Budget 2012: Federal cabinet decides to levy RGST

Cabinet approves budget strategy paper, money bill to be presented to Parliament on May 28.

ISLAMABAD:

In the first meeting of the federal cabinet after the PPP was joined by its new coalition allies, the government decided that it will be proposing the value added tax, also referred to as the reformed general sales tax (RGST), as well as approving the budget strategy paper for the fiscal year ending June 30, 2012.

The announcement was made by Information Minister Firdous Aashiq Awan at a press conference in Islamabad on Wednesday, who said that the government intends to pass legislation levying the RGST after consulting with its coalition partners. The budget for fiscal year 2012 will be presented on May 28.

The move comes as a team of Pakistan’s economic managers is meeting with International Monetary Fund (IMF) officials in Dubai to discuss the international lender’s suspended loan program.

The IMF had suspended the loan program late last year after the government’s failure to levy the RGST as promised in June 2010. The implementation of the RGST is one of the key conditions attached to the $11.3 billion loan program.

In recent weeks, IMF officials have refused to confirm or deny whether or not they referred to Pakistan’s economic managers as ‘liars’ and ‘cheats’ when the Washington-based lender was making a decision in late 2008 on whether or not grant a loan program to Islamabad.

The cabinet also approved a budget strategy paper covering fiscal years 2012, 2013 and 2014. During this three year period, the government claims it will be able to restrict the budget deficit to 4.5 per cent of the total size of the economy for the first year and reduce it by 0.5 per cent of GDP for the subsequent two years.

Tax revenues as a proportion of GDP, meanwhile, are only expected to rise from 9.1 per cent to 10.3 per cent of the total size of the economy during this period.

It is unclear how the government plans to bridge the gap between its revenues and expenses since it does not forecast substantially higher tax revenues nor does it forecast anything more than moderate economic growth. The GDP is forecast to rise by 4.2 per cent in fiscal year 2012.

The government expects inflation to hit 12 per cent in 2012, down from the 16 per cent expected by the State Bank of Pakistan for the outgoing fiscal year.

Meanwhile, the government pointed out that the finance ministry has been able to implement 81 of the 92 decisions taken by the cabinet over the last three years. It did not, however, specify which decisions remained unimplemented, making it difficult to render judgement on the degree of the economic management team’s success.







Published in The Express Tribune, May 12^th, 2011.