Pakistan in secret deal with IMF to impose RGST


Chief Minister (5k+ posts)

Pakistan in secret deal with IMF to impose RGST

Khalid Mustafa
Friday, May 20, 2011

ISLAMABAD: The government has reached a secret understanding with the IMF under which the Reformed General Sales Tax will be imposed in the next fiscal budget, but will not be called the RGST or VAT, since the government may not be able to get the relevant financial legislation passed through the National Assembly, The News has learnt.

What this simply means is that the economic mangers of the government, who held talks with an IMF team in Dubai and briefed them on the salient features of the next budget, have tried to fool the masses, urban based political players and business tycoons by leaking the false information that the RGST had been shelved. In reality, the official statement after the talks says discussions on the issue would continue in the weeks ahead and a fund mission would visit in July 2011. In essence, the economic managers have tried to camouflage a secret deal with the IMF.

The budget deficit target for the next fiscal year has not yet been finalised and discussions on the subject between the IMF and Pakistan are still underway, said a senior government official. Tax measures are to be taken in the budget for 2011-12 in a manner that the objective of the RGST will be achieved without mentioning its name and the IMF will then start its fifth review under the $11.3 billion Standby Arrangement (SBA) programme in July, paving the way for the next tranche of $1.3 billion, revealed an official who was a part of the seven-day talks with the IMF in Dubai.

The Fund suspended the $11.3 billion SBA programme about 15 months ago because of lack of progress on the implementation of the RGST. The RGST is the performance criteria for the next review and next tranche. In the official statement, it is clearly written that the Fund mission would come to Pakistan in July, 2011-12, meaning that the IMF would review the steps to be taken in the budget ensuring the objectives of the RGST, which is documentation of the economic activities.

Despite this, however, the Government of Pakistan came on record to say after the Dubai talks that all tax exemptions would be withdrawn in the next budget and the RGST will not be imposed.

An IMF spokesperson in Washington told The News the introduction of the RGST still remains a paramount goal for the next fiscal year. He said reducing the budget deficit would require higher revenue through tax reform to broaden the tax base, including implementing measures to reform the general sales tax.

To this end, the introduction of the RGST still remains a paramount goal for the next fiscal year. In this context, it is also important to note that the IMF and Pakistani authorities discussed how some exemptions could be removed, he said. Also, discussions on the budget, including the fiscal deficit target for the FY 2011-12, are still going on. Going forward, what matters are durable measures that enhance the sustainability of Pakistans public finances, the spokesperson concluded.

Sources in the Finance Ministry also told The News that the IMF had ridiculed the Pakistani authorities by saying the budget deficit would be around Rs900 billion. The IMF team had asked about the means through which the deficit gap would be bridged since Pakistan has only Rs40 billion in external inflows.

It is pertinent to mention that in the ongoing fiscal year, the government has managed to get less than $300 million under the annual $1.5 billion aid to be received as part of the Kerry-Lugar agreement.