ISLAMABAD: The government is grappling with the issue of collecting additional revenues to make up for declining tax collections amid the slowing national economy so that the International Monetary Fund (IMF) could be brought to the table for the completion of the 9th review under the ongoing extended fund facility (EFF) and ensure foreign exchange inflows from other multilateral lenders as well.
Finance Minister Ishaq Dar on Monday had separate meetings with State Bank of Pakistan (SBP) Governor Jameel Ahmad to discuss matters relating to the exchange rateand higher-than-targeted profit from the central bank and provincial governments to remove irritants to harmonisation of general sales tax (GST) on a national level.
The meeting between the finance minister and SBP governor is also believed to have discussed matters relating to the manipulation of exchange rates by banks in recent months and the way forward on punitive actions and course corrections.
During Mr Dar’s meeting, the provincial chief secretaries agreed with consensus over the harmonisation of GST throughout the country that would clear hurdles towards $1.4bn foreign inflows including about $500 million to Sindh and the remaining $900m to the federal government. Ultimately, the $500m loan to Sindh would also benefit the federal government in the shape of foreign exchange as provincial governments are given equivalent local currency.
Reaches consensus on sales tax harmonisation, wants SBP to boost its profits
Informed sources said the discussions with the IMF staff were originally planned for the last week of October and then scheduled to begin on Nov 3. However, these could not take off as planned owing to large revenue and expenditure slippages and no new dates have been finalised so far.
Among other things, the expenditure gap has widened because of over Rs100bn additional subsidy to export sectors on top of budget allocations and agriculture support. Revenues have also slowed down, missing the collection target in October as imports dropped.
These sources said the finance minister expected the federal government’s profit from the SBP to increase to about Rs371bn against Rs300bn targeted in the budget. Likewise, the government had already approved an increase in petroleum development levy on high-octane blending component (HOBC) by Rs20 per litre and was also expected to control subsidy allocations for Utility Stores Corporation.
These are some of the measures that could bridge the overall revenue shortages, mostly through non-tax revenues since the government considered it politically challenging to reverse special packages for exporters and agriculturists, particularly when major agricultural baskets had drastically suffered because of recent devastating floods.
Informed sources said the centre and the provinces had settled definitional issues at a meeting of revenue authorities and relevant special assistants to the prime minister and informed Mr Dar that they had no objection outstanding and had reached a consensus on harmonisation of GST among the provinces and with the centre.
At the political level, Mr Dar had already held a couple of meetings with Sindh Chief Minister Murad Ali Shah in Karachi and Islamabad in recent days to clear the way for World Bank loans.
The meeting of the National Tax Council (NTC) that reached the agreement on harmonisation of GST was also attended by Finance Minister Punjab Muhammad Mohsin Leghari while other provinces were represented by their respective finance secretaries.
Minister of State for Finance and Revenue Dr Aisha Ghous Pasha, SAPM on Finance Tariq Bajwa, SAPM on Revenue Tariq Mehmood Pasha also attended.
An official statement said Mr Dar emphasised that to have ease of doing business, harmonisation of GST was important and this would be “a major step towards completion of policy actions under World Bank’s RISE programme. The participants also shared their opinions.
Exchange rate stability
Separately, Mr Dar and Governor SBP discussed fiscal and monetary measures being undertaken for economic stability, revival and growth of the country. The coordination of fiscal and monetary policy was also discussed in the meeting. The SBP chief told the finance minister that the continuing administrative efforts by the government and the policy measures of SBP “have resulted in achieving stability to rupee value and restrained exchange rate volatility”.
He also shared various macroeconomic policy initiatives in line with the objectives of fiscal policy taken to achieve sustainable growth and assured the minister that SBP “is fully committed to supporting the process of economic revival as per the policies of the present government and its mandate statutory”.
Mr Dar appreciated SBP’s economic growth and acknowledged the regulatory role of SBP in bringing back the exchange rate stability and showed satisfaction with the current monetary policies being undertaken by the SBP. “If the monetary policy is always in consonance with the fiscal policy, sustainable growth and stability in the economy can be achieved”, he was quoted as telling the SBP governor.
Published in Dawn, November 8th, 2022