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IMF agrees to drop RGST demand ... Simply pathetic!

ANG

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Hi, feel like I am beating a dead horse when I post this article. In a country of 180MM people, can they not find a single educated and honest finance minister? The greatest threat to Pakistan is its lack of financial independence.

In another article, I read that of the 1.9Trillion ruppes expected(?) to be collected, 1Trillion will go directly to debt servicing. Once the defence budget of 500Billion has been paid, it leaves squat for education, health, and development. Just really sad, and disgraceful...

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Budget 2012: IMF agrees to drop RGST demand – The Express Tribune

Budget 2012: IMF agrees to drop RGST demand
By Shahbaz Rana
Published: May 18, 2011

Budget deficit target set at 4 per cent, tight fiscal space unlikely to leave room for subsidies.

ISLAMABAD:
Pakistan has managed to convince the International Monetary Fund (IMF) to drop its demand for Islamabad to levy the value added tax – also referred to as the reformed general sales tax (RGST) – during the upcoming fiscal year, effectively burying the politically unpopular measure.

Finance ministry officials, in Dubai for talks with the IMF, confirmed that the RGST would not be levied during the fiscal year ending June 30, 2012. As a substitute, the government would continue to withdraw general sales tax (GST) exemptions, a process that began in March this year.

The government expects to raise at least Rs90 billion through the removal of exemptions from sales tax on domestic oil sales, poultry and cattle feed, according to officials at the Federal Board of Revenue (FBR), in addition to retaining the withdrawals of exemptions initiated in March.

Officials familiar with the negotiation said that both sides agreed to a budget deficit of Rs802 billion, or 4% of the total size of the economy. The government has set a tax revenue target of Rs1,952 billion for the upcoming fiscal year.

Pakistan had asked for permission to run deficits between 4.5% and 5% of gross domestic product. The narrower deficit target means that the government is likely to withdraw or reduce several subsidies and not introduce any new ones.

As a result of the agreement between Pakistan and the IMF, the Washington-based lender is expected to disburse $1.7 billion to Islamabad by September in what is expected to be the final tranche of the current IMF bailout programme, which ends later that month. The next meeting between finance ministry and IMF officials will take place in July, after the federal budget has passed Parliament, to review progress made on the promises made this week.

At the height of the global financial crisis in late 2008, Pakistan had asked for a bailout from the IMF, which agreed to an $11.3 billion only after attaching several conditions, including levying the value added tax (as the RGST is internationally known).

The RGST was meant to increase the tax-to-GDP ratio in Pakistan from the current, abysmal 9.1% of GDP to 14% of GDP within five years of levying the tax. Doing so would have reduced the budget deficit by more than four-fifths of its current level.

However, the plan faced stiff resistance from within Parliament, dominated by agricultural and business interests, as well as within the FBR. Sources familiar with the negotiations say the reason the tax was so bitterly opposed is that it would allow the government to better document the economy, forcing many of the wealthiest citizens in the country to finally begin paying taxes on hitherto hidden income.

The value added tax levies a tax across the entire value chain, as opposed to just at the end user stage, thus making it an inherently fairer tax. And it requires a greater degree of documentation of business revenues and expenses, since VAT is levied on the full revenues of a company, which must then apply for a refund for the taxes it paid on expenses. This higher level of documentation makes tax evasion more difficult.

The IMF, in its press release, also warned Islamabad to end its “quasi-fiscal operations”, a reference to the government’s commodity procurement programme, which often results in significant outstanding liabilities on the government’s ledger. The agricultural lobby, however, has beaten back any efforts to end the programme.

The international lender also asked the government to continue to broaden its tax base by going after tax evaders and continue to remove exemptions from the sales tax regime. The government has agreed to audit tax withholding agents, an estimated 53% of whom do not file their taxes.

The IMF also continued to insist that the government phase out subsidies in the energy sector and focus fiscal resources instead on improving the quality of the country’s infrastructure, including health, education and transportation.

The IMF also raised concerns over Pakistan’s debt management. It said “government debt has increased and debt management needs to be improved”. This puts a big question mark on the efficiency of Directorate of Debt Management, currently being run by a private sector professional. The IMF has also asked Pakistan to carefully monitor the financial sector to assure continuing financial stability.

Published in The Express Tribune, May 18th, 2011.
 
LOL,:lol::lol::lol: every Pakistani member was telling each other that we should stop loan from IMF and aid from USA...look like nothing change in pakistan..
 
Hi Mr. Casino, point well made. Even semi-literate and half-educated would understand that loans at this point, is like giving a crack addict more crack. However, with the past and current leaders simply skimmed these loans and sent the funds overseas. Pretty sad.

I hope the IMF cuts Pakistan off, and when she defaults on her loans and the rupee crashes, then reality will finally hit home. Unfortunately, I think that is the only way that country will get it self out of this mess, hit rock bottom like Argentina and start over again. Simply pathetic though...
 
So I guess the French IMF scandal persuaded IMF to release funds and be more open minded , good work maid she did her job well
 
LOL,:lol::lol::lol: every Pakistani member was telling each other that we should stop loan from IMF and aid from USA...look like nothing change in pakistan..

The idea for every Pakistani is still the same i.e to stop the load from IMF and the aid that we get from the USA, shouldnt be at the cost of Pakistani lives but then again you will not understand simply because this opinion is not endorsed by GOP but only the general public.
 
Hi Mr. Casino, point well made. Even semi-literate and half-educated would understand that loans at this point, is like giving a crack addict more crack. However, with the past and current leaders simply skimmed these loans and sent the funds overseas. Pretty sad.

I hope the IMF cuts Pakistan off, and when she defaults on her loans and the rupee crashes, then reality will finally hit home. Unfortunately, I think that is the only way that country will get it self out of this mess, hit rock bottom like Argentina and start over again. Simply pathetic though...

As much as i appreciate your concern for well being of Pakistan i think you are being illogical when u say that IMF should cut off the aid to Pakistan.

Normally when a state fails the world bodies like IMF and World Bank move into provide loans with strings attached. Now if IMF itself will cut off Pakistan its like saying cut off the life line of a dying patient !!!!!!!!!

The resulting chaos will be too hot to handle and let me tell you, in this "purging of nation" u think will happen is actually the worst nightmare for a common man. The inflation and resulting poverty, malnutrition and what not will be like living hell. Add to this the mixture of nuclear weapons the fate of which will be the ultimate worst case scenario for the whole world.

So don't even think of such things.
 
I don't know what we offered in place of RGST? IMF needs its money back whatever she is investing in Pakistan so either you pay back from left ear or right ear you are surely going to Payback somehow. RGST cancelletion may also mean raising taxes on new equipments, oil, gas and electricity etc resulting in more expensive production and lower industrial growth rate... But who cares about industry IMF will get her money back and so will the politicians who thinks government bank accounts are their personal accounts
 
Looks like they will drop some of the subsidies or reduce them. But increasing tax to GDP ratio to 15% will automatically mean an extra $10 billion for the budget. These treacherous and corrupt politicians will have to earn slightly less though, which makes them uncomfortable.
 
This is not victory but bad news for Pakistani economy..which somehow people don't seem to realize.

IMF was adamant on VAT/RGST not because it was beneficial for them(off course they want their money back, and won't mind even if Pakistanis have to sell their kidneys to pay it back)..but it would have led to documentation of Pakistani economy..ie uniform taxes on all sectors and especially the services sector(which is by far largest sector but its contribution to revenue remains minimal.)

Now govt will have to follow the long cumbersome process removing..each and every exemption one at a time..with political parties with vested interest(in that sector) stalling the process each time..and in the end the situation will remain much the same.
 

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