay, they only increase the final costing of the product. Consumers pay the retail price (that includes the taxes of the industrialists) for the product. So, in the end the public ends up paying taxes for the product and the industrialist both.

After imposing taxes on more products, the picture to me looks something like this. People of every income level will pay taxes on more items but the burden shall mostly be increased on those with low incomes as they will now pay  15% more on, say, five products instead of 17% on three. Does this, in anyway, sound fair?

Is there an alternative?

If we have to broaden the tax base, what else can we do? We, all those in favor of the RGST in particular, are missing a point here. GST, as previously said, is applied on products this is why the entire burden on public issue is threatening the nation. Instead of imposing taxes on number of items that we use daily, we should rather tax unutilized property, uncultivated land and closed factories, capital gain tax, gold sales/purchase tax (as it is out of reach of a common Pakistani now), sales/purchase of bonds, shares and large properties, investment tax and such other things.

Here, the money gets jammed and stored up, stuck like a saving and becomes no good for our economy. The government must keep the money in constant rotation without burdening the backbone of the country. This is how we should broaden the tax base, by increasing/implying taxes on things that are luxuries and not by putting a tax tag on bare necessities.

What else can we do to broaden the tax-base?

The government must motivate people to pay taxes now. By giving recognition and facilities to the highest tax payers, government can kick start a competition, healthy for public and the government both. Government can allow such tax payers personal and business loans on comfortable terms or may be free entry to airport’s VIP lounge etc. All of such things where the government will not have to spend even a penny and will encourage masses for paying their taxes.

The country has had enough inflation already. We must stop this and take control over things. It seems that we know the targets but we have no idea where the bull’s-eye is at!
Tehreem Mahmood A junior copywriter for an advertising agency in Karachi. Tehreem also freelances for South Asia Magazine.
The views expressed by the writer and the reader comments do not necassarily reflect the views and policies of the Express Tribune.


Zain | 13 years ago | Reply @Tehreem Mahmood: I have written an article for current economic problems and also their solutions. If you have a time, please have a look at it. http://www.paktribune.com/news/index.shtml?232269
faraz | 13 years ago | Reply Income tax depends on net income while sales tax depends on revenue. Income tax is calculated at the end; how can it influence the sales price which is fixed at the beginning of a budgetory period? And if sales price is increased, then the net income and the income tax will also increase.
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