Why Defence Cut, Why Not Bureaucracy

What a move: Unprecedented for revenue
Economic Scene

Prof Dr Abdul Jabbar Khan

Islamabad:

As the parleys in finance and economic affairs ministry continue among different officials, the newly inducted FBR chairman Shabbar Zaidi in a briefing to the Finance Advisor hinted at more taxation revenue even if one has the income of Rs.36,000 per month and above. This is what the reversal of the existing policy on taxable income one generates either through the personal business or a salary. The experts team is there which has assured the prime minister Imran for a great revenue collection. As the wheel of economy is visibly not found in real motion, the revenue collection and putting everyone with more than four lac rupees per annum, ie., say around Rs.36,000/- per month.

With an unprecedented revenue mobilisation target by Imran Khan’s new financial wizard and his associates, there are clear indications that these look too over ambitious, and not possible target for the fiscal buget 2020.

In an otherwise mounting pressures continue on economy Dr. Hafeez Shaikh and his colleagues would not at all be close to target. Let it be so and it would be visible in next six months. Being optimist is his right. Hinting at the reduction in defence budget and provision, he perhaps has forgotten the geo strategic environment, hostile regional conditions, emerging conflicts and Pakistan’s defence preparedness. Only in February when Indian hostilities were on peace Pakistan saw an increase of given budge spending.

This situation has not changed rather cooking up in the Western side where the Straight of Hormuz and Arabian Sea Western side would see any time causing a conflict changing in to a war. It would not be a Saudi Arabia, Yemen (Houthis), Iran or the US front, Pakistan would have to be all-time prepared, thus causing immense financial needs to meet any challenge in future.

This is where a catch 22 situation would prevail and the Finance Minister’s rhetoric that the defence and civil expenditure would be curtailed will be challenges. The development budgets are on decrease. Inflation on a rise. Unemployment too is rising up. Law and order situation within is a continuous challenge. Given the Western and Eastern frontiers, i.e., Afghanistan and India respectively while yet another in the South and Baluchistan are the added one.

Question here is simple to understand. The same should not be treated as a mere political sloganeering.

Defence is Pakistan’s biggest need and given the war on terror, regional and domestic security scenario, Pakistan government should make concerted efforts to consolidate its macro economy and not just playing in rupee terms that the defence spending is being provided more every year. It is the reduction in Pakistani rupee, that too not because of the GHQ or the Armed Forces, but because of Civil Bureaucracy and non-development expenditures. Pakistan defence budget should be envisioned through the international currency (any one for measurement and estimates) and not in rupee terms.

As the adviser avoided taking more than a couple of questions, an official on the sidelines of the presser said the four major components would form the basis of Rs1.45tr additional revenue. These would include about 14pc normal growth through inflation and economic growth besides withdrawal of tax exemptions, recovery of arrears and additional revenue measures.
ISLAMABAD: The government announ¬ced on Saturday that it would increase next fiscal’s revenue target to Rs5.550 trillion — almost 35.4 per cent or Rs1.450tr higher than current year’s revised estimate of Rs4.100tr — and all civil and military institutions would contribute to the austerity-oriented federal budget for 2019-20.
The coming year would be the year of stabilisation and steps would be taken to strengthen the economy and protect it from dangers to set sustainable basis for growth and development, he said.
“There will be austerity in the coming budget. We will try to keep government expenditures to the minimum possible level,” Mr Shaikh said. “God willing we will all stand together on this, whether it is civilian or army [institutions] or private sector.”

The adviser said the government had taken on board a well known tax practitioner from the market and tax machinery was getting a target of Rs5.550tr for next year because the revenue mobilisation was important to protect the poor, give hopes to people and build dams, roads and infrastructure.

