ISLAMABAD: The government announced on Saturday that it would increase next fiscal’s revenue target to Rs5.550 trillion — almost 35.4 per cent or Rs1.450tr higher than current year’s revised estimate of Rs4.100tr — and all civil and military institutions would contribute to the austerity-oriented federal budget for 2019-20.
The next year’s budget would have three key combinations: fiscal consolidation, austerity and additional revenue mobilisation, said Prime Minister’s Adviser on Finance and Economic Affairs Dr Hafeez Shaikh at a joint news conference with the ministers of energy, planning, revenue and information.
As the adviser avoided taking more than a couple of questions, an official on the sidelines of the presser said the four major components would form the basis of Rs1.45tr additional revenue. These would include about 14pc normal growth through inflation and economic growth besides withdrawal of tax exemptions, recovery of arrears and additional revenue measures.
• PM’s adviser says 2019-20 budget will envisage austerity measures by all civil, military institutions • Six developments taking place in a short period would restore confidence of markets, investors
He said this was going to be the country’s single largest revenue adjustment, accounting for almost 3pc of GDP — a challenging job in a low economic growth period.
The adviser said he was setting in motion a roadmap for next few weeks and beyond and ‘very important decisions’ would be taken in the coming budget and in follow-up of its implementation. These decisions would set the stage for about 12 months of stabilisation followed by recovery and then to move on to the growth trajectory.
The coming year would be the year of stabilisation and steps would be taken to strengthen the economy and protect it from dangers to set sustainable basis for growth and development, he said.
“There will be austerity in the coming budget. We will try to keep government expenditures to the minimum possible level,” Mr Shaikh said. “God willing we will all stand together on this, whether it is civilian or army [institutions] or private sector.”
Placed in a difficult neighbourhood, it was the most important thing for a sovereign country like Pakistan to protect its people and borders and to give whatever sacrifice was possible, he said. Nevertheless, “we are all on the same page whether these are civilians or armed forces that there should be serious, sustained and structured reforms through difficult decisions and all would participate in this effort and you would see this in the new budget”.
The adviser said the government had taken on board a well known tax practitioner from the market and tax machinery was getting a target of Rs5.550tr for next year because the revenue mobilisation was important to protect the poor, give hopes to people and build dams, roads and infrastructure.
He noted six developments taking place in a short period that would restore the confidence of the markets and investors and partners abroad to do business with a financially disciplined Pakistan. The first is staff-level agreement reached with the International Monetary Fund (IMF) that will be approved by its executive board over the next few weeks and then the programme will become operational.
He criticised commentators for attacking the government for not disclosing details of the IMF programme and yet describing it as the harshest programme. “The two things can’t be correct at the same time. If you don’t know the details how you can say it is harsh,” the adviser asked and said the fact was that the programme details could not be disclosed unilaterally while the other party was yet to formally approve it.
He said the $6 billion IMF programme not only provided one of the cheapest financing at 3.2pc interest rate, but other international institutions and investors also took cue from the programme that Pakistan wanted to run its economy in a fiscally responsible manner.
The capital market, he said, had already responded with 7pc growth last week with a couple of robust trading sessions never witnessed in 10 years.
Secondly, he said, the benami law was in place and due to old traditions, the government had decided to bring a lot of informal economy into the formal economy for which a scheme had been introduced to make all the cash, real estate and other assets — both here and abroad — part of the economy.
Third, the adviser said, the oil facility provided by Saudi Arabia worth $3.2bn per year for three years would become operational on July 1 and reduce pressure on foreign exchange reserves. Fourth will be revival of $2-3bn inflows from the World Bank and Asian Development Bank for programme lending as a result of the IMF programme.
Fifth development, he said, would be the announcement of the annual budget that would be based on the government philosophy and determination to put Pakistan on the road to permanent and sustainable prosperity and development. The last development, he said, was the continuation for another year of $1.2bn worth of deferred oil facility from the Islamic Development Bank.
The power sector loss that stood at Rs38bn per month would be down to Rs26bn in June 2019 and then reduced to Rs8bn per month by June 2020 and to zero by December 2020, he said.
Power, gas tariff hike
Mr Shaikh parried questions about the quantum and timing of coming electricity and gas price hikes, but said where necessary the tariffs would be increased in a way that these did not affect 75pc of low income groups with less than 300 units per month electricity consumption and 40pc of the consumers in gas sector.
He said Pakistan’s tax to GDP ratio was the lowest at 11pc compared to 16-20 of other similar countries as only two million people filed returns and 0.6m among them were salaried persons who had no other option while 85pc of the country’s total tax was paid by 360 companies. He said attempts would be made not to burden those already in the tax net and instead recover more from those which did not pay at all or paid little.
For this, various data sources were being put together which revealed that only 40,000 industrial consumers of electricity and gas out of 341,000 were paying taxes, he said. “We have to go after the remaining 300,000 industrial consumers. Likewise only 1.4m commercial consumers out of a total of 3.1m are in the tax net.”
The banking data showed that there were 50m bank accounts, the adviser said. Data from only one bank shows that just 400,000 account holders (4pc) of a 4m total account holders are paying taxes. The government is collecting data from 28 countries and has already received data about 152,000 people. There are 100,000 companies registered with the Security and Exchange Commission of Pakistan, but only half of them are paying taxes. So all these sources would be cross matched and taken into the tax net.
Mr Shaikh said inflation affected the people the most because of two major factors – the exchange rate and the international oil price – and the latter was out of government control. He said if electricity prices went up because of oil price and oil price required to be passed to the consumers, it would be kept in mind to affect the poor the least and protect the poorest of the poor be through Ehsas programme by increasing allocations from Rs120bn to Rs180bn in the coming budget.
He said the budget would also ensure a Rs50bn programme to develop least developed areas besides Rs46bn for the tribal region.
Talking about job creation, he said, the government could not provide jobs in low growth scenario; hence private sector would be encouraged through tax breaks in the coming budget to create jobs while housing programme was now ready to be launched and it would create 5m jobs because this sector supported 28 other sectors.
As much as Rs100bn would be provided through Kamyab Youth programme under which the young people would be provided loans at subsidised rates, he said. Another Rs250 billion would be provided for agriculture development.
The thrust of the economic policy would be to shift from a trading nation to a manufacturing nation. For this, roads and highways would be built through public-private partnership.
Published in Dawn, May 26th, 2019