While presenting facts about the economy, Prime Minister Shahid Khaqan Abbasi has reportedly acknowledged that the country''s tax revenue is not even enough to finance defence and debt servicing; well-informed sources told Business Recorder. He made these remarks at a federal cabinet meeting held on April 17, 2018 convened to discuss budget strategy papers for 2018-19 and the review of federal budget 2017-18.
"We would be dependent upon foreign funding to finance the rest of the budget components," he said, adding that the value of Pakistan''s exports had come down which showed lack of value addition in our export commodities/products and stressed the need to focus on Pakistan''s exports.
The cabinet members expressed serious annoyance at Finance Minister, Dr Miftah Ismail for slashing development allocations by 33 per cent to Rs 750 billion from Rs 1.001 trillion.
While explaining the overview of budget 2017-2018, the cabinet was apprised that during current financial year 2017-18 the budget deficit for the first nine months stood at 4.1 % of GDP. Primarily there was a proportionate decrease in realization of non-tax revenues and higher expenditure. On the revenue side, major expected shortfalls were projected as follows: tax revenue shortfall amounting to Rs 78 billion, non-receipt of the Coalition Support fund of Rs 127 billion and non-realisation of Gas Infrastructure Development Cess (GIDC) to the tune of Rs 95 billion.
On the expenditure side, an additional expense of Rs 143 billion was incurred on account of pay and pensions, additional requirement of Rs 100 billion for Armed Forces Development Programme, export incentive package of Rs 47 billion and increase in debt services to the tune of Rs 73 billion owing to rupee depreciation.
To cope with this situation and manage the fiscal deficit, some policy interventions were proposed. These were to ensure collection of minimum tax revenue of Rs 3.935 trillion against the target of Rs 4.013 trillion, the PSDP to be contained at Rs 750 billion as compared to the budgeted amount of Rs 1.001 trillion, and generation of provincial governments'' surplus of Rs 256 billion against a budgeted surplus of Rs 347 billion.
The cabinet was also apprised that for the budget year 2018-19, the major goal would be to sustain economic growth of 6.25%, maintain inflation at below 6% and reduce the overall fiscal deficit to 5.3 % of GDP. To achieve these goals, the following budget strategy was proposed: (i) FBR tax revenue target would be fixed at Rs 4.435 trillion, which was proposed to be achieved through a combination of tax measures and improved tax administration; (ii) provinces would be urged to provide budget surplus of 0.3% of GDP; and (iii) budget deficit target would be 5.3% of GDP.
According to sources, during the course of plenary discussion, concerns were shown over the drastic reduction in PSDP from Rs 1.001 trillion to Rs 800 billion for the FY-2018-19. It was pointed out that no reduction would be acceptable to the provinces either. Enhance allocation for PSDP to take the country towards a high growth trajectory was emphasized. It was also argued that FBR tax revenue target to the tune of Rs 4.435 trillion was not realistic and un-achievable.
The revenue target was projected @ of 15% increase in the CFY revenue target. The members of the Cabinet argued that provinces should be taken on board with respect to enhancement of provincial surpluses; they emphasized the need to introduce a rationalized tariff structure for the import of special lithium batteries and DC motor magnets, and proposed reduction in the cost of production in agriculture sector for better gains, as well as measures for arresting the flight of capital. Increase in allocation for sports facilities and enhancement of water storage capacity through budgetary provisions was also proposed by the Cabinet.
The Prime Minister in his concluding remarks agreed to the suggestions floated by the members of the cabinet and vowed that these would be considered by the Finance Division. He pointed out that Pakistan had scarce revenue resources, adding that "our tax revenue was not enough to finance defence and debt servicing expenditures".
The Prime Minister emphasized the importance of control over expenditure along with an increase in tax revenues through the recently announced tax amnesty scheme and widening of tax base with the support of NADRA.