In his first speech, as the Finance Minister of Pakistan, Dr. Abdul Hafiz Shaikh gave himself a three month holiday, on the implementation of a broad based sales tax regime. The issue had heated up into a political battle at the time.
October is fast approaching. And in hopes of reaching consensus before drafting any proposed legislation, FBR has laid out a roadmap to the implementation of a reformed GST.
For clarity sake, calling it GST, VAT or cat for that matter doesn change what it means. Under the standby agreement with IMF, Pakistan must mobilize its tax collection resources, in an effort to improve the all important tax-to-GDP ratio.
This time around, FBR has sought proposals for the implementation of the reformed GST from provincial administrations. Once received and discussed amongst the provincial secretaries, the recommendations will be incorporated into the draft law.
FBR would do well to include elements of the business community in its discussions as well. Without taking all stakeholders on board, the revenue collector may well find himself in rough seas.
A number of proposals have been set out by the central revenue agency for discussion. On the tax collection front at least three options have been floated.
First, that provinces would allow collection of service taxes to FBR. That was the point of contention in the last round and is expected to be roundly rejected by Sindh government, unless Dr Shaikh is able to broker a deal, on the PMs recent insistence.
Second, that the right of tax collection on services would be shared between federation and the provinces. Though there is some merit to this option, arguments are likely to erupt on the tax rich sectors of telecom and banking and could threaten to derail the process.
And finally, the third option allows provinces to develop their revenue generation capacities and slowly take on the role as the collector of taxes. Until such time, collection of major sectors would be entrusted to FBR.
On paper, the third option is both realistic and objective. But reforms often come in a single swift move. If some changes are to follow with time, their time never comes. Input tax adjustment is another area that needs to be ironed out before the implementation of the new tax regime.
The bottom line is that improving the tax collection mechanism is in the best interest of Pakistans economy. Hopefully, the second attempt is going to prove successful for Dr. Shaikh and his taxmen.