I have read with interest an article written by Mr. Shamim Ahmad in EBR (2-8 June) entitiled Ingenuity behind rising ST collection.

It is partly due to the fact that the “ingenuity” referred to in the article was devised by me when I was chairman of the CBR. The readers may be interested to know that the present chairman of CBR, who at that time was Member, Sales Tax, helped me in implementing the idea which was a new concept in Sales Tax law at that time.

The readers of Dawn may be interested to note that the CBR discarded this provision of law after I retired as chairman. I do not know why this was done. Was it under some pressure from the lobby of manufacturers in unorganized sector, or from international “experts”. However, it goes to the credit of the present chairman of the CBR who has reintroduced it and has also expanded its scope to stop sales tax evasion in this sector of economy.

While I compliment the writer of the article for articulating the new concept in Sales Tax law I may humbly mention that the article suffers from a contradiction. The writer laments the “dogmatic approach” of the Pakistani as well as international managers of economy. I may be permitted to say that the writer has himself adopted “dogmatic approach” when he states that Sales Tax, being an indirect tax, is regressive in nature.

The experts of the discipline known as public finances tell us that a regressive tax is one whose incidence is either heavier on poorer sections of society or is equal on all sections, whether falling in haves or have-nots’ categories. The ST law of Pakistan cannot be labelled a regressive tax because it is not levied on goods of basic needs. The common man’s basket of goods does not attract Sales Tax; The commodities exempt from sales tax are: (i) unprocessed foodstuff for human consumption e.g. cereals, pulses, vegetables, locally produced fruit, poultry, milk, bread, ice, table salt, spices; (ii) books and journals; (iii) goods imported or donated to hospitals; (iv) cattle feed and (v) medicines etc. etc.

A major portion of poor man’s monthly expenditure is on goods which are exempt; however, the major part of well-to-do persons’ monthly expenditure is on goods which are liable to Sales Tax.

Before parting with the subject I may add that there are no “direct” and “indirect taxes” in the sense that some taxes are borne by persons on whom they are levied while other types of taxes are passed on to others.

The empirical studies show that all taxes, whether on income or on expenses, are passed on depending on the nature of market. In theory some en rem taxes like a tax on sales, may have to be absorbed by the seller. It is a well known fact that almost all personal taxes are passed on, at the most in the long run. In other words there is no “direct tax” in the sense that it is borne by the person who deposits it in government treasury.

The main difference in personal and en rem taxes relates to timing of shifting of tax burden. In en rem taxes the burden can be shifted even in short run whereas in the case of personal taxes the shifting of incidence may be done in a relatively longer period of time. In a supply/starved labour market, the income tax on salary is shifted and made a part of salary package.

Alvi Abdul Rahim

Islamabad