IMF Extends Deadline For Pakistan's Reformed GST

by Mary Swire, Tax-News.com, Hong Kong

29 December 2010

The Executive Board of the International Monetary Fund (IMF) has permitted – on a lapse-of-time basis – a nine-month extension of Pakistan's Stand-By Arrangement (SBA), to September 30, 2011, to allow more time for the proposed introduction of the Reformed Goods and Services Tax (RGST).

The IMF said that the extension would provide Pakistani authorities additional time to complete the reform of the General Sales Tax; implement measures to correct the course of fiscal policy; and to amend the legislative framework for the financial sector, as part of the country's commitment made in exchange for IMF financing.

A 23-month Stand-By Arrangement amounting to USD7.61bn was originally approved on November 24, 2008. As of May 2010, when the IMF concluded the country's fourth review, disbursements to the country under the arrangement amounted to just over USD7bn.

The Stand-By Arrangement provides support to Pakistan amidst recurrent fiscal imbalances. Pressure mounted on Pakistan in 2010 to address this imbalance, particularly from US Secretary of State, Hillary Clinton, who called on authorities to collect more taxes from the country's wealthiest; and also by aid organizations - providing financial support for flooding that had occurred at the time - for the country to become fiscally responsible, and improve internal revenue sources.

As part of the IMF review, Pakistan committed to implementing reforms to raise the country's extremely low ratio of tax to Gross Domestic Product (GDP), which as of November 2010 stood at only 9%.

Originally, it was agreed that Pakistan would introduce the value-added tax-type regime from July 1, 2010. However conflicts between lawmakers on the particulars of the levy have yet to be bridged.

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