Tarin explains IMF challenge

ISLAMABAD: Federal Minister for Finance Shaukat Tarin on Thursday said Pakistan would have to demonstrate that its alternate plan on revenue generation and curtailing circular debt was practical and yielding positive results as the International Monetary Fund (IMF) would club sixth and seventh reviews together in September 2021.

Structural reforms: IMF says more work needed

He also announced that the government would re-write powers of arrest and prosecution on concealment of income under Section 203-A and related sections into the Finance Bill 2021, saying that the powers of arresting any willful tax defaulters would rest with him and the chairman FBR instead of the Assistant Commissioner of Inland Revenue (IR).

Tarin said this, while briefing the National Assembly Standing Committee on Finance, which held its meeting under the chairmanship of Faiz Ahmed Kamoka, here at the Parliament House, on Thursday.

He disclosed that the FBR has a list of 7.2 million potential taxpayers based on their expenditure patterns including utility bills, bank account details, etc.

After a risk-based third-party audit, these persons would be approached to file their returns.

"I have asked the Institute of Chartered Accountant of Pakistan (ICAP) to provide 40-50 auditors for an independent third-party audit. The notices would also be served independently without involving tax machinery of the FBR to eliminate the chances of harassment,” he said.

Through the amended Finance Bill 2021, the government has rationalised taxes on poultry, dairy, real estate investment trusts (REITs) and many other sectors. Alternate revenue would be generated from broadening the tax base and the retail sector, he said.

“Our negotiations with the IMF are going well and we had talked with their high-ups. We presented our alternate plan and they accepted that it possessed weightage. Now we will have to demonstrate that our alternate plan on revenue generation and curtailing circular debt is practical and is yielding positive results in the next few months. The IMF will club sixth and seventh reviews in coming September 2021,” he said.

He said the destination of both the IMF and the government is sustainability of reforms.

The government will remove the structural defects from the revenue and power sides.

"The government would practically demonstrate that the circular debt would be frozen."

The IMF Board meeting was expected during July 5-7. Therefore, the IMF wanted to have regular discussions with the government, the minister said, adding that he was opposing the IMF demands as the Fund staff was asking for total elimination of all kinds of tax exemptions.

He said that there would be a funding requirement of Rs 400 billion, but I do not see any risk because we have a good relationship. However, he said that the government decided to go into the international market to generate sufficient foreign funding through issuance of Eurobond, Sukuk bond, green bond and Panda bond in the next fiscal year.

However, he said that the government decided to go into the international market to generate sufficient foreign funding through issuance of Eurobond, Sukuk, green bond, and Panda bond, in the next fiscal year.

Ali Pervez Malik, MNA belonging to the PML-N, asked about the IMF programme and gross financing requirements to ascertain the importance of the Fund-funded programme, the minister replied that he held a telephonic conversation with the IMF high-ups, on Wednesday, and talks were “going well”.

He said the IMF asked for imposing an additional Rs150 billion personal income tax (PIT) but the government argued that instead of burdening the existing taxpayers, the broadening of tax base would help achieve the desired revenue generation.

On electricity tariff, he said the IMF asked for raising tariff in June by 1.39 units and in totality by Rs4.95 per unit, so they were pressing to raise power tariff from Rs13 to Rs14 per unit to Rs18-19 per unit or 25 percent in one go.

The IMF, he said, was providing us a solution on account of capacity payments and collection so in order to curtail increasing circular debt their prescription was increasing power tariff.

In our alternate plan, the minister said, the government would fix structural defects through innovative formulae, so instead of raising tariff, the government would not allow an increase in circular debt amounts.

“On our alternate plans, the IMF emphasized upon continuation of talks to prove that our adopted strategy is practical and is yielding the positive results on account of revenue generation and curtailing the circular debt,” the finance minister added.

When Ali Pervez Malik further asked about gross financing requirement and inquired whether the figure of $25 billion was correct, the minister replied that he did not have official figures about external gross financing requirements but the government possessed plans to generate sufficient external inflows through raising of different international bonds.

Ali Pervez Malik also pointed out that the provinces did not throw a revenue surplus of Rs570 billion as envisaged in the budget for 2021-22 in order to reduce the budget deficit, the minister conceded and said that there was a gap on this front.

He said that he would be convening an NFC meeting to apprise the provinces that the expenditures on paramilitary forces and Ehsaas Programme should be shifted on to provinces then the revenue surplus-related commitment would be withdrawn.

The Center was utilizing Rs175 billion on meeting expenditures when the NFC was done but now this amount had ballooned to Rs550 to Rs600 billion per annum, so the provinces should take their responsibility in true letter and spirit.

The provinces, after increasing their share into NFC have raised salaries of employees and they did not even spend on health and education requirements.

He said the provinces had made an agreement, in writing, for throwing a revenue surplus of Rs570 billion but if they did not implement then the Center could deduct the desired amount.

He said the government would provide clean lending to SMEs to the tune of Rs100 billion as the government would provide subsidies to keep markup on the lower side and had allocated Rs12 billion for this purpose in the budget.

To another question raised by MNA Ramesh Kumar, the minister replied that there would be no change in the FBR team in the next fiscal year, so that they could implement the budget and deliver on envisaged targets.

On the issue of excise duty exemption to tribal areas, Tarin stated the Parliament has given exemption to these areas and people living there have suffered for the last 30 years. The government would impose restrictions to ensure that goods manufactured in tribal areas should be consumed in those areas.

The imports to tariff areas would only be allowed on payment of full duties and taxes and submission of consumption certificates based on their actual capacity, he added.

Copyright Business Recorder, 2021