The measures of new taxes and expenditure control announced by the government would create a fiscal space of Rs 210 billion in FY11 and would help stabilise the economy, said Finance Minister Dr Abdul Hafeez Sheikh on Wednesday. Addressing a news conference along with his economic team, the minister said that these measures would also strengthen the confidence of international donors.
The minister said that these steps are designed to put the economy on the path of stabilisation and to achieve growth, reduce inflation and generate employment. He said Rs 120 billion has been saved by slashing development programme and reducing expenditure.
The new taxation measures ie 15 percent surcharge on income tax, 1.5 percent additional special excise duty and withdrawal of exemptions and zero rating would generate Rs 53 billion revenue in the remaining months of the current fiscal year. Additional Rs 33 billion are expected from audit campaign, by bringing wealthy people identified by Nadra into tax net and clearance of cases from the court.
Secretary Finance Dr Waqar Masood claimed that all the institutions including armed forces have positively responded to the exercise of reduction in expenditure. Replying to a question, the finance minister vowed to pursue approval of Reformed General Sales Tax (RGST) from the Parliament to bring the undocumented sector into the tax net. Hafeez said that his efforts would be that reforms programme should continue for stabilisation of the economy by bringing new sectors into the tax net as well as making the wealthy to pay taxes.
In reply to a question he said that ordinances are as good as act of Parliament and the Constitution gives the right to the President to do so. However, he said that this was one-off measure and ordinances would be placed before the Parliament.
About the inflationary impact of the measures, secretary finance said that it would be very nominal in the consumer price basket and would have one or two percent weightage. The minister said that the major factor contributing to inflation was government borrowing from the State Bank of Pakistan which has been reduced significantly to Rs 80 billion from over Rs 300 billion.
Federal Board of Revenue Chairman Salman Siddeque was optimistic that the announced measures would help mobilise Rs 1600 billion revenue for the current fiscal year. He said that normal collection of the FBR would be around Rs 1510 billion and around Rs 90 billion would be generated through new taxation measures as well as through audit campaign and bringing into the tax net those people identified by Nadra. He said an audit campaign of Rs 43 billion has already been initiated and hopefully it would help save Rs 15 billion. In addition, he said that in the current fiscal year Rs 2 billion collection is expected from the people identified by Nadra and around Rs 10 billion from cases worth Rs 122 billion stuck-up in courts.
Secretary Finance Dr Waqar Masood said the budget deficit for the current fiscal year would be contained below 5.5 percent and it would not be allowed to go over 5.5 percent in worst case scenario. Inflation rates have begun to decline and during February 2011 the CPI stood at 12.9 down significantly from 15.7 percent recorded in December 2010.
The external sector has shown extraordinary performance. Exports have increased 26 percent in last eight months. For February 2011, growth in exports stood at historic 46 percent. Exports at this rate are likely to cross $24 billion. Remittances will surpass $11 billion, which will also be historic.