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September 29, 2010

Pakistan set to introduce reformed GST by Oct 1


September 29, 2010

KARACHI: A reformed general sales tax (RGST) that is part of the International Monetary Fund (IMF) demands to broaden Pakistan’s tax base is set to come into force by October 1, the Finance Ministry said on Tuesday.
“There have been ongoing meetings in order to implement the reformed GST by October 1 and there is another one today,” said Asif Bajwa, ministry spokesman.
Implementation of the reformed GST is linked to the next tranche of an $11 billion International Monetary Fund bailout programme. The next installment has been delayed until a World Bank and the Asian Development Bank (ADB) report in mid-October on Pakistan’s aid needs.
Pakistan originally aimed to implement the RGST by July 1, but delayed it for three months due to provincial and federal disagreements, now resolved, over how to collect the tax.
Pakistan’s tax-to-GDP ratio is around 10 percent, one of the lowest in the world. Increasing the tax base is a key condition for continuing the IMF programme. It is also necessary for recovery from the devastating floods of August.
“The international community is not going to be able to pick up the bill for $20-30 billion or more. We will pick up some of it ... but the Pakistanis must raise their own revenue base,” said US Special Representative to Pakistan and Afghanistan Richard Holbrooke on a recent trip to Pakistan.
The US has contributed approximately $345 million to the relief and recovery, making it the largest single donor.
The IMF gave $451 million in emergency flood aid, but it was separate from the 2008 bailout programme.
The government’s expenditures, a cause of concern even before the devastating floods, are expected to rise further as it tries to begin reconstruction.
Compensation to displaced families alone could be around $2 billion. The floods killed more than 1,750 people and caused up to $43 billion in damage.
Pakistan’s economy was already fragile before the floods, and the cost of

rehabilitation will likely to push the 2010/11 fiscal deficit in between six percent and seven percent of the gross domestic product (GDP), against an original target of four percent.

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