Ultimately scrambled GST

The General Sales Tax (GST) was challenged by the Government of Pakistan and the International Monetary Fund (IMF) as it was not in line with the Value Added Tax (VAT) mode. The VAT modified/tailored to the need of Pakistan economy in the shape of GST was not acceptable at all and they determined to scrap it by introducing Reformed GST (RGST).
Ultimately there is no modern sales tax (VAT) in Pakistan and the pushed it back to the stone-aged sales tax by scrapping the basic concept of VAT - input and output mechanism. There are two GST laws in Pakistan - one in the Federal Board of Revenue (FBR) and the other in the provincial Board of Revenue. Few inputs are adjustable and few are not. Ultimately, businessmen are faced with a scrambled GST with a lot of catches and double bookkeeping and double recording, double filing under a high level of corruption. As a result, the conduct of business is not possible in Pakistan.
The Federal Board of Revenue handles GST for goods and the provincial Board of Revenue handles GST for services. So two GST laws are there and businessmen need to file two returns and two related sets of documents, maintain two records and to face two GST authorities and to pay huge bribes to two sets of government people.
The major portion of two GST laws merely talk about penalties, offences, jail, default surcharge, recovery of tax, summon businessmen, arrest, prosecution, production of documents to tax officers, special judges, access to premises by the tax officer, searches under warrant, posting of tax officer in business premises, suspension of registration, de-registration, audit, special audit, inspection, etc. Under this environment of unnecessary duplicate documentation, duplicate record keeping, harassment, tension, and corruption, it is very difficult for a business to continue. It is very clear that government is not going to get revenue from GST as businessmen will be forced to pay huge bribes by using the above cited tools of harassment and corruption.
Shortcoming and lacunas notices in the Sindh Sales Tax on services Act 2011 are as under:
01. Place of business in Sindh (Section 1(28)): If the economic activity of a company is nation-wide and not confined to Sindh alone, how will it be complied to the Sindh Act, relating to her business service income.
02. Registered person (Section 1(31)): How will a company manage two registration of GST for goods and service.
03. Value of a taxable service (Section 5): How to determine "open market price" for a service, because a service is different from goods in a way that services are based on human beings which can not be equal. For instance fee of big professional firms/banks will not be the same for a small professional firm/bank. Further discount trade price is not possible to access with customary business practice. Furthermore, it is not practically possible to fix the value of any service.
04. Under the sales Tax Act 1990, treatment of excise duty is the same as of sales tax. But Sindh Sales Tax on Services Act 2011 has not talked about excise duty.
05. Exemption and Special Procedure (Section 10 and 13): Instead of scattered SROs, it is advisable to attach them in the Sales Tax Act 2011 in the same way as we did in the Sales Tax Act 1990 to avoid confusion, missing and corruption.
06. Power to amend Schedules (Section 11): Board with the approval of the Sindh assembly to include or exclude in schedules. Such changes must be done considering the economic priorities by the Board because parliament members are not competent to do this.
07. Adjustment (Section 15): Why the board with the approval of the Government of Sindh will allow adjusting/claiming/refunding of input tax. This damages the concept of VAT mode.
08. Estate in bankruptcy and liability for payment of tax in the case of private company (Section 21 and 22): Why to the ownera, partners or directors. Sales tax due should be included in preferential creditors and recovered accordingly.
09. Record (Section 26(5)): Why a certificate by the auditors certifying the payment of sales tax due and any deficiency in the sales tax paid by the company is also required with audited accounts.
10. Audit proceedings (Section 28): Why every year audit, why not on random basis;
11. Special Judges (Section 37): The decision of special judges can not be appealed under Sindh sales tax laws while it is allowed in Sales Tax Act 1990;
The big question is that how the Sindh government will handle/implement the Sindh Sales Tax on Services Act 2011 while they have no sales tax related infrastructure and competent staff. This Act is effective from 1 July 2011 and the Sindh government still does not know about this law and is trying to beg the FBR to handle on their behalf. While under Section 43 a huge amount of penalty and imprisonment awaits a tax person if not registered under this Act.