Former Advisor to Ministry of Finance, Ashfaque Hassan Khan suggested that Reformed General Sales Tax (RGST) should be implemented in two phases. Speaking on "Macroecon-omic management in a decentralised set up" at the final day of annual conference of Pakistan Institute of Development Economics here on Thursday, Khan said that in the first phase zero rating, exemption and concession should be withdrawn and in the second phase contentious issue should be implemented.
He said that some issues pertaining to macroeconomic management in the decentralised set up have not be fully taken care of in the National Finance Commission (NFC) award. For instance, he said it is unclear how the federal government would pay off huge debt liability in the decentralised macroeconomic framework after a major chunk of resources have already been transferred to the provinces. In addition, federal government is also bearing a large cost on account of subsidy to the power sector and losses of state owned enterprises (SOEs). He emphasised the need for an independent Fiscal Commission to decide these weighty issues otherwise these shortcomings in NFC may become a bone of contention between the federation and provinces in times to come. He said that independent fiscal commission should be non-political and include prominent, technical and independent economists from the private sector.
Khan said that the findings of the fiscal commission should go directly to the National Economic Council (NEC). His viewpoint was that majority of resources have been transferred to the provinces after the passage of 18th and 19th Constitutional Amendments and the last National Finance Commission Award (NFC). Now the provinces need to plan in such a way so that they could access savings for investment, he added.
Khan said it is a fact that the country's macroeconomic management has been undergoing a difficult phase for the last three years with large budget deficits, rising debt services, growing debt and crowding out of private sector as well as decline in investment, low economic growth, rising unemployment and persistent double digit inflation.
Khan said in the past macroeconomic management was relatively more centralised but was decentralised for the last two years so it is important that all the stakeholders have clear understanding about their fiscal responsibilities within a decentralised framework. The tax on agriculture income should be imposed, he urged, and Federal Board of Revenue (FBR) should be authorised by the provinces to collect the tax. He said that high fiscal deficit is the mother of all problems and unless and until the federation and provinces sit together to devise a strategy sustainable growth would remain elusive.