RGST — a necessary evil?

With parliament haggling over RGST, it is likely that the next round of financing from IMF will be delayed.

With parliament haggling over the imposition of the Reformed General Sales Tax (RGST), it is likely that the next round of financing from the IMF will be delayed. There are many sound criticisms of the RGST, not least among them the fact that it is regressive in nature — it disproportionately affects those in lower income brackets than those who earn more. Furthermore, if the economy has to be documented, in terms of widening the tax net, then surely that can be done without having to raise the existing rate of GST. The third, and equally valid, criticism is that the RGST is inflationary and that is something that the economy can ill-afford at this point in time. That said, Pakistan does not have too much of a choice given that it is heavily dependent on funding from international lending institutions such as the IMF.

In that regard, the RGST may be a necessary evil right now, but at the very least its passage in parliament (by no means certain) and imposition should lead to the benefit of teaching the government that long-term planning can help avoid such painful measures. Successive governments have abdicated their responsibility by refusing to even consider taxing income from agriculture, which would have brought politically influential landlords into the tax fold and increased revenue generation and hence reduce our dependence on loans and prevent the government from having to pay massive amounts in interest alone. The additional menace of circular debt in the power sector, which is expected to reach Rs781 billion next year, is further depleting the treasury. This issue also needs to be given high priority because by itself it creates an environment where a sector as crucial as power and energy is having to operate with a large millstone around its neck.

When previous governments tried to enforce a GST, they caved in after protests from business interests. At least the current set-up has shown that it is ready to take tough measures. They will need to follow that up by taking this a step further and making sure that all who can afford it make their due contribution to the exchequer. Only then will the government have the independence to make decisions that are not forced on it by IMF dictates.

Published in The Express Tribune, December 2^nd, 2010.

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