Many of the analysts that are criticizing current govt spoked in favour of RGST and said that it is miss understood and miss intercepted... nothing will be the affects on poor but the highly paid persons and earners will be affected infact.
What exactly this RGST means and is this federal govt have powers to impose it without the approval of provincial govts?

The Reformed General Sales Tax (RGST) Bill has become the latest ground for political games. While the Pakistan People’s Party (PPP) calls it a necessity, almost all parties are in strong opposition. Amidst the political rhetoric, economic experts are siding with the proposed taxation system and the public is flinching at the thought of yet another price hike.

What is the RGST? Why is it suddenly so important? Is it really as evil as they say?

Here are a few answers.

What is the RGST?

The RGST is actually plain old Value Added Tax (VAT) with a new name. Since the VAT has already had its fill of bad publicity, the government decided it would be a smart move to rename and repackage the new taxation system.

The RGST is a taxation system that operates by an addition of 15 per cent tax on each and every value addition on taxable products.

Who is involved?

The key players behind the proposed RGST are the International Monetary Fund (IMF), the World Bank, United States Mission to the European Union (USEU) and other assorted donors who are tired of paying their taxpayers money to cover up for the leaks in our taxation system. But this is not to say that we do not need reforms in our taxation system. The International Monetary Organisations might be the catalysts towards the reforms just now, but in all reality, tax reforms have been long overdue.

Those who will be affected in one way or other are the suppliers, the manufacturers and the retailers who will all have to maintain and disclose proper sales and production records and would thus find tax evasion pretty difficult. Of course, the real victims are the consumers who would bear the burden of higher costs.

Why implement the RGST?

The government is trying its best to impose the RGST mostly because there is no way out of it this time.

The imposition of more taxes is a condition to which the IMF had agreed to give a monetary injection to the failing economy of the country. Add flood related damage to the economy and conditions of the donor countries, and the imposition of the new tax has become a must.

Although the RGST is being imposed under pressure, economic experts say that Pakistan was in dire need of it. The new system of taxes will not only raise our revenue but also help in documenting the economic growth.

When will RGST be implemented?

The originally proposed VAT was supposed to come in effect back in July, but due to massive public and political backlash, the government was forced to delay the imposition.

Now, the RGST Bill has been passed by the Senate. Eventually, it will be discussed in the Parliament and will be passed unless rejected through a vote. The government needs just a simple majority to pass the Bill. As soon as is passed by the Parliament, the RGST will be imposed.

How will it impact you?

The new tax does have a wider reach than the old GST. When the RGST is imposed, everyone from the suppliers to the middleman in small and large businesses will be brought within the tax net.

Unlike the old GST, the RGST will not be imposed just on the final price of a product; rather, a certain amount of tax will be added at each stage of production.

For example if a supplier sells raw material worth Rs100 to a manufacturer, he would charge Rs115 instead of Rs100, and remit the extra Rs15 as tax.

After manufacturing the product, the manufacturer, for example, adds a profit of Rs2o. The product now costs Rs135, but instead of selling it to the retailer at Rs135, the manufacturer will add another 15 per cent to the value addition of Rs20 which will bring up the cost to Rs138. The extra Rs3 will be remitted as tax.

Finally, the retailer will add his profit. Assuming that is another Rs20, the price of the product is now up to Rs158 again. Instead of selling it at Rs158, the retailer will add yet another 15 per cent of the value addition and the final cost will be Rs161. The retailer will then pay the added tax back to the treasury.

There are exemptions and conditions, but so far the glitches are being worked out. According to economic experts, this system of taxation will help bring more people into the tax net. Not just that, tax evasion will become more and more difficult. Since everyone will be documenting and paying the tax at each level, any attempt at tax evasion will automatically be highlighted.

Source:
http://blogs.tribune.com.pk/story/31...ow-about-rgst/

__________________
When you have to shoot, shoot. Don't talk. ~ The Good, The Bad, and the Ugly

There are various problems associated with RGST or VAT.

1. First problem is that, this tax is directed towards strong section of traders and businessmen. This is because previous GST was imposed on the final prdouct, thus bypassing various stages through which it is now supposed to be implemented. As has been explained in the Viceroy's post about those stages, now those stages include the whole production and distribution system of the goods on which this tax is to imposed. This means that previously those industries which were out of tax documentation will come under tax net. This is the MAIN problem with RGST.

2. Like all indirect taxes, RGST is also inequitable and regressive in nature. Inequitable tax means that poor will be hit most with this tax, and regressive means that poor will have to pay more of their income in form of taxes.

