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 Organizations 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.

ISLAMABAD (APP) - The lobby of the rich within and outside the parliament is opposing the
Sales Tax (Reformed) to evade taxes at the cost of the poor, independent analysts said.
They said that Government, should keep an eye on such elements and take steps for the passage
of the RGST Bill from the parliament for the economic sovereignty of the country.
Reformed General Sales Tax (RGST) if approved by the Parliament would not result into hiking
inflationary pressures because the multiple tax rates ranging from 17 to 15 percent, they added.
The proposed General Sales Tax (Reformed) is not a new tax, it was an endevouring by the
government to document the economy, protect the interests of the poor and marginalized section
of the society by bringing tax evaders and those people who are rich but do not pay their due
taxes.
However, the prices of those items could go up on which there is exemption and it is going to be
removed under RGST regime, a comparative analysis done by the FBR said.
According to analysts, the RGST system would replace the existing regimes of sales tax and
excise on services.
The GST will apply on both at import and local supply stages and standard rate of 15pc has been
proposed instead for the present rate of 17pc or multiple other rates going up to 25pc, the analyst
added. It said that 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.
The whole supply chain including distributors and whole salers would be brought into the tax net
for documentation purposes, it added.
The RGST if approved by the Parliament will eliminate multiple tax rates from 17-26 percent to
a single rate of 15 percent.
Presently, apart from sales tax on the supply and import of goods, Federal Excise Duty is charged
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.
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 (intertax-adjustment) with federal sales tax.
The GST Bill, 2010 will replace the present Sales Tax Act, 1990, while the issues of collection
and administration of sales tax on services is being separately negotiated with the provinces in
the light of recent NFC award. 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.
The proposed GST Bill 2010 shall take effect from such date as may be notified by the federal
government.
The proposed GST system will certainly not generate and sudden increase in revenue yield.
It will however, increase the overall tax to GDP ratio from the present below 10pc to about 12pc
in next 3-5 years, the FRB analysis concluded.
"If the nation wanted to get rid of the foreign loans than we should rely on our own resources and
generate additional revenues by adopting the RGST from the Parliament as soon as possible",
economic experts observed. According to Minister for Finance, Revenues and Economic Affairs,
Dr.Abdul Hafeez Shaikh, the government has to take tough decisions in the wake of economic
challenges including the recent devastating floods in the country.
He said that this tax has been imposed on rich people to help 20 million flood victims and would
be in the favour of the people in the country.
The Minister thanked the Senate Standing Committee on Finance for their valuable suggestions
and approval of the RGST with recommendations to the National Assembly.
The Sale Tax , he said is not a new tax which had been in place for the last 20 year only: "we
have refined the tax for the benefit of the country and its people specially the poor". He clarified
that no efforts has been made to impose RGST on health, education, food grains, vegetables,
ghee and edible items for the relief of the people specially the common man.

The GST will apply on both at import and local supply stages and standard rate of 15pc has been
proposed price-based tax or special tax scheme under the new GST system.
Economic experts here heve termed IMF nine-month extension for stand-by arrangement an
opportunity to complete the reform for General Sales Tax and correct the course of fiscal policy
and amend the legislative framework for the financial sector.
Pakistan can use this period as an opportunity to further correct the fiscal policy to implement the
Reformed General Sales Tax (RGST) in the country, Dr.Ashfaq Hassan Khan former Advisor
Finance Ministry told APP here.
He was of the view that Pakistan can implement the proposed RGST in two stages, fistrly it can
withdraw Sales Tax exemptions except on education, food items and basic medicines. Dr.Rashid
Amjad also welcomed the IMF decision.
He added that IMF supports Pakistan to improve the country's balance of payment position
which is in the country's interest. He added he did not think that IMF is imposing any
conditionality by asking Pakistan to implement RGST as its implementation is in our own
interest.