ISLAMABAD: The Federal and Provincial Governments have reached an agreement to introduce the Reformed General Sells Tax (RGST) in the country to eliminate the tax exemptions as committed with the International Monetary Fund (IMF) from October 1, 2010. The RGST is indeed a new face of the existing General Sells Tax and it will be replaced on the directions of the IMF. Its rate will be probably 15 percent instead of 17 to 23 percent and it will be collected in different stages as the value add of the product and existing tax exemptions would be eliminated.
Earlier, the GST was collected in one phase at manufacturing and most of the strong sectors enjoying tax exemptions likewise textile, retailers, dealers, doctors, lawyers and beauty parlor despite they are able to pay taxes. The conflict was erupted when the Sindh province demanded for constitutions right of collecting GST on services sector itself but the federal government did not agree to hand over the right to the provinces due to their lack of capacity of tax collecting.
The remaining three provinces were ready to surrender their right and handed over to the federal government saying that they have not capacity to collect GST but alone Sindh was insisting that it will not surrender from its right. But on Monday they reached on consensus that only GST on services of the telecom sector will collect FBR on behalf of the Sindh but from other sectors including constructions, insurance, franchises and banking will collect GST itself the provincial government.
Most of the analysts and some officials believe that although additional revenues would be created but it is fact that RGST will lead inflation in the country from which common man will suffer. After enforcement of the RGST, there will not only prices would be increased due to the RGST but also an opponent lobby of the RGST in the traders and retailers has prepared a comprehensive strategy for gaining undue profit in the name of the RGST.
It means that a self created inflation is ready to welcome to the common man of the country. The meeting of the RGST presided over by Finance Minister Dr Abdul Hafeez Sheikh here on Monday and attended by provincial finance ministers. During the meeting, it was agreed that the RGST was a provincial subject and as per the Constitution of Pakistan, its imposition would be through provincial legislation.
This has been agreed that provinces would have the right to collect tax on services that does not involve input adjustment and cross provincial transaction whereas provinces would delegate powers through legislations to the Federal Board of Revenue for collection of sale tax on all those services that involve input adjustment and cross provincial transaction.
The federal government would distribute sale tax collection among the provinces after deducting 1 per cent collection charges as agreed in the NFC. Finance Advisor to Chief Minister Sindh Kaiser Bengali said that his province itself would collect sale tax on telecommunication while other provinces have given this right to the Federal Board of Revenue due lack of capacity.
To a question about the mode of implementation, “we were told that tax RGST would be enforced through Parliament legislation”. He said that provinces need to adopt legislation before 1st October 2010 for enforcement of the tax. He said that the Sindh would give sale tax collection rights on banking, construction, franchises and advertising to the FBR because of input adjustment. The FBR would pool the collection into a separate head from where it would be distributed among the provinces as per the NFC formula.-SANA