3. IMF and WB, are not necessarily insisting on the RGST. Their main concern is about reduction of fiscal deficit. Which can be done through increase in direct taxes like income tax, but problem with direct taxes is that very influential section of society will come under tax net. Although, certainly more equitable and progressive (poor friendly), this tax is politically infeasible simply because of corrupt government and their machinery. I must tell you DIRECT TAXES ARE SURE ANSWER TO PAKISTAN'S PROBLEMS BUT GOVT DOES NOT WANT TO IMPOSE. In this situation, the only possibility in front of IMF and WB is to lay stress on imposition of RGST.

4. Another dimension of RGST is the issue of exemptions and different tax rates, while RGST will remove most of the exemptions and also a flat tax rate will be applied. But this act will increase prices of some items for example sugar, which is already expensive.

5. One post claimed that taxes are a means to reduce inflation. This is certainly true if taxes are direct i.e. imposed on their incomes directly. But I am afraid, this is not the case with RGST. This is because this tax is imposed on goods and services and not on income. Since this tax is inherently regressive (meaning poor will have to give more of his income in taxes as compared to rich one), thus rich will not be much affected and will continue spending although at less rate than before. But the increased price level will override this effect, hence resulting in inflation.

If that were direct tax, then it would have reduced the income level of rich while not affecting prices of goods and prices and thus will reduce the overall consumption by rich and may not have affected poor. Result will be reduction in inflation. This is because most of the spending comes from rich and decrease in their incomes may have reduced the price level.

Regards

November 26th, 2010 by Cy

FIRST things first. The reformed general sales tax (RGST) is bad for consumers. Which means it’s bad for the poor and the less well-off. The reason is pretty straightforward. RGST is an indirect tax, i.e. a tax on goods and services. Which means it will get passed on to the end consumer, which includes the poor and the less well-off.

Yes, the government wants to harp on the positive aspects, for obvious reasons: new taxes on leather goods and carpets, for example, are unlikely to hurt the poor because they don’t use carpets or leather goods.

But look at all the stuff that is getting taxed. And for that we need go no further than the information ministry’s six-page handout on RGST. ‘Surgical items’ — which means your next trip to a doctor may cost more. ‘Pharmaceuticals (other than life saving)’ — which means the next time you have a mild illness you’ll pay more to get better. ‘Stationery items, dairy products’ — self-explanatory.

But, and here’s the rub, there is a very different kind of problem which has ravaged the poor in recent years: inflation. In part, the fiscal deficit the country has been running has helped keep inflation high. Now, with the floods having added colossal expenditures to the overall budget, the fiscal deficit, in the absence of revenue-generating measures, would balloon again — further driving up inflation.

So for the poor and the less well off, it may be a case of damned if they do, damned if they don’t: fight off (theoretically) RGST and inflation would rise; accept RGST and end up paying more from their pockets.

There is, of course, a better solution: tax something else, or someone else, i.e. the rich. Which is why the government has cleverly weaved in the ‘flood tax’ on incomes. People and businesses paying income tax, a tiny percentage, will for six months have to pay 10 per cent more income tax. It’s really just a ruse, allowing the government to claim that it is moving towards a fairer tax system.

In truth, at the end of the six months, the country will have an inarguably more unjust and more inequitable tax system, because by then the RGST regime would have permanently expanded indirect taxes while direct taxes, i.e. income tax, would return to the original, low, level.

To understand why this happens, you need to know something about your politicians and how the state succumbs to special interests. Finance Minister Hafeez Sheikh gave an insight into this world earlier this week when he candidly admitted that as late as 11.30 the night before this year’s budget speech he was receiving calls pressing him to exclude a capital-gains tax on the stock market.

The rich not only know how to protect themselves, they are far more organised and serious about it than the average person. The average schmuck working nine-to-five for a pittance will bend to the government’s will and pony up the extra 10 per cent income tax (realistically, he will have no option because it will be deducted at source by his employer).

But the big boys have a bagful of tricks that the average schmuck can only dream of. Access is of course one thing. Hafeez Sheikh is notoriously inaccessible to the media. But stock-market kingpins lobbying against a capital-gains tax on their business can reach him at half eleven the night before the federal budget is unveiled.

Even better than access, however, is being there yourself to look after your interests. Sorry, we can’t tax agricultural income because it’s a provincial subject. Oh, how did that happen? Well, y’know, we transferred it to the provinces in the 18th Amendment. Oh, you mean the provinces where the big landlords control more seats? Yeah, but it was all about strengthening the federation. Straight face.

Is there any hope of a better, more just system emerging? At present, no. There is no will for it nor is there the capacity. The clumsiness with which the government has handled the RGST issue is indicative of that. A systemic overhaul or deep reform by these guys, in this incarnation, at the present time, is extremely unlikely.

But consider this: the most politically damaging thing a government could do — pare down subsidies at a time of soaring inflation and low growth — this government has done. Why?

