The government has decided to implement three rates, instead of various slabs, in an effort to reform the existing general sales tax and exempt food, education, health and agriculture output at the farmer stage from tax in the next budget, 2011-12, it is learnt.
Sources told Business Recorder that the economic team of the government, headed by Finance Minister Dr Abdul Hafeez Sheikh, has restarted consultations with coalition partners and stakeholders, and postponed announcement of budget on May 28 for making necessary changes in budgetary framework for next year in the light of talks with International Monetary Fund (IMF).
The Minister, accompanied by Finance Secretary, held a meeting with Muttahida Qaumi Movement (MQM) on arrival from Dubai, and took the party into confidence about his discussions with Fund officials. He reportedly also informed MQM leadership of a plan to introduce three rates of sales tax--0 (zero) percent, 5 percent, and 17 percent--from next fiscal year, instead of the existing slabs. An official said that the government wanted to implement RGST in phases and, as a first step, exemptions/zero rating would be withdrawn and it has been decided to support three rates instead of the existing multiple rates.
A uniform 5 percent rate would be applied on items like cotton seeds, soybeans and CNG buses, and 17 percent rate would continue on other items. Zero rating would be applicable on the export sector. The economic managers were quoted as saying that defence stores would be brought into the tax net.
Sources said that the GST would not be applicable on essential food items, critical and life saving drugs and related medical equipment. Similarly, the zero-rating facility on the stationery items like books etc is expected to be continued in the next budget. However, the list of the exempted items would be finalised by the government in consultation with the stakeholders.
A delegation of MQM would meet Revenue Secretary on Monday and submit proposals for broadening of tax base. The MQM was reportedly unhappy over 1 percent contribution by the agriculture sector to overall taxes and was insistent on taking measures from the next budget to increase income tax revenue from farm sector. Sources said that the economic managers expressed inability to tax farm income by pointing out that agriculture is a provincial subject and the Constitution does not allow the Federation to impose an agriculture income tax.
Finance Ministry reportedly also told MQM that the government has committed with the IMF to eliminate circular debt from the next budget, fast track power sector reforms and slash current expenditure and borrowing for commodity operations. Officials of Finance Ministry were quoted as saying that total subsidy for power sector stood at Rs 228 billion and the circular debt has been reduced from Rs 360 billion to Rs 240 billion after release of Rs 120 billion to the power sector a couple of days ahead of talks with the IMF on the stalled Stand By Arrangement.