ISLAMABAD: Prime Minister's adviser on Finance and Revenue Dr Abdul Hafeez Shaikh said on Sunday that the government cannot go on with 11 percent tax to Gross Domestic Product (GDP) as the country cannot borrow more.
Speaking at the CPG dialogue: Federal Budget 2020-21, the adviser said that we need to have bipartisan consensus and if not consensus then meeting of the minds on debt, shared understanding of debt accumulation as well as on ever growing salary and pension bill of federal and provincial governments.
Any movement in this direction would be welcomed, he said while responding to Miftah Ismail suggestion for national dialogue to fix the structural imbalances in the economy. He said that public finance management act purpose was to manage expenditure and grant autonomy to the central bank and face criticism. He said that lot of tough decisions has been taken and expenditure was reduced drastically.
The adviser said that pension bill is a big time bomb that is beginning to have impact and we need to address it. We need to better coordinate with the provinces on other areas as well for full response on certain type of issues, added the adviser.
Hafeez Shaikh said that even though revenue requirement is in consideration because the federal government is left with Rs 2000 billion enveloped after transferring provinces share under the National Finance Commission. While cost of debt servicing in the current fiscal year was Rs2700 billion and from day one the federal government starts with negative Rs 700 billion resources, added the adviser.
Of course, he said that there is no remedy of it because it is constitutional arrangement to pay this amount to the provincial governments for good cause to provide facilities to the people of health, municipal services and drinking water etc.
We have decided in the budget 2020-21 that this is not time to be heavy handed on taxes and decided not to introduce or impose new taxes but at the same time decided to provide relief in taxes and eliminate lot of taxes that contribute to cost of doing businesses.
Additionally, he added that the government has aggressively cut its expenditure across the board and there was no increase in military expenditure. He added that the government also reduced subsidies by Rs100 billion for the next fiscal year and Prime Minister has also taken tough decision not to increase the salary of employees.
The government increased the budget was development outlay of the federal government and expressed the hope that funds would be tailored in such a way that labour intensive projects are undertaken for job creation.
The adviser said that there were some failures that run across the governments and the country has failed to integrate the economy globally irrespective of who was in the power, failed to increase exports and created a large structure, tackle the issue of State Owned Enterprises and created structure of government which is siphoning away lot of resources.
He said that no one can predict with certainty about the coronavirus duration, intensity and how many people it would affect as uncertainty inherent in nature of things.
"When this government came in power we were steering at a very bleak economic conditions and evidence of that is that we were forced to go to the IMF's prescription that only one adopts in the times of real stress and resources have to be mobilised, tough decisions had to be taken," he said.
The adviser added that current account deficit was inherited at $20 billion was brought down to $3 billion and exchange rate was allowed to function on the line of more market driven policy and it was stable.
"Primary balance and this is very important for us to know is the difference between government's earning and expenditure was positive and that has hardly happened in Pakistan," added the adviser.
Shaikh further stated that is an indication how aggressively expenditures were managed, no supplementary grant was given, no borrowing was undertaken from the State Bank of Pakistan and it was maintained at positive level by Rs194 billion.
He said during the last five years, before this government, growth rate of exports was zero percent and that had to be reversed and lot of steps were undertaken. He said that revenue was mobilised but not at a point one would say was meeting the ambitious target but was mobilised at the rate of 17 percent despite import compression.
At the same time refunds to the businesses were doubled and Rs250 billion were returned as opposed to last year. FDI was increased by 137 percent and had good rating and appreciation from the board of the IMF and others.
Of course this was all happening while the government was giving the subsidy to export sector in the form of electricity, gas, subsidisation of loans and no tax regime, he said and added that at the same the government decided to support the vulnerable people and social sector programme was doubled from Rs100 billion to Rs190 billion and cash disbursement was made to the poor without any politics and regionalism or any other consideration.
According to some estimates loss to GDP by Corona pandemic could be as high as Rs3 trillion and now Federal Board of Revenue (FBR) is struggling very hard to reach Rs 3900 billion for the current fiscal year.
Similarly, exports and remittance were stuck and government had to respond in limited budgetary constraints and announced stimulus package, build around two components. First component was to provide cash to the people in difficulty and provided Rs 12,000.
Former finance minister Miftah Ismail said that despite massive depreciation of exchange rate the Pakistan Tehreek-e-Insaf government has been unable to increase revenue collection during the first fiscal year and stated that Rs 1050 billion increase in revenue collection seems to be very challenging.
He said that the government should have allocated more funds for development budget to move the wheel of the economy even though if fiscal deficit for the next fiscal year would have been increased.
He suggested the need of have national dialogue across political parties to develop a plan for dealing with the problem of debt and resources mobilisation as well as to fix the structural imbalances of the economy. He said that these issues are not for one government or other but of the country.
Former caretaker finance minister Shamshad Akhtar said that government earmarked 0.2 percent of the stimuli package for health sector on the face of such a huge health crisis following coronavirus. She also underlined the need of developing national consensus on the issue of coronavirus.
Ehsam Malik of Pakistan Business Council said that IMF has prevailed on more points in the budget and 17 percent increase in revenue is unrealistic. Farrukh Khan CEO of Pakistan Stock Exchange said that there is need to address the issue of Capital Gain Tax (CGT) as well as issue of the listing of the new companies facing problem due to judgment of the Sindh High Court.
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