Exemptions to go: Reformed GST to be enforced from Oct1

[Aeon]

Exemptions to go: Reformed GST to be enforced from Oct1
Friday, 24 Sep, 2010

ISLAMABAD: Federal Finance Minister Dr Hafeez Shaikh announced here on Thursday that the reformed General Sales Tax (GST) would be enforced from Oct 1.

Talking to newsmen, Dr Shaikh said that the government intends to introduce GST in its original format, eliminating all exemptions.

The original form of GST has been distorted by exemptions, and the lobby which has benefited from exemptions is opposing restoration of GST to its original form, he said.

GST already exists in Pakistan; however it would be transformed through reformed GST, capturing the features of a VAT, enabling the government to start raising tax revenues required for a sustainable growth.

Pakistan, Dr Shaikh said has the lowest tax-to-GDP ratio in the world, with only nine per cent.

The decision of the government to introduce GST has now buried the issue of VAT which became controversial following differences between the federal and provincial governments on modalities of VAT.

Politically, it was easier for economic managers to include substantive features of VAT to make reformed GST broad-based, reduce exemptions and input crediting.

The government would now withdraw the five VAT bills submitted to the national and provincial assemblies.

Dr Hafeez Shaikh said that the ministry of finance was currently working on formulating new taxes with the objective of taxing the affluent class.

“Country’s financial situation was not good before floods, but worsened after the devastation caused by floods,” he said.

The ministry of finance is to re-evaluate the macroeconomic framework once the damage / needs assessment is completed, and a revised budget would be submitted to the federal cabinet and presented to the National Assembly and Senate standing committees on finance and revenue.

The government does not want to get loans from international financial institutions but wants to protect economy.

“The affluent class must show generosity and think selflessly and sincerely. There is no tradition in this country to pay taxes by the elite,” Dr Shaikh said.

The finance minister disagreed with newsmen on use of term ‘mini-budget’ or ‘financial emergency’.

Responding to questions about financial crisis of universities, the finance minister said that education is the biggest responsibility of the government, and there is no cut in the budget of public sector universities.

The government has already increased the budget by eight per cent.

“Though there is a freeze on current expenditures, all projects completed by 80 to 90 per cent would be allowed to be completed.”

 

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Budget priorities being revised: Hafeez Sheikh
Thursday, 23 Sep, 2010

ISLAMABAD: Finance Minister Dr Abdul Hafeez Sheikh said on Wednesday the government would introduce reformed general sales tax and reprioritise the entire budget.

He informed the Senate during the question hour that self-reliance was not possible without enhancing resources. He said the government had imposed capital gains tax on powerful groups and would now introduce the reformed GST and make changes in budget priorities.

Dr Hafeez said that at a time when the devastating flood had affected 20 million people across the country, a proposal to impose ‘flood tax’ was being opposed. He said the elite class was the main obstacle to introducing the flood tax. He said that inflation, which was 12 per cent in 2007-08, rose to 20.8 per cent in 2008-9. It came down to 11.7 per cent in 2009-10. The security situation and re-payment of loans have been the main factors contributing to the rise in inflation.

The minister said it was for the first time that the government had decided to freeze the development budget to the level of the previous year. However, he said that despite all resource constraints there would be no compromise on promotion of education. He said the budget of the Higher Education Commission had been increased by eight per cent.—Iftikhar A. Khan

 

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Legislation on new GST in a couple of days
Wednesday, 29 Sep, 2010

ISLAMABAD: After two days of hectic consultations and political intervention, the federal and provincial governments agreed to implement the Reformed General Sales Tax (RGST) through legislation in the national and provincial assemblies in a couple of days.

Under the agreement, sales tax exemptions given to five major sectors, including textiles, will be abolished, but the federal government will pay about 35 per cent of the total sales tax collection on services to the provinces.

“A record note of implementation of the RGST in the country was prepared by the participants, based on consensus,” an official announcement said.

It said the note would be shared with the chief ministers. The parties agreed that the RGST should be implemented at the federal and provincial levels at the earliest.

“The right of the provinces to levy GST on services was completely recognised. It was upheld that the provinces reserved the right to collect sales tax on services if they so desired,” the announcement said.

Taxes on services not involving cross-provincial transactions and not requiring input adjustments will be collected by the provinces.

