Friday, December 10, 2010

RGST HURDLES

Despite its best efforts and the urgency of the matter, the government has still not been able to resolve the conflict of opinion over the proposed Reformed General Sales Tax (RGST). There are differences among the Centre and provinces over the collection of some taxes on services while several political parties have expressed reservations on this tax for its potential to burden the public. In this regard, the statement of the PML-N leader, Mian Nawaz Sharif, while addressing a public gathering in Samundri, needs to be looked at carefully. He said that the government can raise up to Rs 1,000 billion if it stops leakages in the Federal Board of Revenue, saves the cost of sustaining loss-making state-owned entities and cuts down luxury expenses, in which case there will be no need to impose a new tax. His contention that to achieve this target, the government will have to check corruption is worth taking note of.

One may have issues with Nawaz Sharif offering these suggestions, whose party itself has a reputation for legalising corruption and benefiting the personal businesses of its leaders by using political clout. Nevertheless, this should not prevent us from listening to his message. If indeed Rs 500-600 billion could be raised by checking corruption in the Federal Board of Revenue by making all people pay their due taxes, why should the government balk at this suggestion? Pakistan International Airlines (PIA) and Pakistan Railways, among others, are two of the biggest entities that have been depending on doles from the federal government for the last many years to fill the gap between their revenues and expenditures. The government hands out something to the tune of Rs 300 billion to such loss-making institutions to keep them afloat instead of improving their management, which has gone down the drain due to politicisation of the appointments procedure and decision-making. In the same vein, a lot of money could be saved if the government reduced the size of the cabinet and implemented austerity measures at all levels. Plundering of public funds in the name of the perks and privileges of high officials is one of the biggest causes of the bleeding from the treasury. If indeed after taking all these measures, the government still feels the need to impose RGST, it will at least have the high moral ground and an example for the public to emulate.

While conceding that the next tranche of the International Monetary Fund (IMF) loan is crucial for meeting the immediate financial needs of the country and the imposition of RGST, part of the IMF conditions for granting this loan package, is essential for receiving this money, this issue has become highly controversial and must be reviewed objectively. The finance ministry’s hope that the IMF executive board will approve the release of the sixth instalment of the loan by end of January 2011, because by that time the RGST will be imposed, could prove to be wishful thinking. The differences among political parties, the Centre and the provinces have grown to the extent that it would take the PPP a lot of wheeling and dealing to gather the required number of votes in the National Assembly. The rushing through of the RGST bill in the lower house of parliament will tarnish the government’s image and if inflation increases, as the bill’s opponents are predicting, after its imposition, it will have further negative political fallout. Therefore, it would be advisable for the PPP to take a wiser course and put its own house in order before it could expect the public to support it on a controversial measure.

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