He criticised commentators for attacking the government for not disclosing details of the IMF programme and yet describing it as the harshest programme. “The two things can’t be correct at the same time. If you don’t know the details how you can say it is harsh,” the adviser asked and said the fact was that the programme details could not be disclosed unilaterally while the other party was yet to formally approve it.
He said the  HYPERLINK “https://www.dawn.com/news/1481849/pakistan-reaches-agreement-with-imf-to-receive-6-billion-over-3-years” $6 billion IMF programme not only provided one of the cheapest financing at 3.2pc interest rate, but other international institutions and investors also took cue from the programme that Pakistan wanted to run its economy in a fiscally responsible manner.
The capital market, he said, had already responded with 7pc growth last week with a couple of robust trading sessions never witnessed in 10 years.
Secondly, he said, the benami law was in place and due to old traditions, the government had decided to bring a lot of informal economy into the formal economy for which a scheme had been introduced to make all the cash, real estate and other assets — both here and abroad — part of the economy.

 

 

Third, the adviser said, the oil facility provided by Saudi Arabia worth $3.2bn per year for three years would become operational on July 1 and reduce pressure on foreign exchange reserves. Fourth will be revival of $2-3bn inflows from the World Bank and Asian Development Bank for programme lending as a result of the IMF programme.

Fifth development, he said, would be the announcement of the annual budget that would be based on the government philosophy and determination to put Pakistan on the road to permanent and sustainable prosperity and development. The last development, he said, was the continuation for another year of $1.2bn worth of deferred oil facility from the Islamic Development Bank.
The power sector loss that stood at Rs38bn per month would be down to Rs26bn in June 2019 and then reduced to Rs8bn per month by June 2020 and to zero by December 2020, he said.
Mr Shaikh parried questions about the quantum and timing of coming electricity and gas price hikes, but said where necessary the tariffs would be increased in a way that these did not affect 75pc of low income groups with less than 300 units per month electricity consumption and 40pc of the consumers in gas sector.
He said Pakistan’s tax to GDP ratio was the lowest at 11pc compared to 16-20 of other similar countries as only two million people filed returns and 0.6m among them were salaried persons who had no other option while 85pc of the country’s total tax was paid by 360 companies. He said attempts would be made not to burden those already in the tax net and instead recover more from those which did not pay at all or paid little.
Mr Shaikh said inflation affected the people the most because of two major factors – the exchange rate and the international oil price – and the latter was out of government control. He said if electricity prices went up because of oil price and oil price required to be passed to the consumers, it would be kept in mind to affect the poor the least and protect the poorest of the poor be through Ehsas programme by increasing allocations from Rs120bn to Rs180bn in the coming budget.
For this, various data sources were being put together which revealed that only 40,000 industrial consumers of electricity and gas out of 341,000 were paying taxes, he said. “We have to go after the remaining 300,000 industrial consumers. Likewise only 1.4m commercial consumers out of a total of 3.1m are in the tax net.”
The banking data showed that there were 50m bank accounts, the adviser said. Data from only one bank shows that just 400,000 account holders (4pc) of a 4m total account holders are paying taxes. The government is collecting data from 28 countries and has already received data about 152,000 people. There are 100,000 companies registered with the Security and Exchange Commission of Pakistan, but only half of them are paying taxes. So all these sources would be cross matched and taken into the tax net.
Mr Shaikh said inflation affected the people the most because of two major factors – the exchange rate and the international oil price – and the latter was out of government control. He said if electricity prices went up because of oil price and oil price required to be passed to the consumers, it would be kept in mind to affect the poor the least and protect the poorest of the poor be through Ehsas programme by increasing allocations from Rs120bn to Rs180bn in the coming budget.
He said the budget would also ensure a Rs50bn programme to develop least developed areas besides Rs46bn for the tribal region.
He said the budget would also ensure a Rs50bn programme to develop least developed areas besides Rs46bn for the tribal region.
Talking about job creation, he said, the government could not provide jobs in low growth scenario; hence private sector would be encouraged through tax breaks in the coming budget to create jobs while housing programme was now ready to be launched and it would create 5m jobs because this sector supported 28 other sectors.
As much as Rs100bn would be provided through Kamyab Youth programme under which the young people would be provided loans at subsidised rates, he said. Another Rs250 billion would be provided for agriculture development.
The thrust of the economic policy would be to shift from a trading nation to a manufacturing nation. For this, roads and highways would be built through public-private partnership.