Economics and finance have a logic of their own, logic that every government eventually has to bow before. In 2008, the option was to either embrace the IMF or slide towards economic oblivion. Purists may argue about that, but it was effectively the only choice in the real world where politics and economics intersect.

The same goes for the business of taxation. Eventually, economic logic will kick in. It’s happened already while setting the rate of RGST: 15 per cent, two per cent lower than the existing standard rate. In this year’s budget, the government experimented with a temporary, one per cent increase in the sales-tax rate. The consequences have been inevitable.

While in the short-term the demand for goods taxed stays more or less constant (people take time to adjust habits and consumption patterns), it eventually begins to sag — higher price translates into lower demand, meaning you can’t infinitely raise or rely on indirect taxes.

So it will be with RGST. It really is a band-aid solution, meant to nominally increase the tax-to-GDP ratio in the medium term. Eventually, other measures will be required.

At that point the RGST Trojan Horse may be tapped: once you’ve documented the production and supply chain, as the RGST aims to do, you’ve got proof of how much business so many more businesses are doing.

At present, only the retail level is captured by sales tax. But under RGST, which is really the value-added tax by a different name, the tax machinery will learn about the activities of manufacturers, marketers, distributors and wholesalers — exponentially increasing the potential targets of the taxman for things like income tax.

The problem? The same as always: special interests. What the taxman can document, the politician can scuttle. Just like agriculture and textile special interests have worked to keep those sectors largely out of the tax net, so will other, newly taxed sectors work to acquire clout in the corridors of power.

But then in the end they will still have to make a choice: do they want Pakistan to swim or sink economically?

At that point, you better hope you have a lifeboat handy.

Source:
http://www.cyrilalmeida.com/2010/11/...cyril-almeida/

__________________
When you have to shoot, shoot. Don't talk. ~ The Good, The Bad, and the Ugly

I totally do not agree sir, every new tax will be difinitely transfered to end customer causing more inflation...but offcourse there lies some political goals and miles to be achieved...

__________________
*****************************
A good child is seen but not heard.
*****************************

The Original GST implemented under the General Sales Tax Act 1990 was implemented in the VAT mode i.e. for the last 20 years, GST has been collected in stages on the value addition, and not at the final point. Therefore, this R-GST is not any change from the past practice in the mode of collection.




The idea has always been that GST/VAT/RGST would be used to document the entire economy and once it has been done, more stress would be on revenue collection through direct taxes. The indirect taxes would be reduced to a level below 10% (some studies even propose below 5%) and would only be used to keep a check on the incomes.

__________________
Muhammad Ali Asghar

Words containing some wisdom

Need to simplify taxation system

TAXATION is an effective tool to form and influence socio-economic policies of a country, but regrettably it has not been given proper attention in Pakistan.

The first and foremost objective of tax policy is to raise resources for administration and development. In order to raise resources, there should be a free and fair taxation policy, as well as friendly law.

On the contrary, the Income Tax Ordinance 2001 is in clash, to a great extent, with taxpayers. Broadening and simplifying the tax base is the need of the day and the government needs to work on it seriously.

One of the main reasons for insufficient tax collection is a number of complications in the current policy and lack of trust in the present tax system. Many people avoid filing tax returns because of their fear of harassment by tax personnel.

Despite meeting tax obligations honestly even in the light of harsh rules, a taxpayer yet feels insecure and the government does not come forward when the taxpayer needs support and help.

As a result, the quantity of tax evaders is being increased, which is not less than a crime, because several corrupt officials within the FBR extort bribes to help tax evaders get away with their crime.

In most countries, tax evasion is being taken as a serious crime and tax dodgers are prosecuted and punished, but in Pakistan no serious attempts have been made as yet to curb and discourage tax evasion and to apprehend tax dodgers because of the existing rules and policies.

Under the Income Tax Ordinance, 2001, prosecution (Part X1-sections 191 199) is an alternative to imposing penalty (Part X sections 183 to 189), “….no prosecution proceedings are initiated if penalty under chapter X has been imposed”. Thus, fine and imprisonment prescribed on account of non-compliance of statutory obligations, concealment of income, making false or misleading statement, etc., are nothing more than attractive provisions.

Under section 177, the commissioners of income tax have now been empowered to conduct audit of income tax affairs of a person or classes of persons.

This is not less than the official harassment and blackmailing of taxpayers and rather discourage taxpayers.

Section 111(4) protects tax evaders as they can whiten untaxed income through an extremely simple and easily available procedure by going to a money exchanger and getting fictitious foreign remittance in his account.

So what we can do first is to bring tax evaders into the tax net and to implement the previously successful scheme of self-assessment as introduced in 1997, besides repealing all unfriendly laws.

