Bengali presents proposals for upcoming budget

Proposes to replace RGST system with the previous regime.

KARACHI: Economist Dr Kaiser Bengali on Wednesday presented his “agenda for growth, employment and social justice” in view of the upcoming federal and provincial budgets for 2012-13.

Addressing media at the Karachi Press Club, Bengali called the Reformed General Sales Tax (RGST) ‘unconstitutional.’ “It’s an integrated tax on both goods and services. However, the sales tax on goods is a federal tax and the sales tax on services is a provincial tax,” he said, adding that it is a complex tax and imposes high compliance cost on small businesses. “It raises the cost of doing business and reduces competitiveness.”

Bengali presented two alternative proposals in order to simplify the sales tax regime. The first suggestion called for replacing RGST with the old sales tax system without any provision for input/output adjustments and refund processes. The proposal also called for reducing the sales tax rate on goods to 3%-5%, while tax on services, under the same proposal, ought to be between 10% and 15%.

The second proposal presented by Bengali called for restructuring RGST so that the value-added tax (VAT) mode is applicable to goods only. Therefore, while the Federal Board of Revenue (FBR) should collect RGST on all goods and allow input/output adjustments and refunds on all goods transactions, provinces should be able to collect sales tax on services without making any refunds. He praised the decision to impose capital gains tax on the sale of stocks within six months of purchase and demanded that the tax should be adopted on a permanent basis.

He also called for imposing capital gains tax on the real estate sector. “A non-productive sector is thriving at the cost of a productive sector,” he noted, adding that tax should be imposed on properties sold within three years of purchase.

Published in The Express Tribune, May 31^st, 2012.