Saturday, January 8, 2011

Pakistan to defer IMF-backed tax reform

Pakistan to defer IMF-backed tax reform

Pakistan’s prime minister, Yusuf Raza Gilani, announced the deferral of an IMF-backed tax reform on Friday.
The reformed general sales tax, which Pakistan has been discussing with the IMF for more than a year, was supposed to be introduced in July last year to boost tax revenues.
Mr Gilani reversed a plan to increase oil prices on Thursday to win back the support of MQM, after the party withdrew from the ruling coalition in a move that denied the government parliamentary majority.
MQM confirmed on Friday that it would rejoin the coalition.
Analysts warned that the decision to delay the RGST would further intensify concerns over the government’s ability to reform Pakistan’s troubled economy.

“This is a near fatal blow to the reform process,” warned Sakib Sherani, a former adviser to the finance ministry. “The RGST was meant to finally begin documenting the vast informal economy in a country with an alarmingly low tax to GDP ratio.”

A finance ministry official in Islamabad conceded that Mr Gilani’s decision “will only cause more problems with the IMF”, adding that “Pakistan does not have much to show in the form of successful reforms being undertaken currently”.

The RGST is a key part of Pakistan’s agreement with the IMF and its postponement could put the $11bn loan package in jeopardy.
The IMF said that raising the ratio of government revenue to national income was essential to returning Pakistan’s public finances towards sustainability and the sales tax was an indispensable component in this effort.

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