GST in Pakistan. An Overview & misconceptions
Admin 17 July 2019 0 comments
General Sales Tax (GST), which is a modified form of Value Added Tax (VAT). In Pakistan, since recent years, more and more goods and services are being brought within the ambit of the GST regime and GST occupies a pivotal place in the current regime of taxation.
In Pakistan, the GST also known as the Sales Tax Rate is a tax charged to consumers based on the purchase price of certain goods and services. The benchmark we use for the sales tax rate refers to the standard rate. Revenues from the Sales Tax Rate are an important source of income for the government of Pakistan. The Sales Tax Rate in Pakistan stands at 17 percent. Sales Tax Rate in Pakistan averaged 16.21 percent from 2006 until 2019, reaching an all-time high of 17 percent in 2014 and a record low of 15 percent in 2007.
The reason for the higher percentage in GST is due to the taxpayers. more than half of the country does not pay taxes according to sources. The former Prime Minister Shahid Khaqan Abbasi also lambasted Pakistanis for not paying their taxes The fact is, we are one of the most overtaxed nations in the world. Simple arithmetic will do. Let’s start with disproving the most widely quoted number: only 1.21 million citizens pay income tax, which is less than one percent of the population. But statistics (like the State Bank of Pakistan annual report) suggest that there are more than 57.5m employed people in the country. Since they are employed, they must be earning something and incurring expenditures on goods and services.
Our government benefits from GST and if we do not pay taxes then the government would be forced to take loans and with increase in debt there would be more taxes implemented on us and a rise in the percentage of GST is to be expected any time soon but the people of the country do pay taxes one way or the other. There are no goods or services that do not pay taxes. Around 58 million people are paying taxes but still out of 200 million population only 58 million people are paying taxes which is very low. At least 29 percent of the population is paying taxes as per the Economic Survey of 2016-2017.
Now with the implementation of taxes on smartphones and with the rise of buying vehicles and smartphones, the percentage of taxpayers have increased and out of 200 million population, almost 140 million are paying taxes through mobile phones and vehicles and with the GST of 11 percent on every 100 balance loaded the rise of taxpayers have increased. By the end of 2015, the number of registered vehicles in Pakistan had surpassed 17m (and was growing). They run on fossil fuels, which are subjected to multiple taxes. These taxes mean that Pakistani citizens are paying taxes thoroughly but what we fear the most is the misconception of GST and the retail price.
The misconception includes the wrong information through unauthentic sources and some violent people who hate the new system and the government. They just need something to spread fire and hate among the people and with the budget every year being released they become successful in spreading misconception among the people and spreading hate. What we fear the most is the retail price of goods.
The misconception about GST is that if an industry is making a good and the production rate of that specific good is 100 rupees then with the added amount of GST it is now sold to the Distributer at 117 rupees. Then the Distributer will implement 17 percent on the good and now the price for the retailer will be 117+117(0.17) = 136.89 rupees
Proceeding with this chain if a Retailer bought the good for 136.89 rupees now he will add 17 percent to the Retail Price of it 136.89+136.89 (0.17)=160.19.
Now the user has to buy it for 160.19 for which he had to pay 117 rupees (including all charges/tax/duties). A total of 43 rupees being paid by the user which is a wrong and false diagram due to the inability to clarify the GST in time by the FBR and fear of trading is taking a rise in the community.
The misconception and the myth is busted, let us explain it in detail.
As per the Sales Tax Act, a Manufacturer/Importer has to determine and fix the retail price of a good (including all charges/tax/duties).
Let's suppose a Manufacturer/Importer producing a good at 90 rupees and collect Rs.17 for the government, then he has to sell the product at 95 rupees to the Distributer and the Distributer has to implement Rs.100 on the product to further sell it to Retailer so that he produces 17 rupees for the manufacturer/importer. The retailer has to collect 17 rupees for the distributer. So now the Retailer has to sell it to the consumer for 117 rupees. Retail Price = 100 rupees GST@17% = 117 rupees.
The chain is made successful and everyone benefits from it.