The relaxation given by the International Monetary Fund (IMF) to the government for enhancing revenues with or without the imposition of the Reformed General Sales Tax (RGST) has received mixed response from experts, who have termed it a successful time buying tactic from the government to avoid backlash in the next general elections
A top government source said on the condition of anonymity that IMF was more concerned about enhancing revenues and not interested in the mode of implementation for the time being. He said IMF showed flexibility as the government had already implemented their three main concerns – withdrawal of tax exemptions, reducing power subsidies and curtail the budget deficit at 5.3 percent of the Gross Domestic Product (GDP) during the current fiscal year.
The government, he said, could not guarantee parliamentary approval of RGST as it was a prerogative of the parliament to pass or reject it, even though the Fund was assured that the RGST would be part of the finance bill. The government has drawn two plans. The first one with RGST envisages collection of Rs1950 billion during the next fiscal year. While the alternate plan seeks collection of revenues to the tune of Rs1968 billion as the sales tax rate would be retained at 17 percent limit.
Taxing agriculture income was their demand and we have taken steps by withdrawing exemption on the agriculture inputs falling under the domain of the federal government like tractors, pesticides and other products. Now the provinces would have to take steps to collect the tax, he said, adding that the government would gradually end zero rate for export sectors.
Dr Ashfaque Hassan Khan, Dean of NUST Business School, terms the 7th National Finance Commission a political decision, as transferring of additional Rs300 billion resources to provinces would not push them to go for tapping additional revenues for their requirements. He proposed that the Council of Common Interest should impose restrictions on provincial spending, otherwise its better for IMF to deal directly with provinces on fiscal deficit.
Former Chairman Federal Board of Revenue, Abdullah Yousaf, talking to Pakistan Today said that the prevalent GST regime was based upon the VAT mode but due to exemptions it had lost its efficacy. He said the manufacturers and importers were taxed at the initial stage, but the value addition was taxed, which should be taxed as that would bring the wholesalers, dealers and retailers in the tax net as well as help in the documentation of the economy.
However, he said that the removal of exemptions and bringing the services under the GST was not an easy task. He said the government had made some moves towards elimination of exemption but still it had to take more measures. Taxing services falls under the provincial domain and forward movement by provinces would help realise additional revenues. The fundamental difference between VAT and alternate mode is the documentation of the economy, he said, adding that under the existing law the federal government could move to document the goods sector which fell under its domain. If the provinces decide to impose GST on services then it could be documented.
However former Economic Advisor, Ministry of Finance, Saqib Sheerani was quite critical of the relaxation granted by the International Monetary Fund (IMF) to the government during the Dubai talks and termed it a wrong decision. IMF, he said, should have stuck to its guns on the RGST issue as it is the way forward. Their considerations of the political and economic compulsions of the government lead to a wrong decision. No alternate plan for enhancing revenues has succeeded in Pakistan in the last 20 years. The government employed it as a time buying tactic as we are already in election mode for next year.
