Time is objective. It doesn wait for anyone, and it didn wait for consensus to be reached on VAT; the deadline for the passage of VAT laws was May 31, 2010, according to the Letter of Intent agreed upon with the IMF.
Assemblies, however, were not in session yesterday, which could be cited as one of the many reasons behind the failure to vote on the new tax regime.
International multilateral lenders (i.e. World Bank and IMF) have in recent days threatened the government with a "No VAT, no money" whip. Prime Minister Yusuf Gilani and his government have been confident in resolving the issue, but the string of support from political powers is drawing thin.
The stance of almost all political players in the last few days has taken a new direction. In an effort to regain popularity after the hue and cry of the general public and the business community against VAT, major political voices have stood up in opposition to VAT.
The largest opposition party is flexing its muscles against VAT. Nawaz Sharif and Co. cite inflation and lack of infrastructure for tax collection as the reason why the new regime isn such a good idea. The realization is valid, but one wonders why it took a party, that claims to have a think tank, many months to reach that conclusion.
Even coalition partners who are running the government in the province of Khyber-Pakhtunkhwa have rejected VAT of late. ANPs Senator Zahid Khan termed the new tax regime inflationary, saying that at a time of high unemployment, inflation could spiral out of control due to VAT.
Similarly, MQM has opposed the imposition on VAT because it feels the burden would be felt most by lower and middle classes, which is the heart of its constituency. MQM is a key coalition partner of the ruling PPP, and losing its support in the National Assembly could be detrimental to the stability of the government.
Parties that have been out of favour since the last election, PML-Q and Jamaat-e-Islami, have also voiced their concerns. PML-Q leader Chaudhry Pervaiz Elahi said that his party would raise its voice against VAT in the parliament. He says his party stands in solidarity with the traders.
Even the PPP, the ruling party both in the federal and Sindh government, isn on board fully. The provincial government, led by Qaim Ali Shah is at odds with the federal government on the collection of tax on services.
One aspect common to the concerns of all the political parties is the timing of their protests. With each passing day, the possibility of VAT in FY11 is becoming dimmer; politicians don want to be caught on the wrong side of the field next fiscal year, in case the law doesn get implemented.
The bottom line is that Pakistan has a horribly poor record of collecting taxes, with an even worse usage. By and large, taxes collected have failed to provide basic necessities to the masses.
If the public starts witnessing development work resulting from tax payments, theyll be forthcoming with their payments.
The government must first get the politicians, then the businessmen and lastly the public on board if it going to achieve a higher tax-to-GDP ratio.