Taxes on services involving cross-provincial transactions and requiring input adjustments or refunds will accrue directly to the provinces, but there will be a single audit at the level of the Federal Board of Revenue.

Officials said it would make no big difference if the RGST legislation was approved by the federal and provincial governments a day or two later than the deadline of Oct 1.

Finance Minister Hafeez Shaikh told journalists that the government had originally announced a 15 per cent rate of GST in the budget but now there could be a one-time higher adjustment because of the floods. He said the rates had not been finalised.

The minister said the government was considering options for additional tax revenue, including a flood tax on income and imports and higher GST, but all the three options might put an undesirable burden on existing taxpayers.

He said the burden on existing taxpayers had to be balanced and moderate.

“One thing is clear that there will not be a 10 per cent increase in income tax as is being discussed in media. The tax rate will be much lower,” he said.

He said people who had large property and landholdings and had not been affected by the floods could be taxed as a one-time measure, but it was yet to be decided if the flood tax should be for one year, 18 months or nine months.

An official told Dawn thatunder the agreement on the RGST, the federal government will collect sales tax on four services on behalf of the provinces and keep them in a single account — finance, banking and insurance; construction; franchises; and advertisements.

Sindh demanded 50 per cent share of the total collection in accordance with the sales tax weight agreed in the National Finance Commission award. Punjab wanted its distribution on the basis of consumption, entailing 60 per cent share to the province in line with overall shares of the net proceeds from the divisible pool.

Khyber Pakhtunkhwa and Balochistan sought 14 per cent and nine per cent shares, respectively, as defined in the final revenue sharing mechanism of the award.

The demands created a deadlock in negotiations and the Sindh government took up the matter with President Asif Ali Zardari who presided over a meeting of the federal and provincial finance ministers and their technical teams in the afternoon and asked the centre to accept the provinces’ demands and absorb the financial burden of the difference.

This was followed by another meeting at the Prime Minister’s House where it was agreed that Punjab and Sindh be given 60 per cent and 50 per cent share of the additional tax collection on services and Khyber Pakhtunkhwa and Balochistan 15 per cent and nine per cent.

As the cumulative provincial shares stood at 134 per cent, the federal government agreed to meet the shortfall of 34 per cent. Three groups of services were defined for implementing the sales tax.

Collection on services that do not involve any refund or input adjustment will remain with the provincial governments.

Sindh will collect sales tax on telecommunications in its jurisdiction but input adjustments and refunds will be paid by the federal government and the province will return to the centre amounts equivalent to the refund.

The tax on financial, construction, advertisement and franchise services will be collected by the FBR and the provinces will be given shares in accordance with the distribution formula.

It was agreed that the provincial government would be free to impose flood tax on services and goods of their own choice at rates they deemed fit.

The rate of the RGST decided by the federal government will be acceptable to the provinces and all exemptions under the existing sales tax regime will be withdrawn.

The exemptions apply to textiles, pharmaceuticals, machinery, fertilisers and pesticides and 122 other categories.

 

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No imposition of additional flood tax: Hafeez
ISLAMABAD (28th September 2010)

Minister for Finance Dr Abdul Hafeez Shaikh said on Tuesday that the government was not considering to levy 10 percent additional flood tax on income.

Addressing a ceremony organized to pay refund cheques of , the minister said the government would go for other options to generate funds.

“Even if the flood tax is imposed, it would be nominal and would not put additional burden on the tax payers”, he added.

He said the government was determined to bring reforms in the current tax system.

The minister said that flood surcharge would not be imposed on income, sales tax, import and export but it would be charged on property, land and higher income group who can bear the burden.

Reformed General Sales Tax (RGST) would be imposed after the complete consensus of the provinces through proper legislation and approval of the parliament which aims to bring more sectors into tax net by abolishing the tax exemptions, he added.

Dr. Shaikh said that the federal and provincial representatives were progressing towards final decisions on RGST and all the matters would be finalized during next few days.

He said that government had decided to keep the RGST ratio at 15 percent. However, due to economic situation after the flash floods in the country some changing are expected.

Reforms in tax system, he said, were aimed at to increase the tax to GDP ratio as promised with international institutions as well as to bring transparency in the existing system.

No additional burden would be put on the people who are already paying the tax adding that honest tax payers would be encouraged.