The Federal Finance Minister in his budget speech had indicated that a reformed GST will be introduced in Pakistan with effect from 1st October 2010. The word VAT was consciously and deliberately not used by the FM. In spite of the fact that during the last one year, the Federal Government officials were consistently using the word VAT in their discussions and parlance. It appears that there is a realization that names are at times very important, even though just for psychological purposes. The tax payers in Pakistan have already reconciled with Sales Tax, commonly referred to as GST. In essence there is no difference between GST and VAT. We can even call it a General Consumption Tax (GCT), without compromising on basic and fundamental principles of VAT, as commonly understood in Western Europe. It appears that the present FM has realized this basic premise.

The minister did not specify what exactly he meant by a reformed GST, for example, only the present Sales Tax Act, law and procedures will be amended or a new GST Act will be introduced.

As already reported in the press, the draft VAT Bill has been withdrawn from the Parliament. If so, there are only two options, one is to introduce a new GST Act or; (two) to amend the existing law. It is felt that time for introduction of a new GST Act is already gone. The only workable solution is to amend the existing law. This perhaps might be doable.

However, the best advice is that reformed GST should be introduced from the next financial year. The factors at work are out of the control of the Government. A very good case can be made out for postponement of the reformed GST due to floods and the attendant financial disaster. My view is that introduction of reformed GST is not possible till the next financial year. Even if reformed GST is to be introduced in the next financial year, immediate and specific steps are required to be taken now so that the ground work is complete by the start of the next financial.  These immediate steps include:

1. Laying down benchmarks/timelines including specifying the goals to be achieved.

2. Constitution of a Reform Implementation Team with dedicated workforce. The Team should have enough human resource to form sub-teams/committees.

3. Appointment of the Team Leader, who should have immediate and direct access to the decision makers up to the level of FM.

4. Appointment of foreign and local consultants; however, more reliance to be placed on local expertise.

5. Availability of funds for the Team especially for IT related projects.

6. Monthly review by the FM of the work done. This will obviously entail constant review of the work by the Chairman FBR and the Secretary Finance.

The most important and critical issue is however, tax on services for which concurrence of the provinces is required. This concurrence is not forthcoming. A lot of persuasion on the part of the Federal Government at the political level is required to convince the provinces to go for a comprehensive GST on both goods and services to be collected by a central agency with availability of input tax paid on services, whatever the place of supply of service. This will be required to be done at the level of the President and the Prime Minister. This obviously is a political issue for which no advice can be rendered to Politicians except to say that either you do it or leave it. However, the consensus is immediately required if reformed GST at all is to be introduced. The only other option is to reform the present GST and restrict it to goods only.