We can increase tax collection without RGST: FBR

Implementation must for restoration of $11.3b IMF programme.

ISLAMABAD:

At a time when the government has again initiated a process of sensitising political parties about its intention of implementing the Reformed General Sales Tax (RGST) from July, tax authorities claim they can collect more taxes without the imposition of RGST.

As the budget approaches, debate over levying RGST from financial year 2012 has again started and the proponents and opponents of the reformed tax regime have taken their positions.

FBR had made a similar claim about increasing tax collection last year when it pressed the government not to levy RGST. However, despite slapping Rs53 billion in additional taxes on March 15, it is struggling to achieve the revenue target of Rs1,588 billion, a figure that has been revised downwards three times.

The International Monetary Fund (IMF) is pressuring Pakistan to levy RGST, a tax necessary for the restoration of the $11.3 billion suspended bailout programme. The government has initiated a dialogue with political parties and during the last 48 hours it has taken into confidence its allies - Awami National Party and Muttahida Qaumi Movement.

Whether the government implements RGST or not, people will be subjected to cruel treatment as rulers have indicated no increase in employees’ salaries on the excuse of fiscal constraints. National Assembly Standing Committee chairperson Fauzia Wahab said that the government will not increase salaries of employees due to scarcity of funds.

In a bid to calm down opposing voices, the government on Friday indicated that it would exempt all food items including processed food from RGST. The hint was dropped in a meeting of the National Assembly Standing Committee on Finance, convened to apprise parliamentarians about the tax strategy.

In the closed-door meeting, government officials briefed the panel about two available options – meeting budgetary targets with and without implementation of RGST.

In the meeting, tax officials said that if RGST is implemented, it will lead to additional revenues of Rs72 billion, taking the total collection to Rs1,950 billion. However, FBR estimates show that even after levying RGST it will fall short of the Rs1,950 billion target by Rs36 billion. It intends to recover the shortfall through administrative measures like netting tax evaders, detection of illegal tax adjustments and improving enforcement.

On the other hand, FBR claimed that without RGST it could even collect Rs1,968 billion in taxes. This will be done by carrying forward the taxes, excluding flood surcharge, implemented through presidential orders on March 15 to the next fiscal year. FBR projected collection of Rs90 billion by withdrawing exemptions, which is Rs18 billion more than the amount that would be generated from RGST. The Rs1,968 billion claim also includes Rs36 billion on account of administrative measures.

Former IMF official Dr Ehtisham Ahmad recently in a seminar said that FBR has been opposing RGST, fearing it might take away crucial powers from it. He said that the other major reason of blocking RGST is that it emphasises on the documentation of economy, which would expose hidden incomes of the wealthy class.

The inefficiency of the tax machinery can be gauged from the fact that it has failed to recover Rs131 billion as cases related to these are in various courts and tribunals. The money is almost two and a half times more than March 15 taxes.

Published in The Express Tribune, May 7^th, 2011.