GST harmonisation delayed further

Political polarisation, constitutional challenges hamper sales tax integration

ISLAMABAD:

The National Tax Council (NTC) could not meet this week in the absence of full quorum, despite formally convening a meeting, an affair which may appear to be small, but highlights the challenges posed by increasing political polarisation amid an unfavourable global environment for raising debt.

The council was scheduled to meet on Monday to make a decision on complying with a critical condition set by the World Bank for the release of a colossal loan of $900 million.

The World Bank and the International Monetary Fund (IMF) have long been pushing Pakistan to integrate the sales tax on goods and services systems to avoid leakages and facilitate the taxpayers.

But the decision involves the federal government and four provincial administrations, whose administrative or legislative approvals are needed to have one system for sales tax on services.

“I was waiting in my office to join the meeting at 11.30 am through video link, but suddenly my team informed me that the meeting has been postponed,” said Punjab Finance Minister Mohsin Leghari.

Earlier in March 2020, the NTC had been set up to harmonise the rates of taxes applied to the supply of goods and services and with the mandate to finalise the model sales tax laws on goods and services.

Federal Finance Minister Ishaq Dar is the chairman of the council while the four provincial finance ministers are its members. Obviously, a timely meeting of the NTC would have strengthened the hands of Dar before he left for the US to attend the annual meetings of the World Bank and IMF.

Pakistan is desperately looking for budget support loans from the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank (AIIB), after the doors to raise debt from the global capital markets have been temporarily closed due to the junk credit rating of the country.

Sources said that the IMF had also asked Pakistan to revise downwards its projection of foreign fund inflows on account of sovereign bonds, commercial loans and commodity debt. The adjustment will make it harder for Pakistan to raise at least $35 billion worth of debt during the current fiscal year.

The World Bank, which has promised to give two policy loans totalling $1.05 billion in the current fiscal year, is not approving the release of financing till complete integration of the country’s sales tax regimes.

Seemingly, this is an uphill task that has caused political polarisation as Punjab and Khyber-Pakhtunkhwa (K-P) are controlled by the opposition Pakistan Tehreek-e-Insaf (PTI) party. However, so far, Punjab’s finance minister has played a constructive role and has not shown any signs of political division.

“I would have preferred to attend, but there was a meeting with the chief minister just before the NTC huddle,” said K-P Finance Minister Taimur Saleem Jhagra.

He said that his team was there to attend and for sure he did not boycott the NTC proceedings. Jhagra clarified that the matters discussed in the NTC were apolitical and there was no need to boycott the sitting. The portfolio of Sindh finance minister is held by its Chief Minister Syed Murad Ali Shah, who too had other engagements on Monday and did not turn up for the NTC meeting.

According to the finance ministry, Pakistan is seeking the approval of second Resilient Institutions for Sustainable Economy (RISE-II) budget support loan of $450 million by January next year. Its approval will also unlock an AIIB loan of $450 million.

It has emerged that the main stumbling block in the way of RISE-II loan is the lack of consensus between the centre and four provincial governments on the harmonisation of GST on goods and services.

It has also been learnt that there is still disagreement over the definition of what constitutes a good and a service as the FBR is not willing to endorse the proposal of provinces that the definition being used for the harmonised system codes should be accepted.

Separately, the provinces have proposed that anything which is not a good is a service, including the incidental and ancillary matters.

Additionally, the FBR and the four provinces also have divergent views on trans-provincial services like restaurants, construction, toll manufacturing and transportation of oil across the country.

“Provinces have given a presentation to the Ministry of Finance and the FBR will now give its opinion to the NTC, after examining the position of provinces in light of the constitution,” said FBR spokesman and Member Policy Afaque Qureshi.

According to the FBR, under the constitution’s Legislative List, the ancillary and incidental matters also fall under the constitutional purview of the centre, but the provinces have proposed a definition that violates Entry 49 read with 59 of the Federal Legislative List of the constitution.

Published in The Express Tribune, October 12^th, 2022.

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