ISLAMABAD: The government looks set to reverse tax concessions extended by the PML-N government to benefit high-earning salaried and non-salaried individuals substantially more than the middle-class workforce.
“We are considering reverting back to the income tax brackets applicable in the tax year 2017,” an official source told Dawn who is privy to budget-making process for 2019-20.
On Sunday, a high-level meeting will be held where tax proposals will be reviewed for consideration in the next budget, the official said, adding more such meetings will be followed on discussing the tax proposals.
It is estimated that the reversal of tax rates for salaried individuals will help to pocket extra amount of Rs14 billion in the fiscal year 2019-20. It is estimated to collect income tax amount to the tune of Rs103bn from salaried individuals in the current fiscal year.
The PTI-led coalition government has already reversed some incentives through the amended Finance Act 2019 given to business enterprises and individuals through the Finance Act 2018.

Last year, the government had given sweeping tax cuts to low salary earners, raising the exemption threshold almost three times to Rs1.2 million from Rs400,000.
Instead of enjoying zero tax, a nominal tax of Rs1,000 for individuals in income brackets ranging from Rs400,001 to Rs800,000 and Rs2,000 for individuals in income brackets ranging from Rs800,001 to Rs1.2m was introduced in the budget.
ISLAMABAD: According to a detailed revenue plan drawn up by the tax bureaucracy, and shared with the International Monetary Fund in the last round of meetings, the government is aiming to introduce new tax measures equal to Rs775 billion in the forthcoming budget for the fiscal year 2019-20.
The revenue plan has been seen by Dawn, and detailed conversations with senior officials of the Federal Board of Revenue have provided the context in which it was produced. The plan has to be approved by the cabinet, something that was supposed to have happened in the first week of May but has been delayed due to changes at the top.
When reached for comment, FBR chairman Shabbar Zaidi would not say whether or not he has seen the revenue plan given to the IMF,  that his team was in the process of finalising its own plan. “We have been given guidance on the revenue target to be achieved next year and are in the process of seeing how much can be expected from which tax to meet it,” he said.
In the three-year plan given to the IMF at recent meetings, the government is planning to introduce Rs1,640.3bn revenue measures in its second budget (2020-21), followed by tax measures of Rs2,654.5bn in the last year (2021-22) of the IMF programme in order to stabilise the fiscal framework.
The IMF has asked the government for a target of Rs5.5 trillion for the year 2019-20 for FBR revenues. However, the FBR has asked for this to be lowered to around Rs5tr or Rs5.2tr.
As per the proposed plan, the FBR estimates to raise Rs774.9bn of fresh taxes in the budget FY20, Rs1,640.3bn in FY21 and Rs2,654.5bn in FY22. The largest share of the fresh increase will be raised from reviewing and rationalisation of the existing tax rates to the tune of Rs4,981bn in FY20, Rs1,120.2bn in FY21 and Rs1,948bn in FY22, respectively.
Similarly, another Rs250.2bn will be raised from elimination of tax exemptions in FY20, Rs470.3bn in FY21 and Rs603.9bn in FY22bn, respectively. Another Rs28.6bn will be raised from reorganising of federal and provincial tax regimes in FY20, Rs35bn in FY21 and Rs42.1bn in FY22, respectively.
The tax measures also include raising Rs18.5bn from broadening of the tax base in FY20, Rs47.6bn in FY21 and Rs94.4bn in FY22. Moreover, it was proposed that to make the tax system equitable and the simplification of legal provision and reduction in compliance cost will also yield another Rs20.5bn in FY20, Rs32.7bn in FY21 and Rs33.9bn in FY22, respectively.

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