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Govt falls back on taxpayer for funds

March 01, 2011

National Assembly
The decision was given finishing touches at a meeting presided over by the finance secretary and attended by the FBR chairman after its approval by the top political leadership. - File Photo

ISLAMABAD: The government decided on Tuesday to impose a 15 per cent flood surcharge on income tax and increase special excise duty by 150 per cent through a presidential order soon after the prorogation of the National Assembly session. The decision was given finishing touches at a meeting presided over by the finance secretary and attended by the FBR chairman after its approval by the top political leadership.

The measures, part of a new fiscal framework to be presented to an IMF delegation for revival of its assistance programme, will provide an additional revenue of Rs 46 billion during the current financial year and raise revenue target to Rs1,630 billion.

The revenue target was reduced to Rs1,604 billion because of floods from budget estimates of Rs1,667 billion.

The imposition of 15 per cent flood surcharge on withholding tax and advance income tax from April 1 will yield Rs27 billion. The flood surcharge was originally proposed at 10 per cent, but needed to be increased because five months have been wasted.

Another Rs9 billion will be generated from the increase in special excise duty on imports to 2.5 per cent from one per cent, while Rs5 billion each will be generated by the broadening of the tax base and recovery of arrears.

The government is also rejuvenating its plan to raise about Rs55 billion by launching the third-generation mobile telecom licences. The project is estimated to yield over $2 billion (more than Rs170 billion) spread over a period of two to three years.

Moreover, the federal government has asked the provincial governments to provide a minimum of about Rs100 billion cash surplus during the current year, from Rs300 billion additional transfers under the new National Finance Commission award.

On Tuesday, an IMF staff mission started exchange of economic data with finance ministry officials. They will be joined by Masood Ahmed, IMF Director, and Adnan Mazarie, head of the IMF mission for Pakistan, on March 7 for policy discussions.

With all these measures, the government expects to contain current year’s fiscal deficit at about 5 per cent of GDP against revised IMF target of 4.7 per cent. The fiscal deficit was estimated to reach 8.4 per cent if all these measures were not taken because of about Rs165 billion power sector subsidy, including Rs140 billion to Wapda companies and about Rs25 billion to the Karachi Electric Supply Company.

The new fiscal framework also envisages about Rs20 billion reduction in current expenditure because of lower disbursements under the Benazir Income Support Programme and allocations for internally-displaced persons.

The most worrying thing at the moment for the authorities is almost a complete blockade of about $1.5 billion, $500 million each by the World Bank, Asian Development Bank and Islamic Development Bank, under a three-year budgetary support programme for Pakistan because of problems with the IMF programme.

The three institutions want Islamabad to secure a letter of comfort from the IMF to enable them to resume their financing. The IMF programme inflows have remained suspended since May last year because of non-implementation of revenue mobilisation measures, including reformed general sales tax.