Registration under RGST: Rs 7.5 million threshold proposed

ISLAMABAD (October 05 2010): Retailers, wholesalers, dealers, distributors and shopkeepers having annual turnover of Rs 7.5 million would be compulsorily registered under the reformed general sales tax (RGST). Sources told Business Recorder here on Monday that the tax managers have proposed sales tax registration threshold of Rs 7.5 million under the RGST.The government has decided to enhance the registration threshold of Rs 5 million to Rs 7.5 million to exempt small and medium business units. However, any person having annual turnover of Rs 7.5 million would be registered under the RGST.According to sources, the registration threshold of the RGST has been proposed to be raised from existing Rs 5 million to Rs 7.5 million. However, the FBR would not prefer Rs 10 million as registration threshold as it would exclude most of the registered persons from the RGST regime. The registration threshold of Rs 10 million was also opposed in view of existing tax culture of under-reporting and evasion of taxes. The higher registration threshold would exclude those small retailers and traders, who were unable to meet the documentation cost of the RGST, sources added.

Tax experts were of the view that the registration threshold under the VAT vary widely (from zero to $600,000) from country to country. Whether there should be no threshold for registration (as in Chile) or whether it should be very high is a very important factor to be decided when designing a VAT regime.Fixing the threshold at a low level means burdening tax administration with substantial amount of work. It does, however, provide more information to the tax collecting agents, making verification of transactions of other big taxpayers easier. It also means more revenue. Fixing the threshold at a very high level may encourage splitting of businesses to avoid registration.The benefit of a higher threshold, however, is low administrative cost. Thus, both the administrative capacity of FBR and taxpayers’ compliance costs should be the criteria for setting an ideal VAT registration threshold. The current threshold for registration for retailers is Rs 5 million while importers, exporters, wholesalers and distributors and manufacturers are required to be registered without reference to their quantum of sales, experts added – Brecorder