As a major reform initiative; The World Bank has urged Pakistan to formulate procedures for creating harmony among various federating units of Pakistan regarding general sales tax on goods and services. World Bank is of the opinion that this will help in recovering almost 87% of the uncollected potential revenue.
Patchamuthu Illangovan, Country Director of the World Bank along with Mr. Waheed (one of the senior economists) have briefed selected group of journalist for one hour in Islamabad. They discussed about a single General Sales Tax regime among other economic issues.
Mr . Illangovan briefed while discussing the constitutional obligations relating to the single GST reform that different federating units are discussing the matter and once they decide something a framework will be delivered to the CCI (Council of Common Interests ) for further discussion. He did not tell any time frame for the process.
He said “The data sharing will become an overall tax base and the World Bank can provide support for this.” Currently Pakistan has 13 tax authorities for 5 markets and no data sharing is being done.
Muhammad Waheed said that bank acknowledges that there are constitutional obligations which make sales tax a provincial matter. The bank is proposing the provinces to integrate the system and agree on a single law, rate of tax and supply rules. There should be same definitions, rates and principles for General Sales Tax on services and goods. This will make compliance easier.
He said that currently, private businesses are filing sixty sales tax returns per year in case they are working across the whole country. He claimed that “This could be easily reduced to 12 returns per year in the first go and further in the second phase”.
Simplification in procedures will also double the sales tax collection
The reform will also help improving Pakistan’s standing in the Ease of Doing Business Index.
Illangovan said while answering a question the bank is also in discussion with federal & provincial governments for addressing the structural issues in the taxation system. The bank has also proposed about forming a national tax council or committee for dealing with tax matters. This will make a platform to all federating units for sitting together and hammer out the differences. He said, “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”.
“The concept of PRA (Pakistan Revenue Authority) has not come from IMF or World Bank”, says Illangovan
He also explained the proposal of converting FBR from territorial organization in to a functional based organization. “We are proposing that tax payer and tax collectors interaction should be minimised,”
He also said that Pakistan’s tax-to-GDP ratio is moving around 11% to 13% and the government also aims to raise this to 17% as part of its medium-term goals. This move also requires focusing on revenue reforms in Pakistan.
He said , “We are looking at some prior actions related to energy sector,”, adding one move may be to reduce the cost of energy supply to a policy of new energy resources & competitive auction and bidding so that Pakistan may obtain benefit from the open market in the power sector.
Mr. Illangovan further said that government is also committed to reduce the circular debt as part of the agreement. He said, “We are looking at addressing all the issues that cause circular debt”.
“We have raised the issue of better targeting of subsidies on power consumers. The bank will be carrying half yearly review which will be completed in January”. Illangovan said,
Waheed said that the stabilization programme has been designed for slowing down the economy and it has succeeded to reduce the import for controlling the twin deficit. He said, “We can question the quality of adjustments on fiscal side but you have no option but to slow down the economy”.
He said that though the stabilization efforts of the government are appreciable but added that “Islamabad is very poor in doing structural reforms which is why it comes to a balance of payments crisis every two to three years.”
He said that no serious efforts have been made for simplification of rules and procedures about the approvals & implementation of public sector development projects in last 30 years.