RGST formally known as VAT, news relating approval from both houses of Majlis e Shrua are heard but at the same time govt is facing strong opposition even from their coalition partners and criticism inside and outside the NA. What exactly it is and what will be its merits and de-merits on our economy? What will be it's affects on a common man as is said that GST will be lowered to 15% from 17% and the tax will be imposed on high paid salary persons and some merchants? What exactly this RGST is?

yes it is very important for us to know wht exactly te RGST? Plz help us n spread ur knowledge.

RGST stands for 'Reformed Goods & Services Tax'. It is an improved version of GST which stood for 'General Sales Tax'.
The primary difference is that whereas GST was applied only to the goods at the final point of sale, RGST would also be applicable on services. This means if we go to see a doctor, he would also apply 15% tax at the end when billiing for his fee. Similarly lawyers, engineers and other professionals would also apply a 15% tax on their services/consultation.
The second difference is that RGST waives off exemptions from certain goods which had hitherto been given in the GST regime. For instance computer hardware industry uptil 2 years before had been exempt from GST but was included in GST in 2008. Similarly sports goods, textiles and leather goods etc which were hitherto exempted from GST would now be subjected to 15% taxation.However, exemptions earlier available for philanthropic, charitable, educational, health or scientific research purposes or under international commitments /agreements including grants-in-aid will also continue.
Thirdly there has been a rationalization of tax rates. Some products were being charged higher rates (e.g. 19.5% on telecom calls), and some lower than usual (e.g. 8% on sugar). Now all would be brought to 15% standard rate. This means while telecom services would get cheaper, but sugar would be dearer.

__________________
Muhammad Ali Asghar

1. Pakistan is in dire need of increasing its tax revenues by implementing a broad-based modern form of sales tax on goods and services. The Sales Tax Act, 1990, was originally designed on the basis of accepted value added taxation doctrines but due to political compromises and revenue exigencies, it increasingly became distorted and narrow-based because of ever-expanding exemptions, special regimes, multiplicity of rates and several other deviations from international best concepts and practices. Resultantly, not only the tax base of sales tax and income tax has been eroded but also lack of documentation of the national economy has proved a big hindrance in the development of effective tax policy options.

2. Under the existing constitutional framework, the Federal government can impose taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed. The Federal government has been levying excise duty on services. After passage of the 18th Constitutional Amendment, taxation of services now wholly falls within the domain of Provincial governments.

3. Presently, apart from sales tax on the supply and import of goods, Federal excise duty is chargeable on communication (including telecom) services, certain categories of advertisements, insurance services other than life, marine, health and crop, banking services, franchise services and services provided by property developers/promoters, stockbrokers and port/terminal operators. Besides, Provincial sales tax is chargeable on services provided by hotels/clubs/caterers, custom agents, ship chandlers and stevedores, courier services and advertisements on TV & radio. Except franchise services, Federal excise duty and Provincial sales tax on all the aforesaid services is being collected under GST mode with backward and forward cross-crediting (inter-tax adjustment) with Federal sales tax.

4. Tax-to-GDP ratio on account of the said sales taxes has stagnated on lower side although internationally, the standard rate of 17 percent sounds on higher side. The principal reason of lower tax to GDP ratio of sales taxes has been widespread and unbridled concessions and waivers on both local supply and import stages including zero-rating on several categories of domestic supplies, besides non-coverage of the services sector in general.

5. The consultations with tax professional circles have over the passage of time convinced that there is an overdue need to thoroughly reform and revamp the whole existing sales tax system to bring it closer to international standards. The new GST system will change the mindset of the public at large as well as of the tax machinery and will strengthen government’s efforts to formally depart from excise-style of sales taxation on goods and services.

6. The GST Bill, 2010 will replace the present Sales Tax Act, 1990. While the issues of collection and administration of sales tax on services are being separately negotiated with the Provinces in the light of recent NFC award, a provision has been included in the Federal Bill to integrate Provincial sales tax on services with the Federal sales tax on goods as and when the Provinces authorize FBR to collect and administer sales tax on services.

7. Under the new GST law, exemptions have been kept intact in respect of basic food items including wheat, rice, pulses, vegetables, fruits, live animals, meat and poultry etc. Edible oil chargeable to Federal excise duty will remain exempt from GST as before. Exemptions earlier available for philanthropic, charitable, educational, health or scientific research purposes or under international commitments/agreements including grants-in-aid will also continue. Moreover, life saving drugs, books and other printed materials including newspapers and periodicals have been kept exempt.

8. Local consumption of sectors like textile (including carpets), leather, surgical and sports goods has however, been subjected to tax. Similarly, defence stores, stationary items, dairy products, pharmaceuticals (other than lifesaving), agricultural inputs, agricultural machinery and implements, aviation/navigation equipments including ships & aircrafts etc. have also been proposed to be taxed. Acquisition of capital goods will be facilitated through expeditious adjustment/refund of input tax involved therein.

9. GST will be chargeable only on value added component of each stage of the supply chain. Due to the provision for set-off of the tax paid at earlier stages in the chain, net tax incidence remains as a single stage levy. Due to automatic input tax adjustment facility, businesses are attracted towards voluntary registration so that they may avail such adjustments and improve their cash flows. For this reason, GST always promotes documentation and encourages self-compliance.

