ISLAMABAD – The International Monetary Fund (IMF) has asked the government to introduce an equitable tax system in the country to overcome the chronic low tax to GDP ratio, which is at the same level since the last 20 years.
Addressing a conference of the Pakistan Society of Development Economists on Wednesday, IMF Mission Chief Paul Ross said, “The tax to GDP ratio has not changed during the last 20 years.” Observing that the prevalent tax system was inequitable, he suggested an “equity-based taxation system where everybody paid”.
After the devolution, the provincial governments would need to enhance their share in the revenue collection, as currently they were collecting only five percent of the revenue while the federal government was collecting the remaining 95 percent, he said.
The IMF mission chief stressed for increasing the level of national savings to absorb various shocks as well as for investment, infrastructure development and poverty reduction. He said the IMF was holding an open and constructive dialogue with the government on these issues.
Hafeez Pasha castigated the government for its lack of seriousness in implementing the reformed general sales tax (GST), which was committed in 2008. He said if immediate steps were not taken to control the fiscal deficit then the additional borrowing of Rs 1.2 trillion from the central bank this year would push the country into hyperinflation.
“There is a complete lack of clarity even at the technical level, as nobody knows when the reformed GST will be implemented. The government should have a sense of responsibility, as it has already missed three deadlines for the GST’s implementation.” He said if the implementation of the reformed GST was not possible, the Centre should consider other immediate options like levying of wealth tax and provinces should be look into property tax to meet their expenditures.
However, he said the introduction of the GST on goods and services in an integrated mode was a complicated issue. For resolving the differences on the revenue proceeds of the GST on services, he proposed that “the revenue should be pooled into the federal divisible pool from where it should be distributed among the provinces according to National Finance Commission (NFC) award”.
State Bank of Pakistan Governor Shahid Kardar said the fiscal structure and powers were highly centralised. He said the recent NFC Award had given an additional Rs 300 billion to the provincial government. However, he said, the provinces had not exploited their own tax options by taxing the agriculture income, real estate and motor vehicles.
