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Withdrawal of GST: Govt may garner only up to Rs200 b

By Our Correspondent
January 05, 2022
Withdrawal of GST: Govt may garner only up to Rs200 b

ISLAMABAD: With the proposed mini-budget tabled in the Parliament, the government could fetch maximum revenues of Rs 200 billion through withdrawal of GST exemptions and other measures instead of official estimates of generating revenues of Rs 343 billion.

It is yet to see how the IMF responds over these measures proposed through Tax Laws Supplementary Bill 2021 but official sources, as well as experts, opined that the FBR’s measures through withdrawal of around 150 General Sales Tax exemptions and other measures through Income Tax and Federal Excise Duty seemed to overestimate fetching Rs 343 billion as in reality major revenue spinners through adjustments or refunds could only materialize revenues to the tune of Rs 150 billion to maximum Rs 200 billion on per annum basis.

The FBR proposed Rs 160 billion through the imposition of 17 per cent GST on the raw materials of the pharmaceutical sector but it was in adjustable mode and the FBR made a commitment to provide refunds within one or two months so their liquidity problems would be resolved. It is also estimated that the FBR would provide refunds of over Rs 30 billion more than its collected money that’s why the Chairman FBR claimed that the prices of medicines in the domestic market should come down by 15 to 20 per cent. Secondly, another major revenue spinner is machinery whereby the FBR proposed to withdraw GST exemptions to fetch revenues of Rs 112 billion and it will also be in adjustable/refundable mode.

There will be only Rs 71 billion revenues fetched through withdrawal of GST on goods being used by customers and according to the government, the common man related goods would have an impact of just Rs 2 billion.

When this scribe contacted IMF’s Resident Representative in Pakistan Esther Perez Ruiz for comments and inquired about the IMF’s assessment about the revenue impact of Tax Laws Supplementary Bill 2021, she replied, “the IMF continues to support the authorities towards the completion of the 6th review”. The IMF’s representative prefers not to reply to the question directly. It is yet to see how the IMF calculates the revenue estimates out of the proposed mini-budget measures, said the official sources.

This scribe also sent a written question to the Chairman FBR Dr Ashfaque Ahmed on Monday but got no response till the filing of this report on Tuesday night.

When former Director-General Economic Reform Unit Ministry of Finance Dr Khaqan Najeeb was contacted, he said that the projection of collection of additional sales tax due to the removal of exemptions on 150 items may be overstated.

Real modelling needs to incorporate the decline in sales as a result of an increase in taxes. The revenue forecasting model needs to be based on different sectors for more accurate results.

He explained that slashing of development expenditure by a mammoth Rs200 billion will have a dampening impact on production and industrial activity.

Economic modelling alone will tell us the impact on revenues of this slow down. He hoped authorities have done the required modelling and used scenario analysis to ensure the sanctity of amounts expected from the removal of exemptions/ concessions.

Dr Khaqan also felt subsidy increase to the tune of Rs 35 to Rs 50 billion would be needed to mitigate the effect of an increase in sales tax on the vulnerable and very low-income households.

He said room for increased subsidy is however limited due to fast-rising current expenditures. He said he has been advocating expenditure reforms for a long time.

Without the immediate study of expenditures, the country's fiscal side remains vulnerable.

He felt we must be cognizant that raising sales tax has a higher impact on lower-income earners compared to the well-off.

Simply because indirect taxes like GST are easy to collect in countries where income tax, capital gains tax and property tax collection is difficult to collect so developing countries take take the easier route. Pakistan also needs to think that 17 per cent is quite a high standard rate.