KARACHI: The government does not require the approval of parliament to implement the changes envisioned in the reformed general sales tax (RGST) bill, according to Shabbar Zaidi, a prominent accountant and economic analyst.
Delivering a lecture at Karachi University on Monday, Zaidi explained that the new bill aims to re-enact the sales tax structure that was initially implemented through the Sales Tax Act of 1996.
“Over the years, different sectors were given exemptions through statutory regulatory orders issued by the Federal Board of Revenue (FBR) and these exemptions can be withdrawn by issuing fresh orders,” he said.
Zaidi was part of a delegation led by Dr Hafeez Pasha that met officials from the International Monetary Fund (IMF) in November 2009 to discuss the implementation of the RGST.
“At that meeting, our representatives had argued for the implementation of the reformed tax regime through parliament so that a comprehensive debate could be held on its implementation,” asserted Zaidi, adding that “parliament would also be able to undo the power of the FBR to issue exemptions in future through this act.”
“However, if the resistance against the implementation of RGST continues, the government can withdraw the bill and introduce these amendments through similar orders issued by the FBR,” said Zaidi.
Under the Sales Tax Act of 1996, no sales tax was charged on those goods that were exported. However in 2005, the FBR also declared local sales of five export-oriented sectors to be exempt from sales tax. These sectors include textile, leather, sport goods, carpets and surgical equipment. The exemption meant that all goods manufactured by these sectors were tax-free.
Similarly, the list of items granted tax exemption has also mushroomed over the years through similar orders. The tax law enacted in 1996 had, like the current RGST, also envisioned that sales tax will be collected at every level of manufacturing and distribution. However, tax officials cited practical difficulties of implementing this condition and modified the original law so that the entire tax is now collected from manufacturers.
“By collecting the tax at different levels, the government will not be collecting more money,” explained Zaidi, adding that “it will simply be bringing all distributors, retailers and wholesalers into the tax net.”
He asserted that retailers and wholesalers are only opposing the RGST because its implementation would expose the actual amount of sales that each of them generates. “Once their incomes become known, they will have to pay income tax and that is what these people are trying to avoid,” he said.
He also argued that the RGST will not significantly raise prices of goods. “There are only seven or eight items that were previously exempt from sales tax and will now be taxed and most of these items are only used by relatively affluent people,” said the economic analyst.
Zaidi stressed that the primary purpose of the RGST will be to document the economy and identify tax evaders. He pointed out that “even with the implementation of the RGST, the government’s revenue will be less than Rs2 trillion by next year.”
“Just the interest that has to be paid on foreign loans will be about Rs1 trillion, then there’s the expense of Rs450 billion for defence, another Rs250 billion for subsidies and about as much to fight the war on terror,” he added. “This nation has to realise that this is not a sustainable position and unless we start enacting laws that mandate people to pay their taxes we will become insolvent.”
Published in The Express Tribune, December 21st, 2010.
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