MOHAMMAD AZAM SHAIKH

General Secretary

Income Tax Bar Association

Larkana

Dawn : November 30

__________________
Thanks Allah

@M Ali Asghar

Thanks for the information. You are quite right when you said:

"The Original GST implemented under the General Sales Tax Act 1990 was implemented in the VAT mode i.e. for the last 20 years, GST has been collected in stages on the value addition, and not at the final point. Therefore, this R-GST is not any change from the past practice in the mode of collection."

This is right as per law and Sales tax Act. But in practice let me quote an excrept from one study (Thirsk, 2008):

"Because wholesalers and retailers were felt to be evading sales tax on large scale, the FBR began to impose sales tax on on the "printed" retail price set by manufacturer, thus pre collecting tax that would or should have been paid at the later stage."

Reference: Thirsk, Wayne (2008). "Tax Policy in Pakistan: An Assessment of Major Taxes and Options for Reform" International Studies Program, Working Paper 08-2008, Andrew Young School of Policy Studies.

Thus in practice GST is collected at final point of sale. Besides, if it were really a VAT, then there is no need to change it.

Regards

Adventorial: Get paid to be rich

Want to lead a luxurious lifestyle without paying any tax? Fed up of being expected to account for your wealth? Well, we at Rabbani, Gillani, Sheikh, Tareen & Co., (RGST & Co.) have the answer. We are proud to bring you the opulence of Park Lane without the oppression of taxation in the Principality of Parkistan, known as “The Enclave of the Rich”, an autonomous entity exclusively for the rich landed elite. It should not to be confused with the surrounding Republic of Pakistan, also known as “the Land of the Poor”.

RGST & Co. bring you prime tracts of land, in beautiful Parkistan, providing the luxury, comfort and excellence you and your wealth deserve with a privilege available nowhere else in the world. Other jurisdictions tax the wealthy more than the poor. In Parkistan, thanks to RGST & Co. we are proud to say that being rich shouldn’t cost you a penny. Because rich people have the right to be rich, stay rich and get richer.

All you need to do to qualify for this amazing opportunity is to become an “agriculturist”. Yes, it really is that simple. All your income will instantaneously become tax free and it’s absolutely 100 per cent legal! Sounds too good to be true, doesn’t it? Well just hear what satisfied clients have to say: “Hello — I am Chaudhry Malik — I am a wealthy businessman with large land holdings. In any other country, I would have to pay up to 50 per cent income tax. But in Parkistan, I just show all my income as “agricultural”, so even though I earn millions of dollars, own sprawling estates and live in opulence, I pay only $80 in tax — and that’s just some paltry land tax. Thank you RGST & Co. You make being wealthy profitable.”

What’s more, not only will you be exempt from income tax — you actually get paid money too. Oh yes! Poor Pakistan’s government will pay you fertiliser, fuel and input subsidies as well as superb support prices. So you actually make money at both ends…. with subsidised inputs and tax-free income. It couldn’t get any better!

However, all we ask of you is that when you are a member of Parkistan you always deny its lucrative privileges, to protect the sanctity of this exclusive tax haven for the rich. This haven is strictly for the rich, landed elite. But even though Parkistan is exclusive to you, you need not be committed to Parkistan. We offer attractive dual residence packages — our most preferred location is Canada (three year process), followed by the United States (green card or business residency) and Dubai (immediate residency). Most of you will wish to maintain a portfolio of prime residences in these locations and we recommend doing so. The Principality’s rich-friendly policies and tax-free status are occasionally subject to frivolous attacks by the courts and media but, to date, none of our wealthy residents has been prosecuted, audited or held accountable and we expect that trend to continue.
Still not convinced? Well here is an exclusive offer you cannot afford to miss! If you are one of the next 100 wealthy politicians to join us at RGST & Co. — in addition to guaranteed tax-free income AND huge subsidies AND generous support prices we will also give you absolutely FREE — a massive loan write-off. But hurry — this offer ends soon. Just make sure you have “borrowed” upwards of Rs 1 billion from any Pakistani bank and we will take care of the rest. Most of our partners have had an average of Rs3 billion written off — or “rescheduled” permanently — as we like to put it.

It pays to be rich but now you can get paid to be rich! Welcome to Parkistan! Where the “r” stands for rich!

RGST & Co. are proud to be partners of IMF Inc. Global Subservience UnLimited.

Disclaimer: The above offer expires in three months. In the event of riots, rebellion or an Act of God, RGST & Co. may withdraw this offer and shall not be held liable for any loss, damage or suffering resulting thereof.


The writer is a barrister and a public policy graduate from Harvard University mahreen.khan@tribune.com.pk

http://tribune.com.pk/story/82195/ad...id-to-be-rich/

__________________
Whatever you do will be insignificant, but it is very important that you do it.
-Gandhi

@Muhammad Ali Asghar
RGST stands for Reformed General Sales Tax.