While Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb focus on their visit to China and their government’s efforts to finds the money needed to keep the country afloat, various taxation proposals are floating around Islamabad, in anticipation of their return, which will help raise the money needed for the IMF package on which they are banking heavily. Among the proposals doing the rounds is the obvious one of raising the sales tax from 17 percent to 18 percent. This tax was meant as a value-added tax, one which would lead to the documentation of the economy, and greater income-tax compliance. Instead, it has become a money-spinner in its own right, and whenever the IMF puts pressure on the Central Board of Revenue, it advocates a raise in the GST. It is already at 17 percent, and the proposal is for it to be raised to 18 percent. This proposal comes despite the opinion that a GST rise would be inflationary. This does not get into the argument about whether the rate is too much. Such an inflationary measure is being made at a time when inflation is slowing. Another problem is that the sales tax is a form of regressive taxation, which tax officials don’t like, not so much because it is unfair, but it falls on that segment of the population that finds it difficult to pay. What happens when people cannot afford food?
As for supposedly progressive taxation, like the income tax, the CBR is looking at once again imposing a turnover tax on traders, something which has been tried before, but which had to withdrawn after a traders’ protest which was backed by the present ruling party. Even the Prime Minister has spoken of leakages within the system which are costing huge amounts of revenue. IMF pressure is going to be almost overwhelmingly in favour of the turnover tax. It is not just supposed to boost revenue by Rs 400 billion a year, but bring into the taX net those who did not avail the government scheme to get in.
The turnover tax will operate like a withholding tax, and will apply only to nonfilers. The government hopes to profit by this filer-nonfiler distinction in other areas, such as among importers. Amidst all this activity, the real solution to Pakistan’s debt trap, exporting enough to service external debt calmly, without every repayment becoming a crisis, is not being furthered.
