SBP amendment bill: Some cabinet members too show unease

ISLAMABAD: Following in the footsteps of opposition parties and renowned economists, some members of the Federal Cabinet have also portrayed the SBP (Amendment) Bill 2021 as surrendering the country’s economic sovereignty, saying it would create a state within state.

The Cabinet members raised their concerns on the SBP (Amendment) Bill in presence of Prime Minister Imran Khan during the Cabinet meeting held on December 30, 2021.

Official documents, seen by Business Recorder, reveal that the State Bank of Pakistan (Amendment) Bill 2021 came under discussion and some of the members fretted that the proposed lawmaking would create a state within the state, and that it was tantamount to surrendering the country’s economic sovereignty.

Fears were also expressed on increase in the cost of borrowing by the government. Dispelling the aspersions, mainly being cast by the opposition, the Minister for Finance & Revenue Shaukat Tarin clarified that the previous regimes kept interfering in the matters of the central bank and frequently resorted to rampant borrowing from the SBP, which entailed unbridled printing of money.

This, he underscored, increased inflation and was unsustainable. He said the manifesto of incumbent government is to strengthen the institutions by making them more independent.

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The Revenue Division informed the Cabinet that during the tenure of the current government, far-reaching structural and administrative reforms had been initiated to achieve economic and financial stability through inclusive and sustainable economic growth. Federal Board of Revenue (FBR) was committed to achieve tax reforms with the assistance of development partners. The basic purpose of reforms was to follow the ideal principles of taxation and remove distortions in tax system.

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Despite global pandemic and its adverse implications for the economy the proactive policies of the government coupled with the timely and well thought out interventions during the current financial year, FBR had collected net revenue of Rs 2320 billion during the period July-Nov against the target Rs 2,016 billion.

The budgetary proposals included in the Finance (Supplementary) Bill 2021 had been formulated to provide legislative effect to the reforms undertaken with the support of development partners. The proposals were geared towards achieving efficiency and equity in the tax system through removal of distortions, broadening of tax base and documentation of economy. Based on these principles, proposals relating to direct and indirect taxes had been formulated.

Approval of the Cabinet was solicited to the proposals contained in para 3 of the Summary (with the annexes) and for presenting the Finance (Supplementary) Bill 2021 which had been prepared to give legal effect to proposals, before the parliament. The proposed Bill had been duly vetted by the Law and Justice Division.

The Cabinet was informed that economy performed better than expectations; after a dip of 0.5 per cent per annum GDP growth of 4 per cent was achieved. Tax collection exceeded the targets, reserves improved, and current account reported a very small deficit in 2020-21.

Economic outlook and challenges: going forward, expect the growth to stay at 5 per cent, exports of goods to reach $ 31billion & IT to $ 3billion, remittances $ 32billion, taxes Rs, 6,000 billion. Recent pressures on current account were due to international commodity prices but risks were receding as prices come down and our import of food & vaccines go down. This would also bring down inflation and reduce pressure on the Rupee. The current Afghan situation had also impacted on the foreign exchange situation of the country. Significant policy steps had been taken to stop currency smuggling and other slippages.

Headwinds due to international commodity prices & Afghanistan situation: This was affecting all the countries of the world. This had increased current account deficit and inflation in Pakistan. As the prices come down at the international level, CAD will come down. In 3-4 months Pakistan would have normal growth with moderate inflation and current account deficit.

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The Chairman FBR presented the salient features of the Bill emphasizing the importance of GST reforms.

Salient features of the presentation were as follows: IMF demanded withdrawal of Rs 700 billion of tax exemptions and 1 per cent GST across the board. However, FBR managed to negotiate tax exemptions worth Rs 343 billion and managed to defend productive sectors and marginalized sectors of society.

During discussion, the Cabinet members raised various issues regarding impact on pharmaceutical sector, as well as, plant and machinery. Concerns were also expressed on inflationary pressures that would be caused due to withdrawal of GST exemptions.

Finance Minister explained the dynamics of these withdrawals and assured the Cabinet that the inflationary impact will be kept to a minimum, and instead due to adjustment of inputs on account of utilities and packaging material, etc., the prices of pharmaceutical products shall come down. Similarly, adjustment/ refund were available on any input paid on plant and machinery.

In response to apprehensions expressed by the Minister for IT & Telecom regarding increase in advance tax on cellular services, the Minister for Finance explained that this increase was necessary to cover the revenue loss due to stay on Federal Excise Duty on mobile phone calls. Considering the importance of IT & Telecom sector for sustainable growth of the economy, a member suggested that a Committee should be constituted to holistically review the taxation regime and incentives in the technology sector.

It was inquired as to whether the recommendations of the cabinet committee for disposal of cases (CCLC) had been included in the State Bank of Pakistan (Amendment) Bill, 2021. The Secretary, Finance Division, confirmed that the changes directed by the CCLC were duly incorporated in the Bill, prior to its ratification by the cabinet and submission to the parliament and this had also been confirmed in writing to the cabinet. Furthermore, the reports/ information sought by the CCLC were also furnished to the Committee.

Copyright Business Recorder, 2021