Government should take immediate decision to impose RGST: advisor

The government should take immediate decision to impose reformed general sales tax (RGST) in a bid to enhance tax net, enabling the country to get pending tranches under IMF stand by arrangement.
This was stated by Dr Mirza Ikhtiar Baig, federal advisor on textiles while talking to Business Recorder. He said that Pakistan would have to achieve 8 percent GDP growth for the next five years to reduce poverty, while total GDP growth in Pakistan has been recorded at 2.3 to 2.5 percent during the current fiscal year 2010-11.
"Our educational sector has been ignored since independence. The contribution of education in total GDP of Pakistan should be more than 3 percent", he said. He added, "I have been working with the Planning Commission of Pakistan on formulating a new strategy namely 'Growth Strategy'. In fact, it is a 5-year plan, suggesting ways and methods to increase the growth strategies".
He said that Chinese want to bring big investment into Pakistan despite deteriorating law and order situation and other state rules. They do not want imposition of liabilities and other kinds of bidding processes. This needs to be addressed.
After government failure to impose sales tax bill, 2010, which is being termed as 'reformed general sales tax bill', the International Monetary Fund (IMF) has refused to release the bailout package worth $1.7 billion to Pakistan last year--the second last tranche of the $11.3 billion stand by arrangement facility.
While throwing light on the need to impose RGST, the advisor said that he was "in favour of imposition of RGST as we have to broaden tax net, that is just 9 percent of GDP this time".
Dr Baig said that the government should impose tax on agriculture sector, too. "Feudalism has entangled deep the agriculture sector and the government's reluctance about imposing any tax on agriculture sector is nothing but totally injustice with the textile sector that has to pay heavy taxes while feudal lords enjoy heavy profit and no loss at all". He lamented that the economy of Pakistan is in worst condition. "The government was forced to accept loan from IMF under strict terms and conditions. Army enjoys more than 50 percent of our budget. On the other hand, the natural disasters like last year's devastating floods had caused a great loss of $10 billion to the country".
Baig said that the textile sector is not happy at all about at the export financing facility provided from the State Bank of Pakistan (SBP). In export refinance scheme, the SBP provides financing facility to the commercial banks. The facility was started from 5-6 percent but now has exceeded 10 percent.
"The export finance facility is being termed by IMF and the World Bank as a subsidy while it is a fact that an exporter has to pay a lot under this scheme. Even some time, a textile exporter has to face heavy penalties under this scheme if he fails to bring in the desired foreign exchange in the country", he added.
"We have succeeded in getting textile exports worth $22 billion so far during the current fiscal year, 2010-11, but it is also a fact that the main reason behind getting $22 billion is the increase per unit price of a commodity. The quantity of our textile exports has also increased but not as much as that of the increase in unit price of a commodity in international market", he said.
He said that the overall target of getting $25 billion from textile exports till 2015 is difficult to achieve. "The power crisis may hurt the textile industry by driving it back to just $14-16 billion per fiscal year", he added.
Baig said that some of the export orders are being diverted to Bangladesh due to relatively worse law and order situation in Pakistan. Also the cost of production in Bangladesh is comparatively lower than in Pakistan.
"We have established the textile city in Karachi. An amount of Rs 1 billion has been spent so far on its infrastructure and Rs 1 billion will be spent on its development later on. There are captive power plants and the state-owned enterprises of Japan are showing their interest in doing investment here", he said. He said that the past duty drawback claims are being refunded by the government. These claims are worth Rs7.5 billion while the finance ministry has released Rs5.7 billion so far.