Pakistan to Establish a Joint Working Group for GST Harmonization

The International Monetary Fund (IMF) staff has recommended Pakistan to establish a joint working group comprising to provide recommendations on General Sales Tax (GST) harmonization to be approved by the Council of Common Interests (CCI) by end-March 2020.

The joint venture will comprise of central and provincial authorities. This was revealed in the latest report released by the IMF.

The Pakistani authorities have announced plans to establish a new semi-independent national tax authority tasked with tax administration, that will facilitate closer coordination between the Federal and provincial governments.

Pakistani authorities have agreed to avoid the practice of issuing new preferential tax treatments or exemptions, and are conscious that the distortions erode the tax base, weaken fiscal discipline, and prevent a level playing field for firms.

To build capacity on tax policy matters, a Tax Policy Unit will be established in the Ministry of Finance said the report.

The report stated that the groundwork is being laid for tax policy reforms envisaged as part of the FY 2021 budget. IMF has recommended the reform aim to simplify the tax laws and regulations, in particular, the simplification of the corporate income tax and necessary further streamlining of exemptions and preferential rates related to sales tax on goods.

To bolster up the revenue mobilization and support the medium-term fiscal consolidation objectives, the authorities are advancing various reforms.

  • In October, the Pakistani authorities had issued licenses for the track-and-trace system for excises on cigarettes (end-September 2019 SB), with a system rollout expected by end-March 2020.
  • Sales tax refunds are being expedited through the fully-automated sales tax e-refund (FASTER). To address past tax refund arrears and provide some liquidity to businesses, staff recommended the authorities use part of the government cash buffer to buy back up to Rs. 30 billion of existing promissory notes to exporters that were issued in FY 2019 and FY 2020;
  • The provinces are meeting their commitments under the program by stepping up efforts to improve tax revenue collection and undertaking prudent spending, resulting in provincial tax revenue increasing by 18 percent y-o-y in Q1. They also commenced coordination and consultation meetings between provincial sales tax administrations;