Opinion

Forget the RGST, implement the GST

The proposition that RGST will widen our tax base is possibly the most pernicious of justifications.

Mian Haroun Rashid November 26, 2010

Of all the wisdoms being peddled by the government, the Federal Board of Revenue (FBR) and “financial experts” to justify the imposition of the Reformed General Sales Tax (RGST), the proposition that it will widen our tax base is possibly the most pernicious. Experience has shown that every fresh tax merely imposes an additional burden on the handful of persons who are already registered taxpayers while tax evaders are presented with one more tax to evade. As a first step to developing a taxpaying culture, the FBR should ensure that every adult with an income above the tax threshold is assigned a National Tax Number and brought into the tax system. It is only after accomplishing this basic task that taxes can be imposed fairly and equitably.

The politicians are not interested in this for fear of losing vote-banks among the traders and shopkeepers who operate as urban mafias. Tax officials are not interested because they are themselves beneficiaries of the stolen billions found in the coffers of tax evaders. The RGST is merely an extension of the GST which has existed for many years. Yet there are vast swathes of our economy where the GST is levied but is hardly collected. There are whole industry sectors which are legally bound to pay the GST but in reality, at the most, only a couple of companies actually do. The milk and dairy sector is a good example. A handful of multinational and local industries have become high-profile household names as a result of heavy advertising and marketing expenditures. Yet all of them in aggregate represent no more than four per cent of that industry — the remaining 96 per cent operating happily under the ‘unorganised sector’ category. The notion that these huge sectors are suddenly going to start paying tax just because the GST is now to be called the RGST is ridiculous in the extreme.

All these facts are well-known and documented. Yet no politician or tax official is interested in correcting such glaring anomalies. If the FBR were to make an honest and concerted effort at ensuring that all amounts due under the existing GST were fully and fairly collected there would be no need for the RGST. The IMF, to devise effective policies, should interact with the registered taxpayers of this country and learn what actually happens at the sharp end. There is little point in theorising in ivory towers with officials who are complicit in the sloth, corruption and incompetence that has brought this country to its knees.

If we are in such dire economic straits, what steps has the government taken towards reducing its own wasteful expenditures? Regrettably, all major political parties have failed miserably in this aspect. Are they then surprised that there should be such a loud and vociferous protest at the imposition of this new tax proposal?

Published in The Express Tribune, November 27^th, 2010.

COMMENTS (5)

Maaz Gardezi | 13 years ago | Reply I agree that the major reasons for the present low tax revenue generation are major sectors being excluded from the tax net or being undertaxed, low compliance, a large undocumented sector, and weak audit and enforcement. The fiscal challenges that Pakistan faces require action both in managing government expenditures and in mobilizing additional resources. The RGST postulates bringing equities and real estate into a more realistic tax schedule and containing minimal exemptions where no domestic sector will be zero-rated. This is questionable. I do not see the issue of governance and best practives being resloved overnight. Therefore, the alternative is mobilizing nontax revenues. For instrance, a reformation of the power sector, the subsidies to which in the current year are likely to reach Rs.230 billion. Should the government move towards tariffs that cover the full costs in the power sector? Increasing the tariffs has already commenced; they have been increased by 60–90 percent since July 2008. Even under such steps the authorities are failing to move towards recovering arrears of payment. This is an interesting debate!.

haroun rashid | 13 years ago | Reply To Mr Mushood Sheikh I can only say that if one wants to be sensational in the press, one should check one's facts first and, better still, not to contradict oneself. Issuing an assessment order does not amount to either "recovery." or "grabbing by the collar." I can only imagine that the instance he is referring to is a genuine disagreement on a particular tax provision which this company, along with dozens of others, have challenged in the courts and is therefore sub judice. Suffice it say, that Pakistan Cables Ltd is far and away the largest single overall taxpayer in the wire and cables sector and a consistent winner of the Karachi Stock Exchange top companies awards. Give yourself a break Mr Sheikh.