ISLAMABAD, May 21: The government plans to reduce tax rates, enhance exemption limit for salaried class, broaden the tax base and allocate more resources for infrastructure development and social sector improvement in the next budget, the Prime Minister’s Adviser on Finance and Revenue Dr Salman Shah has said.

The adviser told Dawn that the next year’s fiscal measures would broadly focus on simplification of procedures, improvement of self-assessment, relief to low-income groups, reduction in tax rates, increase in exemption levels and streamlining of tax regime for export industries.

He said the trade sector was passing through a major transition and in about five years the gap between imports and exports would be bridged.

Dr Shah said second-generation reforms, capacity building and modernisation of the government, improvement of safety nets and provision of essential food items at reasonable prices or subsidised rates would be priority areas.

He said the fiscal deficit for the current year was targeted at 3.8 per cent of the gross domestic product and during the next year it would be in the range of 3.5 per cent to four per cent.

To achieve the target, a substantial increase in revenue would be needed, he said.

He said the government would try to improve the debt-to-GDP ratio as required under the fiscal responsibility and debt management law, which meant that revenue increase should be substantially higher than GDP growth and inflation and debt should decline by 2.5 per cent of the GDP every year.

Responding to a question, Mr Shah said there was no pressure on the government as far as foreign exchange reserves were concerned. He said the reserves should be enough to finance seven-eight months of imports. He said reserves in excess were not good because they did not yield any return.

He said the country’s financial inflows were good enough to fully finance the current account deficit.

The important issue, he said, was that the government should be vigilant about the balance of payment situation so that reaction time was minimised.

He said the government was doing an exercise of looking at key sectors of economy for tariff rationalisation to take the domestic industry to a level playing field.

Dr Shah said priority industries would be given incentives for creation of jobs and the tax base would be broadened by bringing into the net those segments which were not paying adequate taxes.

He said the withholding tax would be expanded and made more adjustable.

He said that while the size of the public sector development programme would be enhanced to four per cent of the GDP in a phased manner, additional resources worth 3.5-4 per cent of the GDP would be mobilised through public-private partnership in the next couple of years.

He said the medium term objective of the government was to ensure economic growth with equity and create conditions to make it sustainable. The government would take measures to base economic growth on incentives and transfer its benefits to common people, he said.

On the revenue side, re-alignment of incentives would be done to take benefit of the country’s competitive advantage for employment generation, enhance output and increase supply of essential commodities to control prices and inflation, he said.

On the expenditure side, he said, the major hurdle to economic development was human skills mismatch with industrial and economic needs. He said there was excess supply of skills which the economy did not need and shortage of skills which the industry required.

He said the government would focus on filling the gap through proper education and vocational training and gradually increase allocations for the areas to at least four per cent of the GDP in the next couple of years.

He said the economy was losing a lot because of various diseases and the health sector would be another area of focus at the federal and provincial levels.

He said that as the economy grew, another area of the government’s attention was infrastructure. Mr Shah said the development of major cities and rural communities through farm-to-market roads and creation of farm and non-farm employment needed focus.