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| Pakistan to seek US help in tariff hike, VAT exemptions |
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Saturday, March 20, 2010
By Khalid Mustafa
ISLAMABAD: Pakistan intends to seek the US intervention for a waiver of the IMF mandated minimum six per cent power tariff hike due from April 1, 2010, and the enforcement of the Value Added Tax (VAT) from July 1 on the sidelines of the Pak-US Strategic Partnership Dialogue scheduled on March 24 in Washington, a senior official of the Ministry of Finance told The News.
“Under the agreement with the IMF, Pakistan is bound to pass 24 per cent power tariff increase on to end consumers within the ongoing fiscal, out of which the incumbent regime has already increased it by 18 per cent,” he said.
Calculations, however, indicate that this is not a mere 18 per cent raise as suggested because if monthly fuel adjustment and cascading effect of raises in various stages are factored in, a real term 28 per cent increase in tariff has already been effected in the ongoing fiscal year.
The source argued that during the past two years, the average increase in tariff, if lifeline consumers of 5.5 million are included, stands at 22 per cent. In case 5.5 million lifeline consumers are not included, the tariff increase has been calculated at a whopping 45 per cent. The country’s total power consumers stand at 28 million.
“We will persuade the US authorities to play a role in seeking relief from the IMF, as 170 million people are already crushed by unbridled inflation and may just take to the streets in case the government enforces the remaining six per cent increase in tariff from April 1, 2010,” he said, voicing a very genuine concern.
On the issue of the VAT, the official said the government will not be able to enforce this tax from July 1, as it is not possible for the government to apply this tax without going through detailed deliberations with all stakeholders of the country. The consultation process will take at least one year to complete. The FBR administration has so far not even kicked off the awareness campaign and effective consultations with the business community of the country at retailers level.
It may not be out of place to mention that VAT’s implementation from July 1 is the major performance criteria agreed with the IMF under its $11.3 billion bailout package. In case the VAT is not implemented from July 1, the $11.3 billion Standby Arrangement package will be in jeopardy. To avert this situation, the government wants the US intervention.
The News was unable to get the version of new chief economic manager, Dr Abdul Hafeez Shaikh. But former finance minister Shaukat Tarin termed the opposition by the Senate Committee on Finance against the enforcement of VAT from July 1 as a sad development. He said vested interests and business tycoons, both in the treasury and opposition benches, wanted to ensure the continuation of the tax exemptions under the current tax regime. “The current tax exemptions will automatically be done away with if VAT law gets approved,” Tarin argued.
He said the proposed postponement of VAT implementation for one year will not only hurt the target of increase in tax-to-GDP ratio, but the nation will also not be able to get the dividends of the seventh NFC Award, which is to be enforced from July 1, arguing the size of the award has been worked out keeping in view the VAT implementation.
With the enforcement of the VAT, the size of the cake (award) would increase by Rs 120 billion to Rs 180 billion in the first year and in the next two to three years, the revenue generation could increase by Rs 400 to Rs 500 billion. “In addition, VAT would effectively help document 50 per cent underground economy.”
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ISSN 1563-9479 
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