FY2023-24 budget: Govt describes tax exemptions as growth ‘triggers’

KARACHI/ISLAMABAD: Tax exemptions in budget for next year are “triggers” for economic growth but the government is not “doctrinaire” about its spending plans, the finance ministry said on Friday in response to International Monetary Fund concern.

On Thursday, the IMF expressed dissatisfaction with Pakistan’s recently presented budget, a blow for the cash-strapped country which has only two weeks left until its bailout programme expires.

“The tax-exemptions that have been announced in the Budget are “triggers” of growth in the real sectors of economy. This is the sustainable path to provide employment and livelihood to the common citizen. In any case, the amount is fairly small,” a finance ministry statement said.

IMF comes down hard on Pakistan’s budget proposals

Pakistan has barely enough currency reserves to cover one month’s imports. It had hoped to have $1.1 billion of the bailout funds released in November - but the IMF has insisted on a number of conditions before it makes any more disbursements.

The ministry said next year’s budget was not part of discussions on the latest disbursement and that the government was keen to complete those talks and had already taken many “difficult and politically costly decisions in this context”.

The finance ministry argues that the number of new tax payers had increased by 26%, and the application of a 0.6% advance adjustable withholding tax on cash withdrawals over 50,000 rupees would also help broaden the tax base.

It also said pro-poor initiatives in the budget are not limited to the beneficiaries of the Benazir Income Support Scheme (BISP).

On Thursday, the resident IMF representative for Pakistan, Esther Perez Ruiz, told Reuters the long list of new tax expenditures further reduces the fairness of the tax system and undercuts resources needed for vulnerable people in the BISP.

Perez Ruiz said the budget misses an opportunity to broaden the tax base in a more progressive way and the new tax amnesty on bringing dollars into the country runs against the IMF program’s conditionality and governance agenda and creates a damaging precedent.

In its statement, the finance ministry added that it is not “doctrinaire” about any element of next year’s budget and is keenly engaged with the IMF to reach an amicable solution. Reuters

Ministry of Finance issues PR: The Ministry of Finance has reviewed the press statement of the Resident Representative of International Monetary Fund (IMF).

“While we are firmly committed to the IMF Programme, and our negotiations are on-going; however, since some specific issues have been raised in the press, we think that it would be appropriate to clarify our position on these issues.

“Before we go into the specific issues raised in the Press statement it is important to give the context of these talks. The 9th IMF Review was conducted in early February 2023 and GoP completed all technical issues at a fast pace. The only outstanding issue was of external financing which we understand was also amicably resolved in the Prime Minister’s telephonic call of 27th May 2023, with the MD of IMF.

“Though the Budget FY 24 was never a part of the 9th Review, however in line with PM’s commitment to the MD IMF, we shared the Budget numbers with the IMF Mission. And we are continuously engaged with them even on the Budget.

On the specific issues raised by Esther Perez our position is as under:- As far as the broadening of the tax base is concerned, the FBR has added 1,161,000 new tax payers i.e. 26.38% to its tax base in the last 11 months. This is an on-going exercise and will continue. The 0.6% advance adjustable withholding tax on cash withdrawals over Rs. 50,000 is another big step in this direction.

The tax-exemptions that have been announced in the Budget are “triggers” of growth in the real sectors of economy. This is the sustainable path to provide employment and livelihood to the common citizen. In any case, the amount is fairly small.

On BISP allocation, the pro-poor initiatives in the Budget are not limited to BISP beneficiaries whose budget in any case has been increased from 400 to 450 billion. (This was last raised by GoP in Feb 2023 from Rs 350 to Rs 400 Billion). There are millions of vulnerable people above the poverty line and the Budget provides Rs 35 billion for targeted subsidies on five main items of food consumption through the Utility Stores Corporation for families upto a PMT scorecard 40. This facility is also available for BISP beneficiaries.

As far as the “amnesty” is concerned the only change is to “dollarize” the value of an existing provision of I T Ordinance. This facility, which has always been there, is available under section 111(4) of the I T Ordinance. The cap of Rs 10 million (approx. $100,000 equivalent) was introduced in FY 2016. The cap set in FY 2016 is being resolved in terms of Rupee equivalence of $100,000.

GoP is fully committed to the IMF programme and is keen to at least complete the 9th Review. The Coalition Govt has already taken many difficult and politically costly decisions in this context. We are not “doctrinaire” about any element of the Budget FY 24 and are keenly engaged with the IMF to reach an amicable solution.“

Copyright Business Recorder, 2023