ISLAMABAD: The Institute of Chartered Accountants of Pakistan (ICAP) has prepared a Model Federal Budget (2022-23) to compile recommendations to the government for economic reforms which can help improve future outlook of the country.
An interactive session with journalists was held on Tuesday where President ICAP Ashfaq Yousuf Tola accompanied by Chairman Fiscal Laws Committee M Ali Latif and Chairman Economic Advisory Committee Zeeshan Ijaz informed the journalist that these proposals and recommendations have already been submitted to the government for consideration in new fiscal budget 2022-23.
The Institute of Chartered Accountants of Pakistan (ICAP) initiative of preparing Model Federal Budget 2022-23, along with ICAP proposals for federal and provincial budget 2022-23 and presenting it to the Ministry of Finance is a very praiseworthy professional exercise. With these proposals contributing to the budget-making process, Ministry of Finance will be able to have an understanding of the expectations of different segments of the economy from the next fiscal’s policy.
Tola highlighted that the country made a sound economic recovery from the Covid-19 induced contraction, however we are still facing greater challenges that are creating huge external sector pressures. The trade deficit and current account deficit had already exceeded from their annual targets. There is steep currency devaluation, weaker domestic demand due to monetary tightening and fiscal consolidation and global economic uncertainty. In order to mitigate these challenges, government needs to put in efforts for interest rate controls, emphasis on meeting tax collection targets as well as curb the challenge of mainstreaming parallel economy.
Some of the policy measures are expected to bring in fruitful results for our economy by improving our GDP and controlling the fiscal deficit. Moreover, the Model Budget has been drawn up keeping in view the impact of changing political circumstances, projections for the IMF, post-pandemic measures and global dynamics, he further added.
Tola stated that in the present economic condition which is also affected by global uncertainty and Pakistan’s political turmoil, there is a possibility that the FBR may not be able to reach tax revenue target of Rs 7,500 billion in the next fiscal year. In this scenario, following is the Sensitivity Analysis under two assumptions.
Under the Scenario 1: In case FBR’s tax collection in 2022-23 remains at Rs 7,000 billion instead of the ICAP’s model budget target of Rs 7,500 billion, the projected federal budget deficit would be around Rs 5,496 billion. This would be Rs 200 billion more or 8.22% of GDP in a single year when compared to 7.92% of GDP originally projected in the model budget.
As per scenario 2: If FBR only manages to collect Rs 7,250 billion in 2022-23 which is more likely IMF’s projected target, against the ICAP’s model budget target of Rs 7,500 billion, the budget deficit would swell by Rs 100 billion from the currently projected Rs 5,296 billion to Rs 5,396 billion. In relation to GDP, the budget deficit would be 8.07% compared to 7.92% as projected for 2022-23.
There is an urgent need to tap the potential of these sectors for their optimum contribution towards the National exchequer which will not only remove inequities in the tax regime, but will also provide much-needed additional revenue to the government. Also, fulfilling IMF’s condition of standard GST rate of 17% may prove to be counterproductive and will result in fuel inflation. Accordingly, in order to get rid of the debt burden, the FBR must pursue tax
reforms, explore potential of key sectors which are not a part of any revenue collection, Tola added.
Zeeshan Ijaz, Chairman Economic Advisory Committee stated that in case of Pakistan, whenever, the economy grew by over 5 percent years, the current account slippages resulted in balance of payment crisis and whenever the international commodity prices (primarily oil prices) were around or more than US 100 dollars mark, the twin deficit (fiscal and current) problems emerged for the country and as a result it affected the growth and increased income inequality. As of now also the country needs some economic emergency to steer it out of crises, accordingly, the ICAP has submitted various proposals highlighting major areas of focus including investment in technology both in infrastructure as well as in terms of value addition and innovation, rationalization of subsidies, integration of Islamic banking and financial products at both private and federal dealings and significance of regulation in power and construction sectors.
M Ali Latif, Chairman Fiscal Laws Committee stated that the ICAP has submitted detailed tax proposals to the FBR for consideration in upcoming federal budget. He said that during discussion with the FBR it was agreed that focus should be to broaden the tax base along with Ease of Doing Business instead of increasing the tax rates. He informed that chairman FBR was also apprised on the various measures that can be taken by the tax department to reduce taxpayers’ difficulties and to ease tax compliances by addressing anomalies in direct and indirect tax laws i.e. ICAP has recommended that the FBR web portal should provide the facilities of online filing of the appeal effect applications along with the revised working which will facilitate tax payers.
He informed that chairman FBR had lauded the role of ICAP and thanked the president ICAP and chairman Fiscal Laws Committee for the tax proposals furnished by the Institute. M Ali Latif informed that broadening of tax base measures includes a proposal by the ICAP to government that the housing societies/developers/builders engaged in selling of plots should integrate their systems with the FBR on same mechanism as POS integration and share real time transfer of files/plots. He further stated that the government should seriously consider withdrawal of all discriminatory tax exemptions/ concessions provided in the Second Schedule to the ITO 2001.
He hoped the government would consider integration of federal and provincial revenue authorities across the country in such a way that it provides one window solution to the taxpayers without undermining the existence and independence of each authority.
Copyright Business Recorder, 2022
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