ISLAMABAD: In what appears to be a major reform initiative, the World Bank is pushing for more harmonisation of general sales tax on services and goods among federating units of Pakistan, arguing that this will help tap 87 per cent potential revenue, which remains largely uncollected.
The World Bank Country Director Patchamuthu Illangovan and one of his senior economists Muhammad Waheed spoke at length for almost an hour with a select group of journalists in Islamabad in support or a single GST regime, among other economic issues where the bank is playing a role.
On the issue of constitutional obligation linked with the major reform initiative, Illangovan said that dialogue continues between the federating units and eventually a framework will be placed before the Council of Common Interests (CCI) for discussion. However, he did not say when that will happen.
Over the years, Pakistan has been made into five markets with 13 tax authorities with no data sharing with each other he said. “The data sharing will become an overall tax base and the World Bank can provide support for this.”
Different rates and procedures between provinces and federal authorities hampering collections
Briefing journalists, World Bank Senior Economist Muhammad Waheed said that the bank is aware of the constitutional obligations whereby sales tax on services is a provincial subject. He said the bank is proposing to provinces to agree on a single law, supply side rules and the tax rate. The idea is to apply the same definitions, principles and rates for GST on goods and services. The idea is to ease compliance.
Currently, he said private businesses are filing 60 sales tax returns per year if they are working across the country. “This could be easily reduced to 12 returns per year in the first go and further in the second phase,” he said.
The reform could also improve Pakistan’s standing in the Ease of Doing Business Index, he claimed, adding that collection from the sales tax could potentially double by simplifying the laws and compliance.
Answering a question Illangovan said that the bank is engaging federal and provincial governments to address the structural issues in the taxation system.
On the reforms within the tax machinery, Waheed said the bank proposed to form a national tax committee or council for tax matter, a platform where all federating units sit together and hammer out differences. “We will have support in this area to have a single market as more taxes collected by the federal government and will go to the provinces,” he said.
He, however, clarified that the concept of Pakistan Revenue Authority did not come from the World Bank or IMF.
He said the bank is proposing to convert FBR into a functional based organisation from a territorial organisation. “We are proposing that tax payer and tax collectors interaction should be minimised,” he said.
Pakistan’s tax-to-GDP ratio is hovering around 11pc to 13pc and the government aims to raise this to 17pc as part of its medium-term goals. This requires focus on revenue reforms in the country.
“We are looking at some prior actions related to energy sector,” he said, adding one is reducing the cost of energy supply to renewable energy policy and competitive auction and bidding so Pakistan can benefit from the open market in the power sector.
Illangovan further said as part of the agreement, the government is committed to reducing the circular debt flow as well as addressing the stock. “We are looking at addressing all the issues that cause circular debt,” he said.
On the issue of targeted subsidies on power consumers, he said the issue has been raised with the government for better targeting.
Illangovan said that the bank will do half year review. It will be completed until January, he said. “After that we will give a clear comment on the health of the economy,” he said.
Waheed went on to say that the stabilisation programme “is designed to slow down the economy” which, he said, had succeeded in reducing the imports to control twin deficits. “We can question the quality of adjustments on fiscal side but you have no option but to slow down the economy,” he said.
He praised the stabilisation efforts of the government, but added that “Islamabad is very poor in doing structure reforms which is why it comes to a balance of payments crisis every two to three years.”
In Pakistan, he said no serious efforts were made to simplify procedures and rules regarding the approvals and implementation of public sector development projects in the last 30 years.
