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Imposition of GST a litmus test for govt to pull economy out of morass

IKRAMUL HAQ

ISLAMABAD: Imposition of GST is seen by economic experts as a litmus test for the military government's resolve to pull the economy out of the present morass.

Several economic experts contacted by Business Recorder expressed surprise and dismay whether the government was backtracking from GST under pressure of the trading community which held the political regimes inthrall for over a decade.

An eminent economist on condition of anonymity said that GST would be litmus test for the Finance Minister's determination to carry out economic reforms. "If he shows any weakness, the reform programme is not going to work."

For, he argued, the approach to resolve the issue "amicably" does not work. Can you pursuade a thief to pay back the stolen goods. Moreover the social milieu is too sordid that "tax evasion is taken as a status symbol", was his sharp remark.

If the government fails to claim this tax from the traders, how can it enforce it on services sector- doctors, engineers, suppliers, financial services etc. And then he questioned how about the agriculture sector.

According to his reckoning, at least Rs 60 to 70 billion are lost every year on agriculture, non-formal sector, black money, services and trade.

He stressed that the basic problem is fiscal. If GST cannot be enforced, the fiscal deficit would continue with all attendant evils, larger borrowing, costly repayments, imbalances and inflation.

"It's a pity that for decades the government has been deploring low savings. Now 50 years have gone by. Greater pity, that an issue has been there for decades. That means, it is the failure of a whole generation. Isn't criminal to say the least," he asked.

Every generation strives to ensure that the next would be better off but two generations have passed, making the matters worse.

"That's why I say, the enforcement of GST would be a litmus test of the military government urging the nation to brave the odds," the economist asserted.

Another expert on taxation expressed surprise that all the governments had been harping on swallowing bitter pills. The military regime also spoke of taking harsh measures to put the economy back on track, but when the crunch came, the new government is also trying to backtrack.

Tell me what strong action has the new government taken on the economic front. No doubt, the government is trying to measure up on the accountability front but name a single "bitter" step to reform the economy so far.

However CBR sources, contacted by Business Recorder, did not feel so strongly as no backtracking was in sight. Riaz Ahmed Malik, senior member of CBR, named to discuss the issue with trading community "amicably", told Business Recorder that he was preparing to hold meetings with the community at all important towns and business centres. The one in Karachi was loud and noisy, he admitted, but some suggestions emerged.

The issue is complex. The traders say that inspectors should not visit the premises nor check their records. The inspectors are corrupt and the traders themselves would pay the due tax. To resolve the matter, third party could be involved. The CBR on its own would work out turnover of certain selected shops in a city areas and then involve the third party to make their evaluations. The trade leaders too would also be consulted and the issue could be resolved free of friction. According to him some third party professionals could be hired to assess turnover.

He said very soon after Eidul Fitr he would start meeting the traders all over the country. He has already written to the provincial governments to involve the district administration about meeting the representations of various trade bodies . Once the entire community has been involved in the exercise, there will be no scope for any group of traders to feel left out and abandoned.

He agreed with this correspondent that their demand that no CBR officer should visit the premises or check the records was not at all realistic. If that is accepted, in other cases too, the entire tax machinery would become redundant.

It may be stated that the salaried classes have expressed deep resentment in the media that their perks too have been taxed, resulting in over 50 percent increase in their tax liability, making the tax system highly inequitable and unjust. Against this, large segments of society - informal sector, traders, hoarders etc - are out of the tax net thriving at the cost of the genuine tax payers.

Another former CBR official did not see any wisdom in downsizing the members. According to him the MIS department for framing an accurate data base and audit member for monitoring and auditing tax collections were essential for modernity in tax system. There was hardly any auditing in customs, and central excise, leaving the ground free for corruption. More than 80 percent of the direct taxes came through withholding tax and only a few billions are collected through additional demand on scrutiny of tax returns.

He reiterated that GST was the tax of the future. Based on documentation, it exposed the real turnover of the traders. Since the true worth will be known, the free riders would be caught by the scruff.

It may be pointed out that the tax reform committee headed by Dr Hafeez Pasha had suggested that the development fund proposed by the previous government in lieu of GST should be abolished.(The traders had proposed to pay development tax promising a collection of Rs 14 billion which was in fact a device to sidetrack the GST).

The committee further suggested that the total turnover upto Rs one million should be exempt. Total turnover of above one million to five million should be taxed at two percent. The total turnover of above five million should follow VAT mode on taxable supplies.

The committee strongly recommended that audit should be built in. If necessary the audit can be outsourced.

Moreover income tax can be paid on a presumptive basis at one percent of turnover by retailers having turnover of upto one million and of those with turnover between Rs one million and five million.

The committee also suggested a relief package in the standard GST rate from 15 percent to 12 and half percent provided the broad basing proposals are accepted.

In fact, the Finance Minister Shaukat Aziz had recently told RCCI members that by widening the tax net, the rates could be reduced. What's actually happening is that many segments, being out of the tax net, are creating problems for the honest taxpayer. Is this not backtracking on the military government's promise to the beleaguered, hapless common people?