Documentation of economy under RGST: rebate on assessee's final tax liability proposed

A key proposal to encourage documentation of economy under the Reformed General Sales Tax (RGST) is to allow rebate of one to 2 percent to the end-consumer (assessee) on production of sales tax receipt against his final income tax liability as an incentive to operate under the documented regime.
Tax expert and lawyer of Supreme Court Syed Naveed Andrabi told Business Recorder here on Thursday that the Federal Board of Revenue (FBR) has to introduce new incentives for attracting the target population to work under the RGST. For example, the government can allow rebate of 1 percent to 2 percent to assessee on production of sales tax receipt against the final Income Tax liability.
This will result in broadening the tax base by higher number of assessee due to adjustment clam. At the same time, any revenue shortage due to rebate will be offset by higher tax payment from increased number of assesses. The said adjustment facility would result in lower cost of living due to reduced tax. It will result in documentation of the economy due to forced demand of receipts on payment by consumers. The act will in turn broaden direct tax base resulting in ensuring social equality where people who earn more to pay more tax.
He suggested that the RGST should be started with five multiple rate strategy. The proposed structure of the five rates showed that there should be 2 percent to 3 percent GST on essential daily use items; 4 percent - 6 percent on semi essential items; 7 percent - 10 percent on semi luxury items and 11 percent - 15 percent GST on luxury items. Where input tax is higher due to reduced output rates - provide an adjustment against Income Tax.
This taxation structure would controls essential commodity prices and ensures it is within buying limits of public at large. It would also encourage savings by reduced spending due to higher tax incidence on non-essential items. The adjustment of refund against other taxes simplifies refund process, ensure declaration of one result and ultimately lead to documentation. The FBR has to compare the tax rates with cost of living and inflation every year and make adjustments to the rates to achieve balance and curtail evasion, Naveed Andrabi added.