IFIs may give breather on VAT

ISLAMABAD: The World Bank and the Asian Development Bank have given Pakistan a “grace period” of up to two and a half months for meeting conditions of the $750 million poverty reduction and accelerated economic reforms programme.

One of the most significant conditions in the programme has been the imposition of the Value Added Tax (VAT), which is subject to much debate in political and economic corridors of the country.

The lending agencies have given this time frame to the government after Islamabad made headway on the circular debt issue and paid Rs66 billion to oil marketing and power distribution companies.

This helped ease a funding crisis which was affecting the country’s power sector.

Officials said that the World Bank (WB) and the Asian Development Bank (ADB) agreed to give Pakistan a grace period of two to two-and-a-half months for implementation of VAT and issuing the $750 million for poverty reduction (PRSP2) and accelerated economic reforms programme.

The lending agencies have also agreed to relax other requirements provided certain conditions are met. The prerequisites include payment of Rs66 billion of circular debt to oil marketing and power distribution companies by the federal government as promised and transfer Rs30 billion from state-run organisations (PSAs) to the government’s account.

A senior official in the finance ministry told The Express Tribune that the management of the WB and ADB will write about these conditional relaxations to their respective boards for approval.

Even if the delay in the implementation of VAT is approved, it will still be applied from July 1, say officials.

The source said that the option of delayed implementation of VAT will be used if the provinces do not agree to authorise the federation for implementation and recovery of VAT from July.

He said he hoped that provinces and the federation will reach an agreement where the provinces will have their bills passed in which VAT on services will be given to the federation for some period and after that they will collect it themselves.

The official said that the situation will soon be clear as the Sindh assembly has already passed the Sindh revenue services bill.

Donors have set a condition that to qualify for the $750 million assistance, Pakistan will have to amend the Nepra Act empowering Nepra to revise electricity prices for electric distribution companies and issuing notifications for that.

According to the official, the donors have been convinced that the amount in the accounts of PSAs is Rs30 billion and not Rs.90 billion. However, there were complications in transferring these amounts in to the government’s account.

Published in the Express Tribune, June 4^th, 2010.