Reformed GST: Parliamentary approval likely, IMF told

Pakistan economic team has informed the International Monetary Fund (IMF) that it is optimistic about getting approval for implementation of the Reformed General Sales Tax (RGST) from parliament after mending differences with political parties, well-informed sources told Business Recorder here on Saturday.
The government of Pakistan briefed the IMF team on the likelihood of parliamentary approval for the two money bills ie Finance Amendment Bill 2010 and General Sales Tax Bill 2010 tabled in November of last year and discussed approximate time line of their passage, informed sources further revealed. The government has expressed optimism over the development of a political consensus, including PML (N) and MQM, on the issue of the passage of the two bills.
"The IMF team is here to observe the status of reforms. The government is trying its best to convince the Fund that it has made and is continuing to make the best of efforts in implementing policy measures to restore macroeconomic stability and supporting structural reforms", sources revealed.
IMF under its Stand By Arrangement program emphasised implementation of structural reforms. The statement made by the IMF on the occasion of the 2010 Pakistan Development Forum on 15 November, 2010 notes, "Structural reforms are needed to improve budgetary performance. Two areas stand out. One is the reformed general sales tax (RGST), including an effective input-crediting mechanism, reduced exemptions, and elimination of zero-rating and special rates. The other is electricity reform, where action is needed to eliminate untargeted subsidies while addressing load shedding and protecting the poor, and address the problem of circular debt".
"Adnan Mazarei, Assistant Director, Middle East and Central Asia Department of IMF, has been in Pakistan from the very first day of our technical meetings that is 1st March and has attended meetings for the last 3 days," sources acknowledged. Talks on policy matters between the IMF and the government of Pakistan will take place on March 6 to 8. "During the ongoing technical level meetings issues regarding electricity tariff, fuel prices, tax reforms and the State Bank of Pakistan (SBP) Act are being discussed".
Sources told this scribe that the government''s stance about decreasing the 9.9 percent hike in petroleum prices by 50 percent may become a reason of grave concern for the IMF. "During the first six months of the current fiscal year, the government has collected Rs 35.44 billion as petroleum levy while the target set by the government in its budget for 2010-11 was Rs 110 billion".
The IMF team has been told by the government of Pakistan that the revenue collection target was originally fixed at Rs 1667 billion at the time of budget 2010-2011 but later the target was revised downward to Rs 1630 billion. The FBR has estimated Rs 1604 billion tax collections by the end of current fiscal if the RGST is not implemented during the last quarter of the current year.
Additional measures proposed by the government pending parliamentary approval are as follows: (i) 15 percent flood surcharge on withholding tax and advance tax targeted to generate Rs 27 billion; and (ii) increase in the rate of the SED from 1 to 2.5 percent expected to generate additional revenue of Rs 9 billion. Broadening of tax base would generate an additional amount of Rs 5 billion and recovery of arrears would help collect Rs 5 billion during remaining months of 2010-11.
These proposed revenue and administrative measures would help in collecting nearly Rs 46 billion in the remaining months of 2010-2011. Sources said that the government does not intend to cut defence budget at all as India has already increased its defence budget by 11 percent for 2011-12 with the objective of aiding rapid modernisation of the armed forces.