Miftah says IMF lending critical to averting default

ISLAMABAD: Finance Minister Miftah Ismail said on Monday the country would be seriously heading towards default if the petroleum and electricity prices were not increased and the agreement with the International Monetary Fund (IMF) was not reached.

He was speaking at “ICAP Post Budget Conference 2022: Pakistan’s Economy –Way Forward” in collaboration with the Southern and Northern Regional Committees of Institute of Chartered Accountants of Pakistan (ICAP).

The conference was held simultaneously in Karachi, Lahore, and Islamabad using RTGS technology and also broadcasted live at ICAP Houses in Faisalabad, Multan and Peshawar.

The minister said that the world perceived Pakistan at a serious default risk and Pakistan Bond is being sold at lesser than 80 cents. He said that other lenders have linked their loans to the IMF programme and during a meeting with him the World Bank has told him in this regard, and the same was also conveyed by the Asian Development Bank (ADB) as well today.

The minister said that $9.5 billion ADB loan is approved but it would not be released if the IMF programme was not signed, adding that the country has to take the right decision; otherwise, it might land into a Sri Lanka-like situation. There was a time when in Sri Lanka everyone was being provided subsides and now, after default, the people over there are facing a tough life. He said that there would be rationing of petrol in Pakistan in July 2022 if right decisions were not taken now.

Miftah says budget hasn’t eased all of IMF concerns

The minister further stated that Pakistan would be in need of $21 billion for repayment in the next fiscal year besides, $12 billion current account deficit and $9 billion for import cover. So the country would be in need of $42 billion in the next fiscal year and arranging this loan would be a big challenge. He said that Pakistan has been generating electricity through coal at a variable cost of Rs30 per kilowatt and was selling at much less price of Rs5-6 per unit. The minister forewarned about high electricity bills for September due to fuel adjustment of June. There is over Rs400 billion circular debt for the ongoing fiscal year. Finance Minister said that there is a disagreement between the IMF and the government on the personal income tax rates, as the PTI government had agreed on unrealistic tax slabs for the salaried class.

The finance minister also referred to higher foreign exchange reserves of India and Bangladesh and deplored that the first thing every prime minister after coming to power had been doing is to seek a package from friendly countries in order to support foreign exchange reserves.

He also mentioned the power sector’s Rs2.5 trillion and gas sector’s Rs1.5 trillion circular debt and stated that in the ongoing fiscal year Rs1.1 trillion have been paid to the power sector.

Addressing the event, Federal Board of Revenue (FBR) Chairman Asim Ahmad said that for the first time, the Finance Bill 2022 is fully focused on direct taxes. The prime minister had issued directives to the FBR to focus on the direct taxes side; therefore, the 75 per cent of the proposals were related to the direct taxes.

Responding to the proposal of the ICAP on admissible exemption, he said that the FBR will discuss the issue of exemption to the ICAP which is a policy decision and also need approval of the Parliament.

He said that the FBR would like to be part of the Tax-Gap Analysis to be conducted by the ICAP. This has not been done by the FBR so far. We have done Tax-GAP analysis from different research associations, but unfortunately the FBR could not initiate the Tax-GAP analysis.

After completion of the budget exercise for 2022-23, the FBR has invited the ICAP to help in simplifying the procedures and returns and reducing the cost of compliance with the help of technology. From next fiscal year we will work together. In this regard, the ICAP should constitute a committee and the FBR will also form a commit to hold fortnightly or quarterly sessions.

The FBR chairman informed that the guiding principles for the budget included taxing real estate/ farm houses/ unutilized land, etc., more emphasis on direct taxes, taxing high-income earners, relief to salaried individuals, tariff rationalisation, higher cost to non-filers, reducing the cost of compliance and consultation with stakeholders.

Prime Minister has asked the FBR to prepare a pro-poor bias budget and also give relief to the salaried individuals.

About the next year’s revenue projections, Asim Ahmad said that the FBR is expecting revenue to the tune of Rs6 to Rs6.1 trillion by the end of current fiscal year. Taking into account the autonomous growth of Rs824 billion and budgetary measures of net Rs355 billion, the FBR’s projected collection for the next fiscal year would be around Rs 7 trillion. Out of this Rs355 billion taxation measures, 75 percent of the proposals are related to the direct taxes, he added.

Ashfaq Yousuf Tola, FCA, President, ICAP, welcomed the chief guest and other important dignitaries attending the conference in the flagship event of Post Budget Conference 2022. ICAP, being a government legislative body played its productive role in the economy of the country. He further said that ICAP is also working on the projects of undocumented and parallel economy, as well as, friendly taxation system.

Wamiq Zuberi, Editor Business Recorder and Group CEO, said that we have to address the fault lines in the economy. All these fault lines have been identified yet year after year we keep putting these under the carpet and keep trying to balance the budget book. These numbers do not hold at the end of the year.

The Constitution of Pakistan says that the federal government cannot do expenditure beyond the four months’ period without approval of the Parliament, but there is no restriction on the federal government for overspending. Every year billions of rupees are overspent and then authorized post facto by the Parliament through supplementary grants. “Nobody talks about them”, he said.

Wamiq Zuberi further stated that the present fiasco we are facing is the product of that we embarked on a high growth trajectory last year without bearing in mind what we are going to do about our foreign reserves. There is a need to address such issues.

The currency devaluation is basically to encourage industrialization. If we maintain or overvalue currency, as we have seen it will discourage industrialization and it favours imports.

