Launching Economic Survey 2020-21, minister says IMF told power tariff, income tax won’t be increased
Next year’s budget aims to support poor, create two million jobs
FBR will no longer issue notices; wilful non-filers to be sent to jail
Revenue collection to be raised by 26pc to meet IMF target of Rs5.9tr for next year
Power sector, state-owned entities termed biggest challenge for government, country
China being requested to make Pakistan part of its industrial sunset process
ISLAMABAD: As the country’s economy showed broad-based recovery from the low base of a historically bad year, Finance Minister Shaukat Tarin on Thursday promised to roll out a budget for the next year that would switch gear to growth from stabilisation, fight inflation and support the poor.
At the launch of the Economic Survey 2020-21, the minister said the International Monetary Fund had been informed of the ‘red lines’. “We have told the IMF that power tariff and personal income taxes will not be increased because we don’t want to burden the poor or the salaried class any further. But we will increase the revenue collection by almost 26 per cent to meet the IMF target of Rs5.9 trillion for next year from over Rs4.7tr this year,” he said.
“No Sir, we can no more make repeated tariff increases, nor can we further burden the salaried people. We have told them [IMF] this is the prime minister’s red line,” he said, adding that talks with the IMF were continuing but there was no agreement. He said the common objective of the two sides was to have a sustainable growth but have different routes in mind to achieve that.
Besides the tariff increase, the IMF was pushing for Rs150 billion worth of additional personal income tax revenue on top of existing Rs113bn. “This is not justified,” he said, adding that further tariff increases would demolish the industry and put an unbearable burden on the poor due to its cascading effect on inflation. “We will address the power sector with alternative means and this year’s build-up to circular debt will be Rs150bn lower than that of last year.”
Mr Tarin agreed that the power sector was the biggest challenge not only for the government but also for the country. He said the IMF had been given a revenue plan of Rs5.9tr for next year but it would take time to reach an agreement.
An official on the sidelines said the Rs5.9tr revenue plan was unacceptable to the IMF, which considered that some of the revenue sources, mostly claimed to be supported by administrative measures, were not bankable and had failed in the past.
The finance minister said the broadening of revenue base would be visible next year that would be achieved through use of technology and third party audits and by eradicating harassment.
The Federal Board of Revenue (FBR) would no longer issue notices but instead there would be risk-based third party audits of 3-4pc of revenue and the willful non-filer and under-filer would be punished, he said. “Willful non-filers would be sent to jail immediately as the government wanted to create deterrence for tax evasion.”
In the longer term, he added, there would be only two taxes — on income and consumption — as he wanted to put in place progressive taxation and gradually withholding tax and turnover tax would be eliminated.
Mr Tarin declined to comment on the future direction of State Bank’s policy rate though he criticised the past 13.25pc rate, but said he had shared his thoughts that the policy rate should look at the core inflation instead of overall inflation and hopefully they would consider this. He said food inflation had nothing to do with SBP’s discount rate and pertained more to the demand and supply and administrative issues.
The minister said that besides the power sector, state-run entities were another challenge and drain on public finance that would be addressed in the coming fiscal year. He said that 15 highest loss-making entities out of 85 would be handed over to a board within the Privatisation Commission comprising the people of highest calibre who would turn them around and divest 26pc shares.
Mr Tarin said that in order to increase foreign dollar inflows, the budget would ensure steps for increasing exports because the record remittances of about $29bn might not be sustainable going forward unless further innovations were introduced.
He said the focus of the budget would remain on the construction sector.
He said China was being requested to make Pakistan part of its industrial sunset process under which it was outsourcing 85 million jobs to some African countries by effectively utilising the CPEC. “We have offered them to provide all sorts of incentives to Chinese industries for their location to Pakistan’s special economic zones for export. Unless we do this, how we are going to make payments for debt and investments.”
In addition, another $7-9bn investment would be coming in the shape of the ML-1 railway project.
The minister said maximum incentives were being provided in the budget to increase exports on the recommendations of the ministries of commerce and industries, besides making special offers to increase information technology exports by $40bn in 10 years.
Talking about the provisional economic results of the current year, Mr Tarin said 3.94pc GDP growth rate was a success of the economic and prudent lockdown policies of the government and all targets were surpassed. Despite various challenges, the economy was moving progressively on a higher inclusive and sustainable growth path on the back of various measures and achievements during the year, he added.
The minister said the economy rebounded strongly after last year’s Covid-19 impact and negative 0.47pc performance and posted 3.94pc growth this year even though the target was 2.1pc and international agencies predicted even lower growth. He said the growth was supported by an almost 9pc jump in large scale manufacturing owing to subsidised electricity and gas rates and 2.77pc growth in agriculture following four out of five bumper crops.
The minister said Pakistan had made a tangible progress on Financial Action Task Force’s action plan and expressed the hope that the country would get relief in the coming review as relevant committees had shown satisfaction which also resulted in Amazon putting Pakistan on its sellers’ list.
He said he targeted the next year’s budget to create two million jobs which was a must to absorb 60pc of the youth population of 25-30 years of age. Prior to Covid-19, the working population was 55.74 million which declined to 35.04m, indicating that people either lost their jobs or were not able to work. But the number returned to 52.56m till October 2020 as the economy witnessed a V-shaped recovery.
The finance minister also hinted at major restructuring of the country’s financial sector to expand access of small and medium enterprises (SMEs) and low-income people to credit. Additionally, he said, regional banks will be established in order to support geographical expansion of credit and back SMEs as the current banking sector credit was heavily skewed in favour of big cities.
The country’s entire credit is used in nine big cities while deposits come from across the country. Mr Tarin said the financial sector’s contribution to GDP was just 33pc despite its sound footings, compared to 50pc in Bangladesh and 250pc in China.
Published in Dawn, June 11th, 2021