If RGST not levied: Rs 5 million ST registration threshold may be retained

The Federal Board of Revenue is expected to retain the sales tax registration threshold of Rs 5 million in coming budget (2011-12) in case the Reformed General Sales Tax (RGST) was not levied. Sources told Business Recorder here on Thursday that the proposed sales tax registration threshold of Rs 7.5 million was on the assumption that the RGST is being implemented from 2011-12.
It was also proposed that the higher registration threshold would exclude those small retailers and traders, who were unable to meet the documentation cost of the Value Added Tax (VAT). In case the RGST is not imposed from the next fiscal year, the Board may retain the sales tax registration threshold of Rs 5 million in budget. Moreover, some tax experts/analysts believed that the existing sales tax registration threshold of Rs 5 million is too high.
According to sources, enhancement in the sales tax registration threshold from Rs 5 million to Rs 7.5 million was directly linked to the implementation of the RGST. When contacted, a sales tax expert said that the business units, big retail outlets and wholesalers/dealers may try to split their businesses to show their annual turnover below the proposed registration threshold of Rs 7.5 million to avoid sales tax registration under the RGST.
They said that enhancement of the threshold may result in 'two-market' system in case some potential retailers operate below the proposed registration threshold of Rs 7.5 million as compared to the documented retail outlets having genuine turnover of Rs 7.5 million. The registration threshold is a very important area for the implementation of the RGST. If one documented retailer is charging 15 per cent sales tax as compared to undocumented potential retailer selling goods without charging sales tax, it would result in two parallel market systems. The retailers with more turnover than the annual turnover ceiling of Rs 7.5 million will be forced to quit business so the businessmen at retail level having less annual turnover than the ceiling of 7.5 million will attract all the customers just because the fact their products will be sold to them without 15 percent RGST. The two price systems in the market cannot work as it will bring chaos and the businesses under the regime of 15 percent RGST at retail level will automatically collapse. The two-market systems would emerge in the country in case the potential retailers try to cover under the proposed registration threshold of Rs 7.5 million. It is practically not possible that two different retail outlets should separately operate under the RGST creating distortions in the system.
Presently, experts said that very few retailers have actually declared the threshold of Rs 7.5 million under the existing sales tax regime. If the proposed registration threshold of Rs 7.5 million has not been brought down under the RGST, the market system would not work. It is difficult for the FBR to operate under the proposed registration threshold of Rs 7.5 million. The threshold should be reduced to Rs 5 million or below. Due to higher registration threshold, this might result in breakage of the supply chain. The new system of the RGST cannot operate under the breakage of the supply chain, analyst added.