Former International Monetary Fund (IMF) official and Senior Fellow of the London School of Economics’ Asia Research Centre Dr Syed Ehtisham Ahmad said at a seminar on macroeconomic challenges and urgency of tax reforms at National Press Club here on Monday that even pressure from the United States (US) was not likely to force the IMF to give a new bailout package to Pakistan until the agreed revenue reforms were implemented, and the visit of the fund’s mission in May would be only to get briefed on budget targets.
Ehtisham, who had been instrumental in getting a $11.3 billion standby arrangement programme from the IMF in 2008, said that it was a great achievement to get such a massive programme from the fund without any conditions. However, the opportunity had been lost and any new programme would be accompanied by stringent conditions. The White House also played a role in getting the 2008 programme, but this time even US pressure would not force the IMF to grant a new programme until Pakistan implemented what it had agreed with the fund, he said, adding that autonomy of the State Bank of Pakistan and revenue reforms would be key.
The IMF mission, due to visit in May, would not commit anything on the past programme or new programme, he said, adding that without IMF support no money would be pouring in from other bilateral and multilateral donors. If the government did not reform the tax system then the IMF would not disburse a single penny, as revenue reforms were necessary to end the economic crisis, he said. Holding the Federal Board of Revenue (FBR) primarily responsible for the failure to implement the Reformed General Sales Tax (RGST), he said the incumbent tax mandarins successfully thwarted the process in connivance with businessmen.
The government should abolish the FBR and form a new tax-collection body to get vital support of the provinces and businesses for the implementation of the value added tax (VAT) in the country, he suggested. VAT had been successfully implemented all over the world, as it enhanced documentation, plugged loopholes and increased directed taxes, he said. However, this system was opposed as it would have reduced powers of tax authorities to issue SROs, which was a major source of corruption, he added.
Pakistan, he said had two options: either follow the Peruvian model by abolishing the FBR and appointing an honest but skeleton staff, or establish a new body along the lines of a central bank for VAT. This would help address reservations of the provincial government as at present they had very little trust in the FBR machinery, he said.
