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Pakistan Economy 2 Essay

1819 words - 8 pages

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Entropy Alert: Implications of the Advancing China-US Rivalry in Asia-Pacific September 21, 2010 Entropy Alert: The Start of a New Phase of War Against Terror in Pakistan August 3, 2010 |
AnalysisThe Need for RGST Pakistan desperately needs to increase its tax revenues by adopting a more wide-ranging, modern sales tax on products and services. The Sales Tax Act of 1990 was based on established value added taxation principles but due to revenue exigencies and political compromises, it became increasingly narrow-based and distorted, with ever-growing list of exemptions, multiplicity of rates, special regimes and a number of other deviations from the best international practices ...view middle of the document...

The new tax system is expected to generate 100 billion rupees in revenue. It is believed that a failure to adopt the RGST will lead to a record budget deficit of 1.2 trillion rupees, which may force the government to borrow more than one trillion rupees from the domestic market to finance the deficit. In that case, the Central Bank of Pakistan may have to raise the interest rates by up to 2% in order to counterbalance the inflationary impact. The government has already borrowed 200 billion rupees from the central bank for financing the budget deficit. Meanwhile, revenue collection during the first five months of the current financial year is already lagging behind the target by 76 billion rupees. "The increasing gap between income and spending will shift almost the entire burden of financing on domestic sources," a source said. The State Bank has admitted that the government borrowing to finance the budget deficit is fuelling inflation, causing interest rates to rise. Officials of the Ministry of Finance claim that if the government fails to get the RGST approved from the National Assembly, it will result in the discontinuation of foreign aid including payments of the US Coalition Support Fund and funding from IMF that Pakistan desperately needs. The IMF's suspended bailout program for Pakistan still has two installments left that are worth 3.4 billion dollars. In face of the political challenges, IMF recently agreed to give Pakistan more time to carry out reforms. |
Positions Of Different Political Parties On RGST The Reformed General Sales Tax (RGST) was approved by Pakistan's Senate Assembly on 26th November under controversial circumstances. In the post flood scenario, RGST has widened the rifts with in the Pakistan Peoples Party (PPP) alliance. PPP is totally supportive of RGST and wants it to be approved at any cost. Opposition parties, public and civil societies, on the other hand, are against the bill, as they believe that RGST will almost double burden of ever-growing inflation rates on the poor. Opposition, as well as some of the key alliance partners of the PPP-led government, opposed the imposition of the tax, while Pakistan Muslim League-Q members walked out of the House. The GST Reforms Bill was expected to be tabled in the National Assembly on 20th December for final approval but has been delayed due to parting previously of Jamiate Ulema-e-Islam-F, and now Muttahida Qaumi Movement (MQM), from the PPP led ruling coalition. Recent negotiations between PPP and its key ally MQM over the implementation of RGST failed. MQM desires direct taxes to be imposed on the agricultural sector- a move that according to them can broaden the nation's tax base, which currently stands at just 1.8 million or 1% of the total population. "We will not support RGST even if we are killed" said Senator Abdul Khaliq Pirzada of MQM, indicating how serious the party is in attempts to block the imposition of RGST. The other key allies of the...

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