Talking about the taxation measures, Wamiq Zuberi said that I have attended many seminars, but never have I seen any mention of the glaring omission in the tax structure, i.e., pensions are not taxed. The reality is that a person’s take home while he or she is in service is less than what the take home is when he/ she retires and gets the pension.

The country’s pension bill is projected at Rs 530 billion and pensions are not taxed. You can imagine the amount of tax we would be getting if pensions were not exempt. It is a classic case of the powerful giving themselves this gift of tax exemption. The ICAP should give recommendation to tax pensions, he added.

Chief Guest of the session, Miftah Ismail, Federal Minister of Finance, speaking on the conference shared his expert views on recent budget. He highlighted the increased pressure imposed by the circular debt and the issues arising from subsidizing the power and gas sector in past years. He also shared the fallouts of subsidizing these commodities, and unsettling the differences, causing a crash in economy. The positive side of the budget includes increased funds for social support and income support programs. He further added, the recent budget also focused on agriculture and exports sector to increase the growth of Pakistan’s GDP.

The Conference began with M Ali Latif, FCA, Chairman Fiscal Laws Committee ICAP, welcoming the speakers, guests and participants. While sharing his thoughts on the Conference, he said, some tough decisions are expected from this budget and the broadening of tax base will be discussed today.

The first session of the conference on Direct Taxation was held in Karachi in which Asif Haroon, FCA, Partner, AF Ferguson & Co, delivered his Keynote address. He discussed the pros and cons of key amendments made in the current budget related to Revenue measures, Real estate, Banking industry, Documentation of economy or Anti- tax avoidance, Individual Taxation, and Procedural amendments. He also highlighted major challenges in rationalization and expansion of tax net.

The first panel discussion was moderated by Taha Khan Baqai, FCA, Director, AF Ferguson & Co. in presence of panelists Hyder Patel, FCA, Partner EY, Aman Ghanchi, Executive Director, Legal & Company Secretary, Unilever Pakistan, Khalid Mahmood, FCA, Partner, KPMG Taseer Hadi & Co. and Asif Haroon, FCA, Partner, AF Ferguson & Co. The panelists shared their common view on recent budget, saying that, government is still unable to tap many potential areas like wholesalers and retailer chains. This may be because of the capacity issues within FBR, as more serious efforts are required to increase this tier tax base. Government should make a unique mechanism to push retailers for becoming filers, instead of just increasing taxations on immovable property. The revenue authorities must bring long-term measures by facilitating foreign direct investments and increasing the tax base, instead of short-term fixtures. The economy is struggling from many years and mostly the taxation targets are already compliant ones.

The second session on Indirect Taxation was conducted from Lahore in which Asim Zulfiqar, FCA, Partner, AF Ferguson & Co, in the Keynote address discussed the exemptions on local supplies including restaurants, exclusion of exemption from VAT on imports of different products, services like travel and telecommunication, reduction in standard tax rate, and exemption of IT and IT enabled services.

The second panel discussion was moderated by M. Ali Latif, FCA, Council Member & Chairman, Fiscal Laws Committee, ICAP, in presence of panellists Naeem Akhtar Sheikh, FCA, Past President, ICAP, Asif Kasbati, FCA, CEO, Kasbati & Co, Adnan Mufti, FCA, Partner, Moore Shekha Mufti Chartered Accountants and Asim Zulfiqar, FCA, Partner, AF Ferguson & Co. The discussion highlighted key budget amendments like increased sales tax on businesses and its desired objectives, provision of CNIC as a mandatory requirement from the industry specific perspective, impact on the yield of farmers from reduction of 5% sales tax in imports of tractors.

The speakers also shared their view on the legal possibilities of discontinuation of Gas and Electricity connections for non-filer consumers, being introduced in the budget clause, as a challenging but important measure to increase the tax net.

Then third session was broadcasted live from Islamabad on Economy & Industry in which Dr. Vaqar Ahmed, Joint Executive Director, Sustainable Development Policy Institute, delivered a Keynote. He presented the macroeconomic outlook of the budget that directly impacts the industry and small enterprises. He also talks about budgetary measures for the industry, sector-wise impacts, consolidating growth dependent upon industrial performance.

The third panel discussion was moderated by Zeeshan Ijaz, FCA, Council Member & Chairman, Economic Advisory Committee, ICAP, in presence of panelists Wamiq Zuberi, CEO Business Recorder Group, Dr. Nadeem ul Haque, Vice Chancellor, Pakistan Institute of Developments Economics, Syed Asad Ali Shah, FCA, Past President, ICAP, and Dr. Vaqar Ahmed, Joint Executive Director, Sustainable Development Policy Institute. The panellists put light on how optimistic is the tax collection target being seven trillion rupees and how it will impact sectors like banking, petroleum and real estate. They also discussed challenges imposed by an agreement with IMF causing arbitrary taxations recurrently. Pakistan economy can only bring back to track if authorities find solutions for ad-hocism in economic policies, cutting expenditures of public sectors, friendly litigation processes, and reducing the tax rates to attract more capital.

Guest of Honour, Asim Ahmad, Chairman, Federal Board of Revenue, Govt. of Pakistan, speaking on the occasion said that this year’s budget will also initiate some productive debates like giving relief to salary individuals. This is first time, when finance bill is focused so much in direct taxes. Finally, Zeeshan Ijaz, FCA, Council Member, ICAP, presented Vote of thanks to all the guests and declared the conference closed.

Copyright Business Recorder, 2022