IMF non-committal on dropping RGST

Mehtab Haider
ISLAMABAD: The IMF has neither denied nor confirmed whether it has relaxed for Pakistan its main condition of imposing RGST and agreed to abolishing more sales tax exemptions for its $11.3 billion bailout package for Pakistan, it is learnt.

The Reformed General Sales Tax (RGST) bill in Value Added Tax (VAT) mode was pending before the Parliament that basically aimed at bringing all sectors into the tax net while other option was to remove existing exemptions of General Sales Tax (GST) and many experts say that it would continue with distortion in the system keeping in view track record of last two decades as GST regime was introduced in Pakistan in 1990.

The PPP led government is relaxed after getting assurances from the IMF to take lenient view on its demand on RGST because the Fund basically considers the fiscal deficit as ‘sacrosanct’ target and philosophically supports any move for achieving the desired objective by minimizing distortions in the fiscal system.

The government will be happy because the persuasion of RGST legislation in Parliament can pave the way of opening up of Pandora’s Box and it will be difficult for its allies such as PML-Q and MQM to extend support that was largely termed as an effort to burden the consumers.

The Federal Bureau of Revenue (FBR) is also supporting the path of elimination of GST exemptions as it will help to continue the existing rate of 17 percent while amending the Statutory Regulatory Order (SRO) powers will also continue in the hands of tax machinery. The RGST bill had proposed that the SRO powers would be transferred to Parliament.

The availability of Standby Arrangement (SBA) programme for Pakistan’s struggling economy was basically made available on condition of placing VAT which was later on renamed as RGST in a bid to remove distortions created in the sales tax regime since the decade of 90s. Now the whole basis of SBA which was granted to Pakistan in November 2008 to the tune of $7.6 billion that was accumulated to $11.3 billion on the pretext that the RGST would broaden the tax base and would enable Islamabad to pay back its piling debt burden.

Now the whole basis of RGST is in disarray so the IMF authorities seem reluctant to reply in clear terms as the Fund was talking on both options simultaneously without committing to one option.

When the IMF spokesperson in Washington was contacted by The News on Wednesday and inquired about the government’s claim for convincing the Fund authorities to drop the idea of imposition of RGST in the coming budget while bringing more sectors into the GST net by abolishing existing exemptions, the written reply of the IMF spokesperson discussed these two options but preferred not to reply in more explained manner.

When the spokesperson of the IMF was asked, “Has the IMF agreed to relax its condition on RGST,” the written reply states: “As we stated yesterday, reducing the budget deficit will require higher revenue through tax reform to broaden the tax base, including implementing measures to reform the general sales tax.”

“To this end, the introduction of the RGST still remains a paramount goal for the next fiscal year,” the spokesperson said but also stated in forwarded lines that “In this context it is also important to note that the IMF and Pakistani authorities discussed how some exemptions could be removed.”

When the spokesperson was further inquired about agreed fiscal deficit target for the next budget, he stated that discussions on the budget, including the fiscal deficit target for the FY 2011-12 are still ongoing. Going forward what matters are durable measures that enhance the sustainability of Pakistan’s public finances,” it concluded.