New taxation to fuel corruption, hurt exports

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KARACHI: The business and industrialist community of Karachi have condemned the implementation of reformed GST as they believe that it would cause corruption, hamper exports and would lead to massive price hikes.
They viewed that all sectors including manufacturing, distributing and retailers would be affected and demanded solid guarantees from the government. In addition, they blamed the government of excessive spending and advised government to cut down its expenses.
SITE Association of Industry Chairman Abdul Wahab Lakhani, while talking to Pakistan Today, said imposition of reformed GST would give birth to massive corruption and would also hurt exports of the country. He was exasperated by this decision of the government as he believed that reformed GST would diminish status of zero rated industries, while the common man would suffer the most due to an unbelievable price hike of almost every commodity.
The government was unable to manage savings and now it had turned onto the poor masses and business community, he added. The Former Chairman of the Korangi Association of Trade and Industries Mian Zahid Hussain termed the reformed GST as a short-term measure, which would not sustain in the long-run as it would create several issues for the government.
“A massive price hike would result after imposition of the reformed GST as approximately Rs 120 billion was planned to be snatched from the pockets of masses. This would ultimately turn into a social, political and economical unrest,” he pointed out. He said that bringing back the zero-rated sectors into the refund regime would prove futile as billions of rupees of zero-rated sectors are stuck with the government.
He maintained that until the government provides any guarantee to these sectors, they would not create a plausible share in terms of tax rise. The government should establish a constitutional board, not an advisory board, to look after the matters of refunds. The President of the Iron and Steel Merchants Association Shamoon Bakir Ali said that it was unclear that the government would impose further levies after the imposition of the RGST and flood tax, but currently the move is having a negative effect.
“We hope that our core sector’s cost would decrease, but it again depends on whether the government imposes further levies on us or not, however, relief items would be a problem due to this tax,” he opined. The 10 percent flood tax does not seem to affect the business community as much as it does the salaried class. The significance and quantum of taxes to be collected thorough the flood surcharge remain irrelevant, given the massive Rs 250 billion to Rs 300 billion required for the rehabilitation and reconstruction efforts, as ascertained by the Asian Development Bank and the World Bank.
Pakistan was expected to receive $3.4 billion from the IMF, two billion dollars to three billion dollars from the Asian Development Bank and the World Bank while bilateral assistance from the US and the friends of Pakistan bloc.
It is pertinent to mention that the federal cabinet meeting has decided to impose a one-time 10 percent tax (applicable from Jan 1, 2011 to June 30, 2011) on the income of all who manage to earn above Rs 25,000 a month. This tax is applicable even in the case of the WHT generated from imports, contracts and services bills.
Additionally, the cabinet committee has proposed to raise the special excise duty on imports by one percent. The federal government is expected to fetch approximately Rs 40 billion from this new tax. The government has finally decided to go all out in the implementation of all pending reforms as the IMF is critical on the slow reformation process.
In a meeting, the federal cabinet decided to table the much-awaited reformed GST in the parliament, proposed to be effective from January 1, 2011. Additionally, the government has retained its policy of passing through changes in international oil prices and gradually eliminated the electricity subsidy.
This is evident from the oil prices, which increased by around six to nine percent on November 1 and the electricity tariff, which enhanced by two percent on October 1.