IMF and Pakistan clash on introduction of VAT

Sat 2nd Feb 2013

Pakistan and the International Monetary Fund (IMF) have clashed on plans to replace the existing Goods and Services Tax (GST) and Value Added Tax (VAT).

The IMF is refusing to guarantee future funding towards the reforms of the Pakistan economy unless it agrees to implement a full and ‘pure’ VAT system. Whilst there had been agreement between both parties on the proposed new indirect tax regime, it seems that the government has been introducing a number of new exemptions, amnesties and lowered VAT rates following pressure from trade bodies. The IMF believes this would result in an unsustainable tax to economic output level, based on the regional norms.

In addition to the lowered VAT rates, the IMF is unhappy the whole swathes of industries may be exempted from being liable to the new VAT regime. This includes retail and transport industries.

India is also looking at joining Pakistan with reforms of its consumption tax regime. Similar changes are well advanced with the Chinese VAT regime.