Pakistan races the clock to table RGST

Islamabad decides to go solo to secure IMF tranche as federal and provincial secretaries' meeting remains fruitless.

ISLAMABAD: Pakistan’s plan to persuade the international community to commit billions of dollars in aid hit a new low when the provinces refused to budge from their respective stances on the issue of introducing a new uniform sales tax regime calling for treating goods and services alike.

A meeting amongst the federal and provincial secretaries remained fruitless as both Sindh and Punjab refused to budge from their stated positions regarding revenues collected from import, export and ports related services. Punjab wants revenues to be allocated on the basis of origin of services, Sindh argues that revenues should be authorised to the province where it is collected.

These services come under the category where tax adjustment is required at a later stage. An official of the Federal Board of Revenue (FBR) said that without resolving the issue of who has rights over tax collection from these services, taxpayers cannot be refunded.

The International Monetary Fund (IMF) has linked Pakistan’s next tranche to the reformed general sales tax (RGST) bill in the federal and provincial assemblies before November 13. This time IMF insists that it will not accept a “piecemeal approach” or anything except a universal RGST regime.

A two-day Pakistan Development Forum (PDF) is taking place from November 14 onwards where bilateral and multilateral donors are expected to be in attendance. A finance ministry official said that if the government is unable to table the bill before the PDF meeting, it is unlikely that donors will make substantial pledges

After a broader understanding between the federal government and provinces in late September, it was announced that the RGST will be imposed from October. The bill was delayed by a month and now the authorities plan to introduce it from December 1, which seems unlikely after Monday’s developments.

After failing to convince the provinces, the federal government has decided to table the RGST bill, which covers both goods and services, without reaching on a consensus with the provinces. According to the Prime Minister Secretariat, Minister for Finance Dr Abdul Hafeez Shaikh said that in order to generate new resources, “the RGST bill will be introduced in the parliament after approval by the cabinet in its next meeting on Wednesday”.

While quoting the minister for finance, the secretariat states that the provincial governments can subsequently present the RGST bills in their respective assemblies after necessary consultation with the federal government, if needed.

Planning Commission’s Deputy Chairman Dr Nadeemul Haq told The Express Tribune that the federal government has decided to table the bill, as the provinces still have certain issues on “the drafting” of the bill. He said that the bill will cover both goods and services, which, according to legal experts may trigger another controversy as services are constitutionally a provincial subject.

Federal Board of Revenue Chairman Sohail Ahmad told The Express Tribune that the proposed RGST bill will cover both goods and services. “The bill carries an enabling clause that covers certain services, provided the provincial assemblies allow the federal government to collect tax on those services,” he added.

Published in The Express Tribune, November 9^th, 2010.