Revenue stability: Centre, provinces pressed
Tariff levels have not changed for last 30 years.
ISLAMABAD:
The International Monetary Fund (IMF) is fast becoming impatient with Pakistan as it has pressed federal and provincial governments to go an extra mile to ensure stability in revenues, which has been threatened by tax inequality and a stagnant revenue base.
The IMF mission chief for Islamabad, Paul Ross, on Wednesday said the stability of Pakistan’s tax revenues was fast becoming a big issue. He said there was inequality in taxes as some people were paying more taxes and others were simply not paying.
“In order to improve tax revenues, everyone should pay taxes,” he said, adding the tax level had not changed for the last 30 years and the tax-to-gross domestic product ratio was stagnant at nine per cent.
Ross said the federal and provincial governments required more efforts to generate revenues. “The federation collects 95 per cent of total taxes and much needs to be done at the provincial level.”
It was probably the first time in the recent history that a senior IMF official commented on provincial revenues. Paul said extra efforts were needed to raise the level of savings, which was a must to address economic vulnerability.
State Bank Governor Shahid Hafeez Kardar said Pakistan has not distributed the tax burden based on income. He said the reformed general sales tax (RGST) was not a regressive but a progressive tax as it would not cover certain items used by the poor.
The industry is bearing extra burden contributing over 55 per cent to total tax revenues. The services sector pay approximately one-third of total taxes and the contribution of agriculture tax is just one per cent.
Kardar said the provincial governments were not exploiting their tax potential, particularly agriculture and property taxes. “I own a 2,000 square yard house and am paying just Rs30 in tax per month, which is not acceptable and equitable.” He said the seventh National Finance Commission (NFC) award had hit the incentive to broaden the tax base.
Vito Tanzi, a former IMF director, said that in 1979-80 he wrote a paper on Pakistan. At that time, the tax problems were the same as today. He said implementation of value-added tax could generate significant revenue for medium to long-term periods.
Since May, the IMF has suspended the $11.3 billion bailout programme after the government failed to deliver on the promise of tax and power reforms. It recently granted a nine-month extension in the programme to September 30, 2011, giving the government more time to implement key reforms.
Former finance minister Dr Hafiz Pasha said the IMF was becoming impatient with the issue of general sales tax (GST). “Have some patience on GST implementation,” he said. It has been just a year since the government started trying to implement an integrated GST while the Indians have been trying to do it for the last many years but have failed,” said Pasha.
He advised the IMF to “respect the sovereignty of Pakistan and parliament, as we cannot dictate parliament and cannot give a date when it would approve the GST bill.” He said it was great to hear that the IMF was now finally talking about equality in taxes, which had not been the case for the last 20 years.
Pasha said the constitutional right of provinces on services has made it extremely difficult for an integrated tax regime that now requires five laws to be passed by federal and provincial governments.
He said greater resource transfer to provinces through the seventh NFC award would retard efforts to generate more revenues at the federal and provincial levels. He said the federal government will not go an extra mile on the ground that a larger part of its taxes would go to the provincial governments.
Under the five-year NFC award, provinces share in federal taxes has increased from 45 to 56 per cent for financial year 2010-11. For the remaining four years, provinces share would be further jacked up to 57.5 per cent.
Published in The Express Tribune, December 30th, 2010.
The International Monetary Fund (IMF) is fast becoming impatient with Pakistan as it has pressed federal and provincial governments to go an extra mile to ensure stability in revenues, which has been threatened by tax inequality and a stagnant revenue base.
The IMF mission chief for Islamabad, Paul Ross, on Wednesday said the stability of Pakistan’s tax revenues was fast becoming a big issue. He said there was inequality in taxes as some people were paying more taxes and others were simply not paying.
“In order to improve tax revenues, everyone should pay taxes,” he said, adding the tax level had not changed for the last 30 years and the tax-to-gross domestic product ratio was stagnant at nine per cent.
Ross said the federal and provincial governments required more efforts to generate revenues. “The federation collects 95 per cent of total taxes and much needs to be done at the provincial level.”
It was probably the first time in the recent history that a senior IMF official commented on provincial revenues. Paul said extra efforts were needed to raise the level of savings, which was a must to address economic vulnerability.
State Bank Governor Shahid Hafeez Kardar said Pakistan has not distributed the tax burden based on income. He said the reformed general sales tax (RGST) was not a regressive but a progressive tax as it would not cover certain items used by the poor.
The industry is bearing extra burden contributing over 55 per cent to total tax revenues. The services sector pay approximately one-third of total taxes and the contribution of agriculture tax is just one per cent.
Kardar said the provincial governments were not exploiting their tax potential, particularly agriculture and property taxes. “I own a 2,000 square yard house and am paying just Rs30 in tax per month, which is not acceptable and equitable.” He said the seventh National Finance Commission (NFC) award had hit the incentive to broaden the tax base.
Vito Tanzi, a former IMF director, said that in 1979-80 he wrote a paper on Pakistan. At that time, the tax problems were the same as today. He said implementation of value-added tax could generate significant revenue for medium to long-term periods.
Since May, the IMF has suspended the $11.3 billion bailout programme after the government failed to deliver on the promise of tax and power reforms. It recently granted a nine-month extension in the programme to September 30, 2011, giving the government more time to implement key reforms.
Former finance minister Dr Hafiz Pasha said the IMF was becoming impatient with the issue of general sales tax (GST). “Have some patience on GST implementation,” he said. It has been just a year since the government started trying to implement an integrated GST while the Indians have been trying to do it for the last many years but have failed,” said Pasha.
He advised the IMF to “respect the sovereignty of Pakistan and parliament, as we cannot dictate parliament and cannot give a date when it would approve the GST bill.” He said it was great to hear that the IMF was now finally talking about equality in taxes, which had not been the case for the last 20 years.
Pasha said the constitutional right of provinces on services has made it extremely difficult for an integrated tax regime that now requires five laws to be passed by federal and provincial governments.
He said greater resource transfer to provinces through the seventh NFC award would retard efforts to generate more revenues at the federal and provincial levels. He said the federal government will not go an extra mile on the ground that a larger part of its taxes would go to the provincial governments.
Under the five-year NFC award, provinces share in federal taxes has increased from 45 to 56 per cent for financial year 2010-11. For the remaining four years, provinces share would be further jacked up to 57.5 per cent.
Published in The Express Tribune, December 30th, 2010.