The Tax on Consumer Goods

An indirect tax, such as sales tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary, such as a retail store from the person who bears the ultimate economic burden of the tax, such as the buyer of the consumer goods. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples would be tax on fuel, liquor, and cigarettes. Thus, an indirect tax is such which can be shifted or passed on, and invariably, the end customer has to bear the burden.

Tax is high on the agenda for retail and consumer goods companies. Increasingly retail and consumer companies are focusing on maximizing value from their brands as part of strategic reviews of their businesses. Tax is an important part of this review. Key tax issues for retail and consumer goods companies span insurance issues and which includes a global product liability and recall team.

Some people feel excise taxes can achieve social goals such as lowering consumption of alcohol. The consumers can avoid taxes by avoiding consumption, but this is not the solution. These taxes are regressive, which means that everyone pays the same dollar amount regardless of wealth. The taxes on necessities such as utilities and gasoline impose a much heavier burden on the poor.

Goods and Services Tax (GST)
It is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes). Value added taxation has been gaining favour over traditional sales taxes worldwide. In principle, value added taxes apply to all commercial activities involving the production and distribution of goods and the provision of services. VAT is assessed and collected on the value added to goods in each business transaction. Under this concept the government is paid tax on the gross margin of each transaction. Revenues from a value added tax are frequently lower than expected because they are difficult and costly to administer and collect. In many countries, however, where collection of personal income taxes and corporate profit taxes has been historically weak, VAT collection has been more successful than other types of taxes.

Effect of Tax on Consumer Goods
Goods and Service Tax is a tax on goods and services, which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing the services the seller or service provider can claim the input credit of tax which he has paid while purchasing the goods or procuring the service. The sellers or service providers collect the tax from their customer, who may or may not be the ultimate customer, and before depositing the same to the exchequer, they deduct the tax they have already paid. The net effect is that dealers charge GST but do not keep it, and pay GST but get a credit for it. This means that they act essentially as collecting agents for the Government. The ultimate burden of the tax falls on the last and final consumer of the goods and services, as this person gets no credit for the GST paid by him to his sellers or service providers.

Please post your comments below on
(a) The current systems for VAT collection and how they can be improved.
(b) What standard legal structure should be for such systems, and
(c) How should such a system be developed in light of increasing cross-trading of consumer goods between different countries and between consumers themselves.


Taxation in Pakistan

Any income received or accrued or deemed to be received from any source is liable to tax in Pakistan. However, income remitted to Pakistan by resident companies, non-resident companies and non-resident individuals is exempted from tax. Any activity is taxable which involves the supply of goods or rendering of services on which sales tax has been levied and which is carried on in the form of a business, trade or manufacturing concern.

The tax year in Pakistan is a period of twelve months ending on the 30th day of June. The taxes on incomes, sales, central excise and customs’ duty are charged on the Federal level. Income from agriculture is charged on a Provincial level. The Federal laws and rules covering taxes and duties are enforced by the Central Board of Revenue, and are as follows:

  • (a)Income Tax Ordinance of 2001 & Income Tax Rules of 2002
  • (b)Sales Tax Act, 1990 and Rules issued there under.
  • (c)Central Excise Act of 1944 and Central Excise Rules of 1944
  • (d)Customs Act, 1969 & Pakistan Customs Tariff

Pakistan has recently undergone major reforms in the taxation structure, in an effort to make the taxation procedures more comprehensible for the average Pakistanis. These have been undertaken by the Central Board of Revenue (CBR) on five levels:

  1. Management and Institutional Development: Managing Organizational Change, Internal Affairs and Vigilance Function, Training, Improving Professional Ethics
  2. Improving Revenue Operations: Direct Taxes, Sales Tax, Customs
  3. Strengthening Revenue Services: Establishing Audit Function, Establishing Collection & Enforcement Function, Establishing Custom and Tax Fraud Function
  4. Tax Compliance Culture: Establishing Taxpayers Identification, Registration, Return Processing and Accounts Function, Establishing Facilitation and Tax Education Function, Impact Evaluation, Quality Assurance and Monitoring
  5. Adopting Responsive IT Systems: Direct Tax Information System, Sales Tax Information System, Customs Information system

A universal self-assessment system is in place, in which one must declare his/her income and determine his/her tax liability himself. I.T. services have been leveraged to provide the population with online tax calculations and information regarding the taxation is made available online along with correspondence facilities.