Sunday, January 2, 2011

If RGST not implemented, wealth tax not restored

If RGST not implemented, wealth tax not restored

ISLAMABAD: A leading economist Dr Hafiz Pasha while portraying a horrifying picture of the economy expressed fear that if the government fails to implement the Reformed General Sales Tax (RGST) and does not restore wealth tax and enforce agriculture income tax in the provinces then the country would be in the grip of hyper inflation in a situation where the State Bank of Pakistan would be required to print new notes worth Rs 1 trillion at least.

The country is going to witness an unprecedented budget deficit to the tune of over Rs 1.2 trillion during the ongoing fiscal year and to meet this the government would be required to print Rs 1 trillion currency notes as against Rs 600 billion notes that were printed in 2008 to meet the budget deficit.
Hinting unstoppable inflation in the coming days, former Economic Advisory Council member Dr Hafiz Pasha portrayed a horrifying picture of the economy before the evening session of the 26th annual general meeting of Pakistan Institute of Development Economics (PIDE) in a scenario where deficit would be out of control resulting in printing of notes to the tune of around Rs 1 trillion.
He said that the economic managers have failed to prepare the impact of revenue generation, inflationary impact of RGST and also failed in taking on board all the stakeholders over the issue.
He informed that the country is going to face historic inflation in case the government is unable to take taxation measures to generate additional revenue. People are talking about the inflationary impact of RGST, but they are unaware that a time will come when the government has to print notes worth Rs 1 trillion. The inflation caused by the printing of new notes would be so high that people would forget about the inflationary impact of the RGST.
Dr Pasha threatened that the deficit is rising day by day and delay in the introduction of new taxation measures would result in extraordinary high inflation. The country would be in a grip of hyperinflation, which would be unstoppable. The inflationary impact due to printing of new notes would be much higher than the RGST.
Talking about the inflation, he hinted that inflation would further increase in coming days unless the government takes timely steps to control the situation.
Under the current circumstances, the provinces have to enforce the agricultural income tax and the government should restore the wealth tax. The provinces should have taken appropriate steps a year ago as nobody was stopping the federal government from taking measures to generate revenue.
He said that the government must show sense of responsibility for avoiding situation of printing notes in the coming days. It is unfortunate that the people have not been educated about the actual impact of the RGST.
He said, “I am very much worried about the constant delay in the implementation of the RGST. It is unfortunate that first the government talked about the RGST’s implementation in October, which was delayed to December. Now there is a political turmoil in January 2010. Even at technical level there is still no unanimity or consensus on all issues of the RGST.
Referring to a report on the inflationary impact of Dr Hafiz Pasha said that the Federal Board of revenue had asked the PIDE to compile a report on the inflationary impact of RGST, but so far the report has not been completed. There is a lack of clarity on the issue of RGST and we have not done a good job for taking this reform forward.
In the morning session, Dr Pasha said that we cannot give a specific date to the International Monetary Fund (IMF) for the implementation of RGST keeping in view the current situation. India has been struggling for the last 15 years to properly enforce the value-added tax (VAT), but they are unable to do so. Contrary to this, in Pakistan the sales tax reforms have just been started since the last one-year. The IMF should have to be patient as we cannot give a specific date for the implementation of RGST. We have to respect our parliament and it is not possible to give a precise date for the introduction of RGST.
He added that the Sales Tax Act of 1990 has all features of VAT. The concept of sales tax domestic zero-rating was made part of the RGST, which has not been done anywhere in the world.

The international VAT expert Ehtisham Ahmad said that RGST is not a new tax. It has never been considered as a new tax. The problems in the GST of 1990 would now be fixed through RGST. The performance of the existing sales tax has been continuously declining having an impact on the tax-to-gross domestic product (GDP) ratio. He said that during Musharraf tenure measures were taken at the import stage to improve the trade position of the country, which had impacted the tax-to-GDP ratio. It was a deliberate attempt to improve the trade position of the country.

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