Govt to end all tax exemptions

ISLAMABAD - The International Monetary Fund (IMF) Tuesday agreed with Pakistan to give relaxation on the much-debated and much-controversial Reformed General Sales Tax (RGST), as Islamabad assured the international donor that it would bring Plan-B which would generate more revenue than the RGST in the coming budget 2011-12. Yes, the International Monetary Fund has agreed with Pakistan to not introduce the Reformed General Sales Tax, and now we will adopt Plan-B in which all tax exemptions will be eliminated in the annual budget 2011-2012, and this plan is more feasible than the RGST, said a senior official of the Ministry of Finance while talking to TheNation on Tuesday. To a question, he said that Pakistan did not demand the Letter of Comfort (LoC) from the IMF in its recent meeting, as we only discussed budget-related issues. The LoC would help Pakistan in getting budgetary support from the World Bank and the Asian Development Bank. Sources were of the view that Pakistan and the IMF would negotiate in July this year for the LoC. Under the Plan-B (as RGST is not being implemented), the government expects Rs1.968 trillion revenue in the coming financial year. This includes Rs90 billion on account of withdrawal of exemptions and zero-ratings given to textile, leather, sports, surgical sectors, which would be eliminated, additional Rs254 billion through normal revenue growth and Rs36 billion through administrative measures. Under the Plan-B, the government would keep standard General Sales Tax (GST) rate at 17 per cent, while in the RGST the government had to decrease it to 15 per cent. On the other hand, the government expected additional revenue of Rs72 billion from the RGST. About 16 per cent of Rs254 billion would come because of inflation and economic growth rate (normal revenue growth over current year) and Rs36 billion through administrative measures to achieve a target of Rs1.952 trillion against the revised target of Rs1.588 trillion for the current year. The government was facing tough time from the parliament regarding introduction of the RGST, therefore it decided to go with Plan-B as it would not need parliament approval and could be done through notifications/SROs. The government already failed twice to introduce the RGST due to the strong resistance from the parliament. Meanwhile, Pakistan and the IMF also discussed the upcoming budget 2011-12 in which Islamabad keeps fiscal deficit at 4.5 per cent of the GDP, the GDP growth at 4.2 per cent and the inflation rate at 12 per cent. According to the official the IMF, an IMF staff mission led by Mr Adnan Mazarei met with the Pakistani authorities in Dubai over the past week. At the conclusion of its work today, the mission issued the following statement: Over the past few days, the Pakistani authorities and an IMF mission held constructive discussions on Pakistans stabilisation programme, focusing on macroeconomic policies for the rest of the fiscal year 2010/11and the 2011/12 budget. The authorities expressed their strong resolve to pursue prudent macroeconomic policies and enhance Pakistans medium-term growth prospects. Pakistans economy faces important challenges. Economic growth has been negatively affected by the floods and the high price of oil, inflation remains persistently high and budgetary problems are undermining macroeconomic stability. Measures to improve confidence in the context of the authorities economic stabilisation and reform agenda, while protecting the poor, were discussed. The mission welcomed the recent strengthening of the external position and some of the tax measures announced in March, which represent an important milestone. Discussions centered on measures to reduce the budget deficit in 2011/12 as well as quasi-fiscal operations (for example, the procurement of agricultural commodities) to reduce inflation, assure fiscal sustainability, and protect the external position. Reducing the budget deficit will require higher revenue through tax reform to broaden the tax base, including steps to implement reforms in the general sales tax. Measures to reduce spending on general subsidies in the energy sector have begun to be implemented. The quality of expenditure could be improved by increasing the share of spending on health, education, and infrastructure. Continued efforts are needed to reduce the budget deficit to take the pressure off the monetary policy and create space for more credit to the private sector. In addition, as government debt has increased, debt management needs to be improved. Moreover, careful monitoring of the financial sector is needed to assure continuing financial stability, said the statement. The IMF remains committed to the ongoing dialogue with Pakistan and discussions will continue in the weeks ahead and a mission is planned for July 2011, it concluded. There was no mention of any new disbursement from the International Monetary Funds 2008 standby loan arrangement for Pakistan in the statement. TheNation Monitoring adds: The International Monetary Fund (IMF) has demanded Pakistan to impose agriculture tax, reported a private TV channel on Tuesday. Pakistans talks with the IMF over the release of a tranche of $1.7 billion loan held in Dubai. The IMF officials also wanted Pakistan to reform its taxation system and have urged for cutting the budget deficit to 4.5 percent of the GDP. The exemptions to be withdrawn are mainly on certain foods, including dairy products. In March, Pakistan removed exemptions on items used in agriculture, such as fertilisers and pesticides. Govt to end all tax exemptions

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