May 27, 2019
The country is under pressure from both the IMF and private sector.
With crucial meetings of the National Economic Council (NEC) and the federal cabinet lined up for the next few days, the government on Sunday firmed up budget proposals, including targets for taxation measures, for 2019-20.
Sources said a meeting presided over by Prime Minister’s Adviser on Finance and Revenue Dr Abdul Hafeez Shaikh discussed various proposals that could create a revenue cushion of about Rs1.45 trillion in the next fiscal year, taking the year’s revenue target to Rs5.55tr from a dismal Rs4.2tr.
There was a general agreement that over Rs700 billion in additional revenue has to come from two areas — sales tax and income tax. The meeting also discussed some proposals for increasing general sales tax by 1 per cent or 1.5pc to yield over Rs350bn.
A member of the Federal Board of Revenue (FBR) underlined the need for reverting to an income tax regime in force before Miftah Ismail’s tenure as finance minister, by reducing exemption levels on income tax and increasing tax rates. (The PML-N’s finance minister had increased income tax exemption to Rs1.2 million from Rs0.4m and drastically reduced rates for all other incomes).
However, a majority of the functionaries did not agree to the proposal for total reversal of the existing regime and said the income tax burden should be kept low for those earning less than Rs10m.
The NEC, led by the prime minister and featuring representations from the provinces, is the country’s highest decision-making body on economic policy and has been called to meet on May 29 (Wednesday) to approve next year’s macroeconomic framework and development programme. A meeting of the cabinet will be held on May 28 to approve a budget strategy paper for the next year whose broad contours would be shared with the NEC.
According to an official statement, it was because of these two high-profile meetings that Dr Shaikh “reviewed the budget proposals”.
FBR chairman Shabbar Zaidi made a presentation about the budget proposals and suggested steps for expanding the tax base in line with the Rs5.55tr revenue target given to him by the government.
Dr Shaikh instructed the FBR to make the tax collection process easy and initiate measures to widen the tax net. The meeting was attended also by Adviser to the PM on Commerce, Textile, Industry, Production and Investment Abdul Razak Dawood and Minister of State for Revenue Hammad Azhar.
The meeting was given to understand that the increase in revenue would come from additional tax measures of about Rs500bn while Rs100bn or so would be generated through widening of the tax base with major contributions coming in the period following the amnesty scheme this year.
The FBR claimed that it could provide about Rs220bn or so through better monitoring and enforcement measures while about Rs520bn would automatically flow on account of the inflation rate of 9pc and 4pc economic growth rate targeted for next year. About Rs200bn would be generated through withdrawal of tax exemptions.
The sources said that recovery of about Rs200bn in arrears through settlement of litigations was not taken into account as a revenue source and would be considered a contingency in case of slippages on any of the abovementioned targets.
Finance Ministry’s spokesman Dr Khaqan Najeeb said in a social media statement that extensive work was under way for finalisation of a budget reflective of the needs of the economy. He said the government was taking all stakeholders on board through consultations and the private sector, including chambers, trade bodies and academia, was being encouraged to share proposals for the budget for 2019-20.
An official said the proposed budget strategy paper estimated the next year’s federal current expenditure at more than Rs6tr, including interest payments of more than Rs2.8tr and normal defence expenditure of about Rs1.28tr, which was more than 16pc higher than the original estimates for this year.
The NEC will consider a seven-point agenda, including a review of the Annual Plan 2018-19 and proposed annual plan for 2019-20 and draft 12th five-year plan (2018-23). The NEC will also review public sector development programme during the current year and approve next year’s development plan.
The government has already reconstituted the 13-member NEC. Besides the prime minister, it includes four federal cabinet members — Dr Shaikh, Mr Dawood, Makhdoom Khusro Bakhtiar and Dr Ishrat Hussain. Every province has two members in the NEC, including the four chief ministers. The other provincial members are Hashim Jawan Bakht, Nisar Ahmad Khuhru, Taimur Saleem Jhagra and Jan Muhammad Jamali.