All you need to know about GST and Foreign Remittances

Trying to grasp the core concepts of GST and Foreign Remittances individually can be tricky as GST alone is a discussion that would take forever to unravel. The expatriates need to know about GST in detail who frequently transfer funds to their home country from abroad. Like many other countries, countless Pakistanis migrate to the developed world to earn better and then send money to Pakistan to support their families. If these expats have a reasonable understanding of GST, they can avoid different problems that they usually face. The following article presents the most convenient guide to knowing all about GST and Foreign Remittances in one go.

What is a Tax?

A Tax is basically a mandatory financial charge imposed on an individual or a business by government organisations in order to manage government funding and other public expenditures. Or, in simpler terms, a tax is an amount you pay the government that can be used for public welfare.

 

There are two types of Tax:

Direct Tax:

As the name itself suggests, a Direct Tax is paid by a citizen directly to the government or government organisations. The extent of this tax is directly proportional to the capability of the payee, which means the higher the capacity of paying, the higher their taxes are. Direct Tax includes income tax, poll tax, personal property tax, real land tax, and the tax on assets.

 

Indirect Tax: 

In contrast to the direct tax, an indirect tax is imposed on transactions rather than directly imposing on an entity or a property. Some common indirect tax examples are value-added tax (VAT ), sales tax, excise tax, customs duties, etc. If you are a Pakistani expatriate and want to transfer money to Pakistan in massive amounts, you will need to be aware of the government’s regulations regarding indirect tax.

 

Indirect taxes can be passed on to another individual. For instance, an indirect tax is usually imposed on a product manufacturer, who passes the tax to the customer or buyer.

Goods and Services Tax 101:

A Brief Outline Of GST:

The above discussion of direct and indirect taxes lays the foundations for the smooth understanding of GST and its origin; because GST is an Indirect Tax imposed on the supply of goods and services. GST is an amalgamation of all the central taxes such as sales tax, value-added tax, excise tax etc.

Origin Of GST:

France first implemented the GST in 1954 that marking its beginning in the world with more than 160 countries following it so far. It is an umbrella tax levied on the goods and services right from the supplier to the buyer to replace multiple indirect taxes. The fundamental objective is to eliminate various taxes and unite them under one tax system. Pakistani expatriates who send money to Pakistan online from the UK, Europe, Australia, Canada, and other countries to let their families invest in some profiting industries must be aware of GST regulations implemented by the government.

Indirect Taxes subsumed by GST:

GST incorporated various central and state taxes under one unified system, as discussed earlier. Following are the taxes subsumed by GST:

 

Central Taxes:

  • Central excise duty
  • Countervailing Duties
  • Sales Tax
  • Central Surcharge goods and services

 

State Taxes:

  • Service tax
  • Value Added Tax
  • Entertainment tax
  • Purchase tax
  • Luxury tax
  • Advertisement tax

Pros and Cons of GST:

PROS: 

  • GST has subsumed various taxations and brought them under one unified tax system.
  • GST reduces the need for startups to comply with lengthy procedures of excise, sales tax, and VAT.
  • GST has minimised the possibility of tax evasion to 0%
  • GST enables the more effortless movement of goods and services across borders.
  • Unorganised sectors are regulated under GST.

 

CONS:

  • GST transaction, fees, especially in the financial sector, are substantially overpriced.
  • In the real estate market, GST led to an increase of 8% in the real estate prices causing a fall of 12% in demand.
  • Imposition of penalties for not being GST – compliant
  • There are no export-oriented units in the GST proposal, potentially harming the export industry.
  • With GST, the cost of insurance premiums has become higher.

 

Foreign Remittances:

A Foreign Remittance transfers funds through any modes like wire transfer, online money transfer, money order, etc. from expatriates, for household income in their homeland. Pakistani diasporas like many other expats always try to find the best way to send money to Pakistan. If they have better understanding of GST, they can help their families back home to save more. Usually, developing countries experience an enormous surge in the inflow of funds as they export more workforce to generate remittance and contribute to the primary source of increasing investment and consumption in the recipient country.

 

According to an annual report of KNOMAD and the world bank, the flow of remittance to developing countries reached $589 Billion in 2021, with a 7.3% increase compared to 2020.

Types of Foreign Remittances:

Foreign Remittance is a transfer of money from one country to another. There are two types of foreign remittance.

 

Outward Remittance:

It is an outward remittance when you transfer funds from your homeland to your relatives abroad. Or, in simpler terms, the outflow of money from the country is called outward remittance.

 

Inward Remittance:

When an expatriate sends money home from a foreign country, that’s an inward remittance. Or, in simpler terms, the inflow of funds to the country is called inward remittance.

Bottom Line

Although the Goods and Services Tax is the most significant tax reform in any country, it may have been introduced with the positive objective of eliminating multiple taxes; it still has its advantages and disadvantages. As GST is levied on the supply of goods and services rather than directly on the entity or property, it is safe to assume it is indirect.

Foreign Remittance has a significant role in developing and reforming a country’s economy. However, it is essential to send money home through a formal and legal money transfer channel to help boost the country’s economic development. One of the best available options is ACE Money Transfer which provides a quick, secure, and easy way to transfer money all around the globe with a click of a finger through the ACE website and mobile app. If you are a Pakistani expatriate and want to make an online money transfer to Pakistan from the UK, Europe, Canada, Australia, Switzerland, Hungary, or and other countries, choose ACE Money Transfer with confidence and you will have great peace of mind with the company’s matchless services.