On the RGST trail?

Hafeez Shaikh is back in the Q Block. He was here during PPP’s last term. As now, a deal had been negotiated with the IMF. A key fiscal reform measure was the introduction of a value added tax (VAT). It was officially endorsed in the early part of 2010-11. The idea was to tax value added at each stage of the production process. It would not only yield more revenue but also information that would allow the expansion of the income tax base. A straight rush into the European type of VAT was considered too complex for our way of doing business and collecting revenue. Appropriate modifications were built in. However, businesses as well as some politicians were dead against the idea. Asad Umar, then head of the Pakistan Business Council, was in favour, though. Addressing some points of criticism, a Reformed General Sales Tax (RGST) Bill 2010 was placed before the relevant Senate and the National Assembly Committees. This too had problems in the wake of the 18^th Constitutional Amendment with the provincial governments, as the subject of services had been devolved to them. The IMF was requested to extend the existing Stand-by Arrangement by nine months to complete the process. Both House Committees cleared the bill and the provinces agreed to do their part of the legislation. In May 2011, the bill was tabled in the National Assembly. That is where it stands till today. The hopes for a new deal with the IMF were dashed.

What sealed the fate of the RGST Bill was the nature of political opposition, reflecting of course various business interests. Prime Minister Yousuf Raza Gilani’s efforts to develop a political consensus ended in smoke. Hafeez Shaikh called on PML-N’s leader Nawaz Sharif, but in vain. The party had been vociferously protesting against the rising inflation in parliament. The RGST, according to its desk-thumping members, would fuel it further. Chaudhry Nisar Ali Khan, the opposition leader in the National Assembly then, went to the extent of describing any support for the RGST as criminal. For the first time, the PML-N found support from other opposition groups as well. As if this noisy opposition was not enough, the government lost the support of its allies. The ANP and the JUI-F distanced themselves by saying that the bill would add to the miseries of the poor. The PML-Q was not favourably inclined either. The MQM, a major ally, declared open opposition. “It is an anti-people bill. A tsunami of inflation will follow if it is approved,” Dr Farooq Sattar had observed. As a matter of fact, Senator Tahir Mashadi of the MQM moved a private bill to impose agricultural income tax, not in a serious spirt of reform, but as an anti-rural retort to PPP’s ‘anti-urban’ RGST.

We are again at the stage where a heavy fiscal adjustment of around 1.3 per cent of GDP must be made. The opposition is regrouping to launch protest in and outside parliament. The political line-up this time is interesting. A party that had only one-member representation in 2011 now rules. But the anti-RGST MQM and PML-Q are coalition partners. In our politics, what is kosher while in government is not necessarily so when out of government. The PPP, which championed the cause of VAT during its tenure, is unlikely to support any serious tax reform. The PML-N, the JUI-F and the ANP have an unchanged position. With political battle lines essentially the same as during his last stint, it remains to be seen whether Hafeez Shaikh will be able to pull through the much-needed reform.

Published in The Express Tribune, May 24^th, 2019.

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