The government on Tuesday linked its readiness for a 'charter of economy' with the opposition if the latter shows its willingness for tough economic decisions to break the cycle of the country's dependence on international lending agencies.
Winding up the debate on Budget 2019-20, State Minister for Revenue Hammad Azhar said that the country's economy is facing some basic issues and needs some tough decisions and "if the opposition leader is serious about it, we will welcome his offer."
He said that Pakistan Tehreek-e-Insaf (PTI) government has taken serious measures to remove the structural flaws in the economy, which were not addressed by previous governments, especially during the last ten years.
He said that in the previous two years, the stability of economy and national interests were put at stake for petty political gains. He said that the gas sector is facing a Rs 150 billion loss while circular debt reached Rs 453 billion, ballooning it to over Rs 1,100 billion.
He said losses of state-owned enterprises reached Rs 423.5 billion, adding, "When we took over in 2018, there were only $6 billion foreign exchange reserves." He said the previous government widened current account deficit and crippled the economy. It decreased the foreign exchange reserves to $9 billion from $19 billion in a year. He said that the previous government of PML-N left behind a deficit of Rs 2,300 billion in the last budget.
"The economy of Pakistan had been paralysed [by the previous government] by taking current account deficit to $20 billion, which forced the IMF, in March 2018, to say it is concerned how the PML-N government will be able to return our loans within 5 months," he added.
Azhar said that after the IMF expressed concern, the then finance minister Ishaq Dar had to say that the "upcoming government had no option but to approach the IMF for a bailout package in advance."
"Pakistan was about to default as we'd only two weeks foreign exchange reserves while current account deficit was increasing by 50 per cent per year, which we reduced by 30 per cent in nine months, and trade deficit had been doubled which we reduced by $4 billion in eight months," he added.
He said that $9 billion was borrowed from friendly countries, while Qatar has also pledged $3 billion. About rising inflation, he said that inflation was 24.5 per cent and over 11 per cent in first nine months of PPP and PML-JN, respectively, while it is 9 per cent in the PTI's first nine months, which is too high as it should be around 5 per cent.
He said that interest rate has been jacked up temporarily, which will be reduced gradually. "When you borrow too much from SBP [State Bank of Pakistan], you have to print [currency] notes, which increases inflation, so now we have announced not to borrow from SBP. In last ten years, Pakistan's debt-to-GDP has constantly increased especially in ten years. We've explained our economic plan in this budget and in the long-term, debt-to-GDP ratio will come down," he declared.
Azhar said that tax to GDP ratio will be enhanced by 3-4 per cent in the next four to five years by taking effective enforcement measures, policy changes in tax laws and documentation of economy.
"There are misperceptions on certain issues in the budget. No additional tax has been imposed on flour and ghee, but tax has been increased on sugar from 11 per cent to 17 per cent which will translate into three rupees per kilogram increase at retail level," he added.
He said last year, the rate of sugarcane was Rs 150 per maund which is now Rs 180 per maund and overall Rs 37 billion more has been paid to sugarcane farmers. He said new laws were also introduced this year to check tax evasion by sugar mills. He also clarified that there has been no tax on fruits and vegetables as tax is imposed only on imported fruits, vegetables and processed meat.
Azhar said the exports volume has increased in first ten months of this government. He said the work on housing project is ongoing and it will create millions of jobs. He said Kamyab Jawan Programme will give loans of Rs 100 billion to the youth to help them start their own businesses.
He said Ehsaas programme is a social welfare programme of the PTI government for which additional Rs 90 billion has been earmarked. He said Rs 217 billion has been allocated for subsidy on electricity, adding this will benefit the 75 per cent ordinary consumers.
He said that spending under Public Sector Development Programme (PSDP) has been increased to Rs 950 billion this year and there is no cut on this programme.
Azhar said education is a provincial subject but the federal government makes sizeable allocations in higher education, adding actual expenditure in the education sector has been increased by 35 percent and Rs 14 billion has been especially allocated for knowledge economy. "Health budget has been increased from Rs 8 billion to Rs 13 billion," he added. He said PM House's expenditure has been reduced from Rs 980 million to Rs 670 million.
About austerity drive, he said five percent reduction has been made in civil government expenses. The military budget has been frozen and ten percent deduction has been made in the salaries of members of the Parliament. On circular debt, he said it will be brought down gradually while revenue in power sector has increased by Rs 82 billion.
He said Rs 152 billion has been earmarked for FATA and Rs 1,000 billion will be provided to erstwhile FATA over the next 10 years. He said Rs 45 billion has been allocated for nine projects in Karachi. He said that with the cooperation of provinces, the federal government will spend Rs 280 billion on agriculture sector in five years.
He said zero-rating on five export-oriented industries has been abolished to streamline this sector, as it will not impact the exporters who export their products abroad. He said tax refunds will be made and all obstacles in this regard will be removed.
He said flat rate of electricity for tube wells in Balochistan has been maintained to facilitate farmers in the province. He said the government has continued subsidy on gas and electricity for textile sector. He said customs duty on 1650 items has been slashed from three percent to zero.
He admitted that tax target of Rs 5,550 billion is high, but the size of national economy demands it to be Rs 8,000 billion. He said property rates were revised in order to streamline this important sector of the economy by bringing these rates closer to market rates.
Giving details about the government decisions, he said the tax on tobacco has been slashed from Rs 300 to Rs 10. He said the money generated from the taxes on tobacco will be spent in health sector.
He said the capital gain tax on mutual fund industry has been reduced from 25 to 15 percent. He said there will be no need to present NIC number on transaction of less than Rs 50,000. It has been decided not to conduct raids on houses for recovery of hidden assets including currency, jewellery and bonds. He said that no income tax commissioner will be allowed to conduct raid on the residences of people to get jewellery and dollars.
He said a mobile app is being developed to simplify taxation system through which a person can easily submit his tax returns without seeking any help from a lawyer.