The Advisor to Prime Minister on Finance, Shaukat Tarin, said here on Sunday that no new tax will be imposed in the upcoming budget. However, the government will focus on broadening the tax base, and more sectors would be brought under the tax net, he added. He was speaking at a conference on ''The Economy of Pakistan and the Role of International Monetary Fund'' (IMF), organised by the Institute of Business Administration (IBA) at its City Campus here.
The theme of the conference focused on the role of IMF in shaping Pakistan''s economy, and whether or not the IMF has helped bring about positive changes in the country. The Advisor said that the Federal Board of Revenue (FBR) steps to send notices and seize bank accounts of taxpayer institutions is an act of harassment, which should be ended. "We have issued instructions to FBR to end this exercise", he added.
He said that the government has to spend over Rs 200 billion to bear the losses of PIA, Pakistan Railways, Steel Mills and some other public sector organisations every year. "We could spend this amount on education, health and most importantly to develop our energy sector. We would have no energy crisis this time if we had spent even Rs 1 billion on energy sector in previous years".
He said that at present the country''s tax-to-GDP ratio is only 6 percent, which is very low. "We have to enhance this ratio for sustainable economic growth of the country", he added. Presently there are only 3.4 million tax payers and this figure is very low in the total population of over 160 million people in the country. He said that the previous governments were unable to bring some important sectors under tax net due to lack of political will. The present government has a political will and it will bring more people under the tax net, he said, and added that all people having income will have to pay taxes.
Tarin said that the major problem of the country is revenue. He gave reasons for the problem, which are that considerable revenue earning sectors like agriculture, real estate, services and stock market are not taxed. "I have no problem in saying that we will tax everybody", he said, and added that this is believed to be the key towards movement in the right direction, and there will be steps in the new budget.
He said that the government would bring four important sectors, including agriculture, services, real estate and stocks, under tax net. He announced a nine-point agenda for sustainable economic growth in the country, and after tax collection target the government will take steps for poverty alleviation in the country.
He said that agriculture and manufacturing sectors were neglected by all previous governments and this was the reason that no investment was made in these very important sectors during the last many years.
He said the development of agriculture sector would be one of top priorities of the present government. He said that the government will also pay attention to development of infrastructure. The government will also focus on human element of the country in terms of its healthy, education and safety, he added.
He said that the fifth element is the need of an integrated energy plan. The sad reality is that the country has abundance of resources but is not spending money on it. He said Pakistan has the world''s third largest coal reserves in Thar. "We have planned to generate huge amount of power from these reserves", he said, and added that the Iran-Pakistan gas pipeline will also help the country to overcome the energy crisis.
He said that the sixth plan for development is focus on infrastructure and this is where the role of public-private partnership becomes extremely important because the government has to divert its resources on the soft targets like that of education, health and poverty alleviation. He said that institutions like Railways, PIA, Steel Mills need to be re-engineered.
The seventh element, he said, is to develop capital markets. This includes more capital reforms and even better performance by banks, which need to be innovative and be smarter and more ''arrogant'' in their approach, in particular the larger banks. He said that spread of some big banks is still high and they are not giving more incentives to their customers.
The eighth element is the need for administrative reforms. However, excellent reforms will be of no good without motivation, and the government''s will towards empowerment.
The Advisor to PM said that the government has met its targets in the first two quarters of the current year to bring the country back on track. The IMF borrowing in 2008 has helped to reduce fiscal deficit and independence from SBP. The fiscal target is being met and workers'' remittances are holding and forex reserves have improved and are nearly $8 billion now, he added.
Shaukat Tarin said that the government clearly has to start focusing on growth now and in the quest of that a three-year budgetary framework is now being prepared, instead of just an annual budget, so that the government can prepare at least a middle-term action plan.
He said that the macro economic indicators of the country have starting improving. The inflation has declined to 17 percent, and hopefully it would further reduce to 13 percent by the end of June this year. The government has set its target to reduce the inflation to single digit figure next year, he added.
He said that the government has returned Rs 200 billion borrowed from the State Bank of Pakistan, and fresh government borrowing from the central bank has also reduced significantly. "The country''s forex reserves are now stable, and we are seeing some stability in the exchange rates", he added. Giving reasons for IMF programme, he said that the government did not want to go to IMF for financial support. "We would like to re-pay and be free of the IMF programme", he said. He said that IMF is the lender of last resort and helps achieve short-term stabilisation.
He said that the government decided to go to IMF in 2008 because it had decided to remove subsidies, reduce fiscal deficit, to restrict borrowing from SBP, and to increase the tax-to-GDP ratio. However, IMF''s demand to increase the interest rate was negotiated upon, because the interest rate was already 4 percent higher than the discount rate.
However, he said that the economic crisis forced the government to go to IMF to fulfil its foreign obligations. The prices of oil and other commodities had increased in the international markets and the country was facing a default-like situation. The economy was victim of geopolitical situation. Fiscal deficit and current account deficit had increased. International financial crisis also affected the country''s economy negatively. Some other factors, including war on terror, also affected the country''s economic growth during the last many years.
In his address, Dr Ishrat Hussain, Dean and Director of IBA and former Governor of SBP, said that the IMF help is sought when an economy is in an unbalanced situation and in a crisis. The IMF is invited to avert the crisis and to provide immediate relief.
He said that Pakistan has been able to meet all targets of the IMF and has also politely declined to comply with the last two tranches because it was recovering. Pakistan is the only country that has graduated with the IMF loans to participate in the international financial markets, he added.
In the second session of the conference, Qazi Masood, Senior Faculty IBA, presented his views on fiscal policy; Sakib Sherani, Chief Economist, RBS on monetary policy; and Riaz Riazuddin, Economic Advisor SBP on exchange rate policy. Adnan Afridi, MD, Karachi Stock Exchange, also gave his presentation on capital markets, and Sayem Ali, Country Economist, Standard Chartered Bank, spoke on ''Economist'' in the last session of the conference.
The professional opinion on the IMF is highly conflicting. On the one hand, the IMF is considered as an economic messiah, helping countries suffering from financial crisis stabilise their economies through a set of economic and financial policies that aid development. On the other, the IMF is accused to forcing countries, particularly poor developing countries, into taking loans from various agencies such as the World Bank, causing them to incur higher and higher sovereign debt.
In November 2008, Pakistan entered into such a programme with the IMF. The programme implements various economic policies that aim at reducing inflation and government spending so as to prevent an economic crisis. Part of the programme is the Standby Arrangement, under which the IMF will provide Pakistan with $7.6 billion in a series of fixed payments over five years. Each payment will be made depending on how successful the country is in meeting the goals and targets for various economic indicators the IMF prescribes. The first payment has been made and Pakistan has met all the necessary targets, and the second phase is currently underway.
Since November, the old debate on the IMF has resurfaced and serious concerns exist on how the programme will impact the economy. Some fear the situation will seriously worsen, while others are more optimistic.