Islamabad – The Federal Government’s think tank convened its third meeting on Sunday to deliberate on fiscal measures, including sales tax, aimed at mitigating the economic challenges arising from the COVID-19-induced slowdown. The discussion, chaired by Advisor to the Prime Minister on Finance and Revenue, Dr. Abdul Hafeez Shaikh, emphasized the critical role of sales tax adjustments in spurring consumer spending and economic recovery.
The think tank decided to engage the Federal Board of Revenue (FBR) in exploring reductions in sales tax as part of the proposals for the federal budget 2020/2021. The proposed fiscal changes, including a review of sales tax rates, timely refunds, and other tax-related reforms, aim to address pressing concerns and stimulate economic activity.
A key proposal under consideration is the reduction of the General Sales Tax (GST) from the current 17% to 5% on essential consumer goods. The participants highlighted that a lower sales tax rate could effectively increase disposable income, encourage consumer spending, and ease financial pressures on businesses.
In addition to sales tax reforms, the think tank explored other economic measures, such as reviewing payroll refinancing schemes, incentivizing banks to support microfinance institutions (MFIs) and microfinance banks (MFBs), enhancing remittances, and injecting liquidity into commercial banks. These initiatives align with the broader fiscal and monetary policy adjustments necessary to navigate the economic crisis.
The forum consists of a diverse group of experts, including public finance practitioners, economists, bankers, and academics. Participants such as Finance Secretary, Dr. Ishrat Husain, Shaukat Tareen, Dr. Ijaz Nabi, and Sultan Ali Allana contributed to an extensive discussion on short-term measures essential for addressing supply and demand compressions in the economy.
Dr. Abdul Hafeez Shaikh underscored the importance of leveraging international experience to design effective fiscal responses, particularly those that incorporate sales tax adjustments. The forum also introduced an “Impact and Urgency Response Matrix” to prioritize actionable themes based on their economic impact and urgency.
The session concluded with a consensus to develop detailed roadmaps for six key areas, including social safety nets, food security, housing projects, and fiscal interventions like sales tax reforms. Regular reviews of the PM’s Economic Stimulus Package, worth PKR 1,240 billion, will ensure its efficient implementation.
The proposed adjustments to sales tax and other fiscal measures aim to accelerate economic recovery while maintaining financial stability, providing a lifeline to individuals and businesses navigating these challenging times.