960406

IMF won't allow

more time

to extend ST net

RECORDER REPORT

ISLAMABAD: The International Monetary Fund is reported to have turned down Pakistan's request for more time to extend the sales tax to cover all goods at manufacturing and import level, beyond the deadline agreed with the Fund to avail of stand-by credit.

A Fund team is now expected to undertake review of Pakistan's performance from May 3, 1996 in Islamabad.

A Pakistan delegation headed by the Vice-Chairman of Planning Commission, Qazi Alimullah at the meeting in Washington in the last week of March reiterated the government's commitment to the objective of converting the GST into a broadly-based VAT. For fulfilment of this objective, the GST is to be generalised at the manufacturing and import level by end-June, 1996.

This involves four contemporaneous steps. First, elimination of all general exemptions from the GST, except for a few basic necessities (unprocessed foodstuffs, pesticides, and fertilizers) and all specific exemptions that are part of tax incentive packages related to a sector or a region. The extension of GST to capital goods has to be accompanied by a provision for immediate refund of unused tax credit.

Two, elimination of expiring capacity schemes. Three, introduction of turnover based registration threshold, below which firms will pay a turnover tax, and four, reduction of the number of GST rates to no more than 3.

The Federal Government has already withdrawn tax exemption from special industrial zones.

A GST law is to be submitted to parliament to generalise the GST to manufacturing and import stage.

According to the Alimullah delegation sources, the Fund staff was not appreciative of the "on and off" behaviour of Pakistan with respect to the programme agreed with the Fund. All cajolings and pleadings for a more sympathetic approach did not bear fruit.

A more threadbare scrutiny is expected of Pakistan's statements submitted to the Fund under the arrangement as the Fund staff is looking the magic wand which enabled the government to reduce its bank borrowing for budgetary support from Rs 65 to below Rs 32 billion in less than 10 days.