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| April 12, 2003 | Saturday | Safar 9, 1424 |
Exemptions in taxes to go, IMF assured
ISLAMABAD, April 11: Pakistan has assured the International Monetary Fund (IMF) that tax policy reform proposals will include abolition of a sizable number of income tax exemptions as well as of all remaining withholding tax exemptions for income from the National Savings Schemes investments.
Finance Minister Shaukat Aziz and State Bank Governor Dr Ishrat Hussain have jointly given a written undertaking to IMF Managing Director Horst Kohler that most of the tax exemptions will go in the next budget and that Pakistan will abide by all its commitments made with the fund authorities.
In a Letter of Intent, Memorandum of Economics and Financial Policies and Memorandum of Understanding, a copy of which was obtained by Dawn, both the senior Pakistani officials said that building on work by the National Accountability Bureau (NAB), that identifies the “Benami” practice (whereby one person holds assets under different names) as a main source of governance problems, was also being formulated as a strategy to contain this practice.
“We also plan to strictly apply the formula-based pricing for gas and petroleum products and electricity tariffs as the existing automatic price adjustment mechanisms have gained broad acceptability, and are transparent and widely understood,” the Pakistani officials said.
“We will seek to amend the National Electric Power Authority (Nepra) Act with a view to streamline procedures by allowing the power companies to adjust tariffs in response to fuel cost increases automatically, subject to ex-post review of compliance with these rules by Nepra, and eliminating the need for government notification,” Aziz and Dr Ishrat assured the IMF.
“In the meantime, the government commits to limit its discretion in notifying adjustments as determined by Nepra with a view to reduce Wapda’s financial imbalances.”
Speaking about tax policy and tax administration, they said the CBR reform process is broadly on track.
The government assured the IMF that it will submit to parliament the draft of a fiscal responsibility law by June 1, 2003. It will also include the implementation of other elements of the Accountable Fiscal Management Framework which is proceeding as was planned.
The finance minister and central bank governor also told the IMF that the privatization drive is proceeding, with Habib Bank and major public enterprises in the oil and gas sector (PSO and OGDC) to be sold in the coming months. “Regarding the KESC, we remain open for discussing a negotiated sale with the only remaining qualified investor (who has however put discussion on hold for the time being),” they said.
A plan to revamp the railways through corporatization, downsizing and partial privatization is being prepared. PIA plans to renew its fleet in the next few years and the planned government cash transfers and loan guarantees are consistent with the financial programme. “We will prepare a strategy for privatization of PIA by 2004, starting with the divestiture of non-core activities (hotels, etc.) in 2003,” Mr Aziz and Dr Ishrat said in the letter.
Wapda:Pakistan has also informed the IMF that Wapda’s financial situation remains unsustainable and will require further reforms.
It was said that assuming world oil prices at their mid-November levels, continuation of the trends observed during the first quarter will result in a cash deficit in the order of Rs34 billion (0.8 percent of GDP) for the year, compared to broad balance targeted under the Financial Improvement Plan.
The government told the IMF that following measures will be taken to contain Wapda’s losses and their impact on the budget: First, electricity supply to the Federally Administered Tribal Area (Fata) will be streamlined and all efforts will be made to improve bill collection to reduce losses on account of Fata. Wapda will further delay Rs4.7 billion of nonessential investments.
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