Govt sees Rs28bn loss

"Government is claiming that the RGST law implementation could lead to an additional Rs28-30 billion in the first year." — File Photo

ISLAMABAD: The government estimates show that an annual revenue loss of over Rs28 billion on 10 major products is expected owing to proposed single rate of 15 per cent under the reformed general sales tax (RGST) bill, a tax official told Dawn on Tuesday.

In absolute term, 80 per cent of the domestic sales tax revenue has been generated from the top 10 products at an average rate of 17 per cent besides special rate of 19.5 per cent on the telecom sector and 25 per cent on the natural gas, casting doubts over the health of the finance ministry projected figures that RGST implementation would yield additional revenue for the kitty.


A senior tax official, requesting not to be named, told Dawn that government is claiming that the RGST law implementation could lead to an additional Rs28-30 billion in the first year subject to condition if government withdraws all exemptions across the board on over 600 items as proposed in the original bill. However, this is not an accurate claim.

The 10 products which generated maximum revenue for the government are petroleum products, telecom services, natural gas, other services, cigarettes, sugar, electrical energy, beverages, tea and cement.

Alone from the telecommunication services, according to the official, a revenue loss of Rs10.4 billion has been estimated following the reduction of sales tax rate from the current 19.5 per cent to 15 per cent.

A revenue loss of Rs5.4 billion had been recorded during the year 2009-10 following downward reduction in the rate of sales tax for the telecommunication services from 21 per cent to 19.5 percent, added the official.

Similarly, a revenue loss of Rs6 billion has been estimated from the natural gas following the downward reduction in the rate of sales tax to 15 per cent from the current special rate of 25 per cent.

This expected massive revenue shortfall was the reason that Senator Professor Khurshed Ahmad strongly opposed the whole concept of one rate system of the sales tax under the RGST bill last week. Mr Ahmad has proposed two or three tax rates differentiating between essential commodities and others.

However, Finance Minister Hafeez Sheikh has justified the single rate on the plea that other sectors could also plead for lower rates.

For making up these losses, the finance wizards of the PPP-led coalition government have estimated to generate additional billions from the withdrawals of exemptions across the board on all essential items, which will over burden the consumers.

It is estimated that over Rs10 billion will be netted from sugar following the revision of GST rate to 15 per cent from the current 8.5 per cent and another Rs10 billion from pesticides, fertilisers and tractors etc.

An official in the finance ministry told Dawn that aside from revenue loss, the net effect on the consumers will also be much higher than the proposed 15 per cent under the new law.

Some studies suggest that in economy like Pakistan where accounting and reporting is a problem, the impact may easily go to 18-19 per cent, added the official.