RGST has vast scope for revenue generation: FBR

The Federal Board of Revenue has observed that the Reformed General Sales Tax (RGST) has vast scope for revenue generation in the country. The FBR review for first quarter of 2010-11 revealed that it would be very difficult to drag along with such an inefficient tax without its comprehensive overhauling for longer period, when the country is in dire need of resources to meet the increasing expenditure. There is a vast scope of revenue generation from ST in the country.
Using the option of increasing the ST rate as the easy revenue generation source has to be stopped, because it has now started giving diminishing return. Due to financial constraints of the government, it is imperative to step up the generation of the tax revenues led by RGST as similar tax has demonstrated miraculous improvement in revenues of many countries. Implementation of comprehensive RGST covering almost all the consumption and services with a unified standard rate, rationalised threshold uniform procedures would be a milestone towards a better fiscal landscape of the country.
The report further said that although ST has exhibited some buoyancy in its revenue generation in the country yet its standard performance indicators reveals its extremely low efficiency when compared to most of the countries including Sri Lanka, where services are under the tax net, exemptions is allowed to a limited number of commodities, the compliance of trading sector is quite high as compared to Pakistan and zero- rating is allowed to export only.
The reasons are obvious, the Sales Tax Act, 1990, which was originally designed on the basis of accepted value added taxation doctrines, was compromised over the years and increasingly became distorted and narrow-based. In the wake of ever-expanding exemptions, special regimes, multiplicity of rates and several other deviations from international best concepts and practices, not only the tax base of sales 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, the FBR report added.