Finance Minister Dr Abdul Hafeez Shaikh on Saturday admitted that Pakistan''s debt liabilities are "close to 60 percent of GDP", which is posing a serious challenge to the economy, because of uncontrolled expenditure on account of interest payment.
The Minister said that the government has granted, in the budget, exemption from all taxes to those who would start business/set up new industries from their own money, and not with the borrowed sum. At the post-budget press conference, Hafeez blamed successive governments for contributing to the piling of foreign and domestic debts and taking these to dangerous levels.
He, however, acknowledged that at present Pakistan''s debt to GDP ratio is 55.5 percent.( Some officials of the Finance Ministry privately concede that debt to GDP ratio would go beyond 60 percent debt limit set in the Fiscal Responsibility Act- 2005 in case the country opts for another loan from the International Monetary Fund (IMF) to repay the Stand by Arrangement (SBA) with the first repayment of $1.4 due in February 2012.) The Minister said that foreign debt liability of the country is a committed expenditure.
Hafeez said that the power sector has been a source of massive financial burden on the budget through the allocation of subsidies of Rs 500 billion during the last two years and Rs 421 billion outstanding amount on account of circular debt. He said that the reforms undertaken in the power sector during last year and their positive results indicate that there is less need for subsidising the power sector. The Minister said that the government has decided to give targeted subsidy to the ''deserving'' through Benazir Income Support Program (BISP), Bait-ul-Maal and other such institutions. This approach is necessary as untargeted subsidies on petroleum products and power sector benefit the rich as well.
He promised to bring 0.7 million ''rich people'' identified by Nadra into the tax net in the coming three months in an effort to broaden the tax base and generate Rs 3 billion additional revenue. However, he did not reply to a question as to what the federal government would do if income of the majority of those identified is from the income tax exempt agriculture sector.
Dr Hafeez said that rate of general sales tax has been reduced from existing 17 percent to 16 percent in the budget and special excise duty (SED) has been completely abolished. The regulatory duty on 392 items was removed, 15 items of 46 have been excluded from the ambit of federal excise duty (FED). He said that these measures would have positive impact on the commodities. He added that regulatory duty would only be applicable on luxury vehicles, cigarettes, arms & ammunition, betel nuts and sanitary ware/tiles.
He said that FED on beverages was reduced from 12 percent to 6 percent and on per ton cement it has been reduced from Rs 700 to Rs 500 so as to give boost to the construction activities in the country. Moreover, he said, withholding tax on cash withdrawal has been reduced from 0.3 percent to 0.2 percent and the taxable income limit has been increased from Rs 300,000 to Rs 350,000 in view of the increase in inflation during the current fiscal year.
The minister said that revenue loss due to these measures would be offset by bringing ''rich people'' into the tax net, and the government has decided to give them message that "national duty is calling and it is a new ball game now". He said that the current budget was prepared by a politically elected government, which has to go into the elections by dismissing a question that the budget was prepared on the dictation of the IMF. The minister said that Pakistan and IMF "don''t have special relationship", and latter operates under a charter and have equal relationships of a lender with all countries.
He said that the government has also decided to increase the salaries of government employees by 15 percent and raise pensions by 15 percent to 20 percent, besides 12 percent increase in conveyance allowance of all government civil and armed forces employees from Grades 1 to 15.
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