Pakistan must tax its elite, is the latest mantra from the Big Brother. International donors can be expected to pour out billions to a country whose rich refuse to shell out their dues. Taxation finally has become the centre piece of foreign pressure.Today is the last day of the three-month grace period the finance minister had sought in his budget speech. As late as a week ago, little progress had been made on the resolution of province-centre rifts on collection of revenues.
One almost gets the feeling that politicians live for the last minute. Intense negotiations at the eleventh hour, with representation from all five governments - federal and provincial - has given way to a rather puzzling agreement on the reformed GST.
The right of provinces to collect revenue, as outlined in the 7th NFC Award, has been acknowledged by the centre. Interestingly, a few key sectors that are revenue heavy are to be collected by the federal government, to be distributed in turn to the provinces. Financial services, banking and insurance and advertisements reportedly fall under this head.
But, the distribution agreement is perplexing. The formula for distribution adds up to a total of 134 percent of the collected amount. It seems that, in a moment of desperation, Islamabad has offered the provincial stakeholders more than it can afford - just to keep them on the negotiating table.
Interestingly, the deadlock over revenue distribution amongst the provinces was chaired by President Zardari himself. Given his role as the head of state, one wonders if there is any legal validity to the agreement as the head of state is not supposed to be involved in administrative affairs.
As for the GST rate, it appears to stay unchanged. Though the government hasn clarified its position yet, Dr Hafiz Shaikh has hinted at a reformed GST at 17 percent due to dire economic circumstances.
This doesn come at a surprise; BR Research had repeatedly written in these columns about the possibility of
eformed GST at this higher rate simply because once the tax rates are increased, downward revisions are usually rare. Only this time, the government has got the excuse of the floods.
Even if the rates weren proposed to be increased, the ultimate hitch in the implementation of reformed sales tax would have been ensuring parliamentary support for the bill. Since Pakistan entered the IMF programme, as many as five draft bills have made their way to the floor but none approved.
Already the governments coalition party has raised its voice against a tax that will disproportionately tax the poor. In the days and weeks to come, it will be interesting how the halls of power react to the new tax, as powerful business lobbies have been raising concerns over its implementation. Whether the existing players in the halls of power remain there, is altogether a different question.