960407

Govt unlikely to slap

GST at retail level

in 1996-97 budget

NADEEM MALIK

ISLAMABAD: The government is unlikely to convert General Sales Tax (GST) into a more broad-based Value Added Tax (VAT) at retail level in the 1996-97 budget.

According to some sources involved in the decision making process, IMF has not demanded that the government go for VAT at retail level in the next year's budget and the imposition of GST at retail level is being propagated through press, purposely, to prevent a political back-lash at the time of withdrawal of tax exemptions.

Under the US dollar 596 million Stand-by-loan, the government is bound to withdraw all exemptions of sales tax at import and manufacturing level, except for unprocessed food, fertilizers and pesticides. These exemptions run into hundreds.

About two years ago, about 225 items were put to tax at import and manufacturing stage, which provoked strong reaction from business community and general public. In order to prevent any such eventuality, the government decided to prepare them for harsh measures, much before the budget of 1996-97.

Finally at the time of budget announcement, the government placing the onus of stringent tax collection measures and withdrawal of exemptions on IMF, would claim credit that it has decided not to extend GST at retail level in the greater interest of people of Pakistan.

According to well-placed sources, imposition of VAT at retail level is not part of the IMF Stand-by-loan facility, neither is it a pre-condition for release of remaining tranches of the US dollar 596 million loan, out of which US dollar 278 million have already been released.

Government sources were systematically giving leaks in the press that 12 items, namely cloth, ready-made garments, hosiery, knitwear, jewellery, arms and ammunition, motor vehicles, motorized two and three wheelers, air conditioners, deep freezers and refrigerators would be subject to VAT at retail level in the budget of 1996-97.

Interestingly, the government is expecting to gain a two-fold benefit. The Pakistan delegation, headed by the Deputy Chairman of Planning Commission, Qazi Aleemullah, which recently visited Washington was scheduled to discuss a plan to phase out tax exemptions, though discussion on GST was not on the agenda originally.

Qazi, who was sent to Washington because the incumbent Secretary Finance, Mian Tayyab, was new to the post and not fully aware of the discussion going on between IMF and Pakistan on revenue side, requested the IMF officials to include the discussions on GST on his own.

The motive behind this was to convince IMF, of the government sincerity in implementing their programme and enlarging the base. The two sides held threadbare discussions, but no agreement was reached. Sources confided that "we are obliged to eliminate all tax exemptions at import and manufacturing level under the agreement with IMF but imposition of VAT in the next year's budget is just a matter of "tricks'". Sources added that the government may think of imposing VAT on arms and ammunition at retail level but, inclusion of textile made-ups was unlikely.

The IMF has made it clear on the Pakistani side that in order to get the third tranche of US dollar 78 million they have to fully implement the GST at import and manufacturing level.

An IMF mission is expected on May 3, to undertake a review of Pakistan's economic performance.