10. Other salient features of the new GST system are as follows.

• GST will replace the existing regimes of sales tax and excises on services.
• GST will apply on both at import and local supply stages.
• Standard rate of 15% has been proposed instead of the present rate of 17% or multiple other rates going upto 25%.
• There shall be no fixed tax, reduced tax, enhanced tax, retail price-based tax or special tax scheme under the new GST system.
• A uniform enhanced annual exemption threshold of Rs.7.5 million (which is presently Rs. 5 million) shall be applied to keep small businesses including small traders/retailers/cottage industry out of mandatory tax compliance.
• All exports shall be zero-rated.
• Input tax adjustment of both direct and indirect constituents shall be allowed on “totals” basis (excluding entertainment and non-business use passenger vehicles).
• Sales tax on goods and services where so authorized by the Provinces shall be mutually adjustable so that double taxation does not occur.
• No general zero-rating shall be admissible on any commercial form of domestic supply or on any local consumption.
• The GST system will work purely on “self-assessment and self-policing” basis.
• Cash flow of businesses shall be facilitated through expeditious centralized (Electronic) refund payment system.
• Tax compliance shall be encouraged through transparent and fair audit system with increased use of modern information technology.
• Adjudication, appeal and alternative dispute resolution (ADR) systems have been provided as before.
• FBR will issue simplified rules to regulate the GST procedures and processes.
• The GST Bill 2010 shall take effect from such date as may be notified by the Federal government.
• The new GST system will be applied in FATA/PATA, the Province of Gilgit-Baltistan and AJ&K in due course.

11. The proposed GST system will certainly not generate any sudden increase in revenue yield. It will however, increase the overall tax-to-GDP ratio from the present below 10% to about 12% in next 3-5 years. Pakistan has a strong potential to implement such value added tax type sales tax because of the reason that besides having a properly-reformed collection infrastructure, it has a long-operating sales tax system and substantial hidden sales taxation on inputs of exempt outputs (exempt supplies are input taxed) is already being borne in the aggregate national consumption.

12. The proposed GST system is expected to operate without any serious inflationary impact. It will rather promote economic equity and enable the country to direct national resources towards more productive goals of national development. Reformed GST is also likely to progressively minimize the grey component of the national economy and facilitate fair income redistribution. It will eventually cast healthy impact on income tax receipts and enhance fool-proof tax culture in the country.

all that bulky detail up there about rgst..seems more like a govt. version of rgst........than an objective one...:P...but anyhow rather informative it was!

__________________
Hold fast to dreams,For if dreams die
Life is a broken-winged bird,That cannot fly...

exactly.....that was what govt proposed....as the title is "Summary of Tax Reforms"

Two statements repeatedly made by those who are against the implementation of the tax are:
1- The RGST will result in immense inflation
2- It will raise the tax burden on the poor segments of the society

Please comment on the validity of these statements.

__________________
He who has a why to live can bear almost any how.

Tax is basically a fiscal measure to control inflation.Under the new GST law, exemptions have been kept intact in respect of basic food items including wheat, rice, pulses, vegetables, fruits, live animals, meat and poultry etc.
Moreover, life saving drugs, books and other printed materials including newspapers and periodicals have been kept exempt.So according to govt, RGST will not bring inflation but in real terms,it will hit Poors.The prices of industrial and agricultural products will increase due to cost of production which will definitely increase the prices of wheat,rice,pulses etc and industrial goods.

Opposition to RGST

THAT the Reformed General Sales Tax and the flood surcharge on incomes are inadequate responses to the country`s revenue crisis is relatively clear. For significant, long-term results, the tax structure will have to undergo fundamental reform.
However, issues such as tax reform lie at the cross-section of politics and economics. What makes economic sense is often undermined by political opportunism. It is difficult to avoid the conclusion that the opposition in parliament to the RGST and the `flood tax` is based on rank political opportunism. Consider the position of the PML-N.
The RGST is not a new issue: it has been on the agenda since Pakistan entered a stand-by agreement with the IMF in 2008 and has certainly been the focus of debate for much of this year. As the provinces and the center have tussled over various parts of the sales-tax regime, the PML-N-led government in Punjab has evinced no fundamental opposition to the very idea of RGST. But now that the bill has been tabled in parliament, the PML-N is suddenly vowing to oppose the RGST tooth and nail.

To disagree over a particular tax is the democratic right of Pakistanis, and the PML-N, with its trader base of voters, has many reasons to protect its voters`, and therefore its own, interests. But disagreement while presenting alternatives is one thing; disagreeing for the sake of scoring political points while the country is faced with a grave financial crisis is quite another.
Talk of imposing tax on agriculture or catching tax cheats is well and good, but then why doesn`t the PML-N use its muscle in the Punjab Assembly to impose new taxes on rich landlords? One of the key factors driving up the overall fiscal deficit of the center and the provinces is that the provinces have routinely missed their own revenue targets. If the RGST is something the PML-N (or the MQM for that matter) cannot support in any circumstances, why doesn`t the party take the lead through the provincial assembly it does control to demonstrate what other revenue-generating measures are possible?

Ultimately, the failure of the state to raise enough taxes to meet its necessary expenditures is a failure of all political parties and governments, civilian and military, to date.
As Finance Minister Hafeez Sheikh remonstrated with senators on Monday, virtually every sector that could be taxed has some influence in parliament, meaning that any and every tax mooted is opposed by someone or the other. But Pakistan is undergoing an extraordinary and prolonged financial and economic crisis. For once, politicians of all stripes need to rise above partisan politics.
Editorial Dawn Newspaper
November 24,2010

I think the hue and cry on RGST is mostly ill motive and for having political mileage .