Dr Kamal Monnoo
What the Pakistani economic managers need to realise is that unless they also – like the country’s South Asian neighbours – rationalise the prevalent GST regime, the country’s competitiveness index will keep on going South. Last week, after a lot of reluctance and typical bureaucratic resistance, the Indian political government finally put the ghosts of a punitive GST culture to rest by replacing it with one that is practical, avoids repeated taxation, encourages people to enter the system, is comparatively less inflationary and focuses on revenues through growth as against outright extraction. Last week India’s Goods and Services Tax (GST) Economic Council (a combination committee of consisting of political, bureaucratic & private sector nominees) walked its talk and unleashed the second and probably most important phase of the indirect tax regime, which tends to be unifying rather than a divisive force, as the previous one was.
The indirect tax regime in its new avatar has laid to rest the ghosts of the so-called draconian taxes that were unfairly coercive and far removed from on-ground realities. What once symbolised as an economic controversy, the new GST has been reshaped with one that has some economic logic and not simply a bureaucratic corruption wish list, as its primary guiding principle. So, what exactly are the focus points of this new-look GST Scheme? These include, but not limited to: 1) It continues to ensure that exports remain exempt in order to not put any burden on the exporting manufacturing engine of the country to ensure they remain competitive, both regionally and globally; 2) To further expand the list of exempt goods in a way that it does not break the chain, but at the same time to help sectors and products that could be potentially good to grow national exports – perhaps the most break-through step; 3) review the instance of duty structures in addition to the ones already removed by the economic council where refunds are necessary or become due, with an objective of finishing or minimising the refund culture; 4) Review current slabs with an endeavour to lower them, wherever the competition is applying directly or indirectly a lower rate; 5) review the current slab structure of GST, including special rates, and recommend nationalisation/harmonisation measures, including merger of tax rate slabs, required for a simple GST structure; and last but not least 6) An oversight mechanism that looks at all the proposed short-term and medium-term changes with an option to fast track anything, if required. To put it all in perspective, the sorry truth is that Pakistani goods today are not competitive, neither in terms of price nor in quality.
The so-called foreign investment or the growth in introduction of new foreign variants in automobiles, motor cycles, home appliances, etc., are all invariably meant for home consumption and remain uncompetitive for exports anywhere. This not only puts pressure on the external accounts, but also at the same time retards the possibilities of research & development and likely homegrown innovations. Fixing the domestic plumbing, therefore, has to begin with the reordering of the tax regime. In that the GST has moved the needle. Presumably, this should be where the process of economic overhaul and reforms should commence from and should not merely stop at obvious products and listing, but instead be a deeper dive that encompasses a broader base for fairness and transparency. Not only will such a broad spectrum make the GST regime a wholesome structure, it will also create fresh room for another round of tax rate cuts. More importantly, it needs to be a first step forward in the right direction of prudent taxation reforms that Pakistan today desperately needs, if it truly wants to find itself in the list of developed and sustainable economies!
The writer is an entrepreneur and economic analyst. Email: kamal.monnoo@gmail.com
