Aiming to take tax-to-GDP ratio to 13pc in next 3 years: Finance Minister Aurangzeb

Published June 13, 2024
Finance Minister Muhammad Aurangzeb addresses a post-budget press briefing in Islamabad on Thursday. — AFP
Finance Minister Muhammad Aurangzeb addresses a post-budget press briefing in Islamabad on Thursday. — AFP

Finance Minister Muhammad Aurangzeb on Thursday expressed his aim to increase the country’s tax-to-GDP ratio to 13 per cent in the next three years, from the current one of more than 9pc.

Addressing a post-budget press briefing in Islamabad, Aurangzeb said: “Our basic principles while framing this budget were to expand the tax base. This sub-10pc tax-to-GDP ratio is simply not sustainable.

“We have to [increase it] every year so that in the next three years, we can take it to 13pc,” he asserted, asking if any other country in the world was sustaining itself with a tax-to-GDP ratio of less than 10pc, like Pakistan was.

On Wednesday, Aurangzeb presented the federal budget for the upcoming fiscal year (FY2024-25) with a total outlay of Rs18.9 trillion, which analysts said was broadly “in line with IMF guidelines”.

Pakistan’s budget for the upcoming year aims for a modest 3.6 per cent GDP growth, and sets an ambitious Rs13tr tax collection target, raising taxes on salaried classes and removing tax exemptions for the rest.

Aurangzeb, during the budget presentation, had said that the goal was to widen the tax base to avoid burdening existing taxpayers.

Addressing today’s press briefing, flanked by Minister of State for Finance Ali Pervaiz Malik, Federal Board of Revenue (FBR) Chairman Malik Amjad Zubair Tiwana and others, Aurangzeb said an aim of the budget proposals was to deter non-filing of taxes.

“I want to remove this concept of non-filers. I think Pakistan is the only country with non-filers,” he stated, adding that non-filers would see an increase in “tax in transaction”.

The finance minister also underscored the need for digitisation: “We aim to end the undocumented economy and digitise finances. Talk about the FBR’s performance is also warranted, since the compliance and enforcement were not up to par.

“End-to-end digitisation tends to reduce human intervention. Corruption will go down, there will be transparency and improved client service,” he added.

During the briefing, the finance minister responded to several queries from journalists regarding the proposed federal budget.

On the hike in petroleum levy, Aurangzeb clarified that the increases would not be applied immediately at once but gradually through the “first fiscal year”. “We will implement this while keeping global fuel prices in view.”

Acknowledging that the salaried class should not be burdened with progressive income tax and that “some changes” had been proposed regarding the tax slabs, Aurangzeb asserted: “If you look on an individual level, the burden is not that heavy.”

On a query regarding bringing retailers and traders into the tax net, the finance minister said the action should have been taken in 2022, adding, “Retailers are our brothers and sisters. We need to bring them into the [tax] net to ease the burden on them.”

“We have no other option but to ensure that this sector comes into the net. These taxes will come into effect in July,” Aurangzeb said.

He further said the government would relaunch the Point of Sale price scheme to “try and document cash transactions as much as possible”. “Cash transactions are linked with digitisation and undocumented economy. Rs9tr in cash is in circulation,” he emphasised.

When asked about schemes and incentives for the youth, the finance minister termed Pakistan having the “third-largest freelancer population in the world” as the “biggest upside” for the country. He said funds would be allocated and digital infrastructure would be improved, leading to “better Wi-Fi for people to work from home”.

Aurangzeb also underscored that small-to-medium enterprises (SMEs) needed better financing, adding, “The ministry of finance has already allocated [funds] to SMEs, they will be subsidised. We’re prepared to give a first-loss guarantee because banks have a lack of appetite.”

Speaking about the massive boost for the Public Sector Development Programme (PSDP) funds, he said the government “was trying to make sure that projects already in the works be completed”, noting that 81pc of the allocated amount was for the projects near their completion.

Questioned about leakages from the tax base, Aurangzeb highlighted that the track and trace system had been rolled out and would be expanded from cigarettes to cement and other sectors. “Sales tax has a big leakage as well. We need to plug all of these through digitisation,” he asserted.

Asked if the target of bringing down inflation to 12pc was realistic, Aurangzeb said, “We should have shut down ministries and sectors that were not contributing. This is how we’ll cut expenditures. There is still work to be done, the prime minister will make decisions around ministries and devolved subjects.”

“The greater the number of things we exclude the government from, the more fiscal space we will get,” the finance minister asserted.

On the privatisation of state-owned enterprises (SOEs), Aurangzeb said all stakeholders and coalition government allies, including the PPP, were being taken on board on the matter.

He stated that the privatisation of the Pakistan International Airlines and outsourcing of the Islamabad airport would be completed by August, which would then be followed by the outsourcing of the Karachi and Lahore airports.

Aurangzeb added that except for one of the “six to seven SOEs suggested as strategic”, all were removed from that list and were subsequently added to the privatisation list.

Asked whether the proposed budget fulfilled the conditions laid out by the IMF, Aurangzeb said, “Virtual discussions are ongoing. Even about this budget, there are a few submissions and they are involved in talks.”

Refraining from making a “final” statement until a Staff-Level Agreement (SLA) was reached, the finance minister said talks with the global lender were heading in an “appropriate direction”. He added that the government was aiming to reach an SLA with the IMF in July.

Responding to a query on a “lack of steps” to cut expenditures, the finance minister said a few ministries would be dissolved, which would be seen in the next two to three months. He also said a “good news” should be expected in the next few weeks about the power industry.

Meanwhile, Finance Secretary Imdadullah Bosal, also among the team present during the briefing, acknowledged that the current policy rate was still “considerably high”.

Regarding inflation, minister of state said Malik: “We understand the impact of inflation on the common man, but we need to remember that we have made steps in the right direction.”

Citing the example of Argentine as being a huge debtor to the IMF, Malik said: “If you hand things out, your deficit rises, in which case you print more money, or take a loan and put the burden on future generations — we have done both of these things.”

“Give us time to enforce and impose direct taxation,” he said, stating that there were now punitive measures in place.

Noting that the biggest allocation was for the power sector, Malik — also the minister of state for power — admitted that “there would be governance issues but it (allocation in budget) would protect the most vulnerable”.

Speaking on the issues plaguing the industry, Malik said he and the federal cabinet acknowledged that the power sector required “surgery and reforms”, adding that the steps taken by the government in that regard would be seen in the next few months.

Responding to a question on farmers’ concerns, especially keeping in view the recent wheat crisis, the FBR chief said there was no change in taxes on Diammonium Phosphate (DAP, a fertiliser) as per the request of tractor companies to discourage imports.

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