It is an extremely good omen for the country the Clouds still hovering over the economy rupee has rallied against the dollar and has shown some spine. This turnaround has taken place after a long time particularly after putting the economy in doldrums. In wake of the emerging situation the Federal Board of Revenue undertook a massive reshuffle in its ranks shifting 22 senior officers. This move is considered as a measure to revitalise the taxation affairs in the months to come as the IMF has asked for achieving an enhanced target and it would require consolidated cumulative efforts by the FBR personnel. In this context the senior cadre of the FBR would be required to guide the revenue collection efforts.There is hardly any doubt that the laid down target is a massive one but it is also expected that the FBR is capable of achieving it.
The FBR has been revitalised keeping in view the fact that the coalition government wants to iron out difficulties spread in the way of tax collection. As a first step towards this subject the government withdrew the fixed tax for retailers and shopkeepers imposed through electricity bills for a year. This was considered quite a drain by the business community of the country and there was consistent opposition to this measure. Now this measure will cost the government Rs.30bn, quite a hefty amount keeping in view the financial crunch the government finds itself in. After taking this measure the government has to find out avenues for collection of this amount in order to achieve the envisaged budget deficit and primary balance target agreed with the IMF. This step was taken by the financial team of the government after extensive parleys with leaders of trade and industry.
Taking this measure had become a political necessity for the coalition government that is already reeling under the inherited onslaught of inflationary pressures on the economy. This was the reason that both Prime Minister Shehbaz Sharif and Mariam Nawaz advocated taking this step and decided to defer the imposition of fixed tax for retailers for one year. It was however made clear that after three months, the government would sit with traders to devise feasible system and that the previous taxation system would continue for next three months. It was pointed out that the government abolished tax of Rs.3,000 to Rs.10,000 per month which was going to be collected through electricity bills keeping in view consumption of power units.
In this context it must be kept in view that there are millions of retailers working in the country and every government irrespective of political divide including the military regime had failed to bring them into tax net despite making different efforts. Every time different tax schemes were introduced and fixed schemes were brought to lure them but they pressurised the government with the help of shutter down strikes to bow down the governments to withdraw tax schemes. The PMLN considered traders as their constituency so they once again remained able to convince the government to withdraw fixed tax on them. As the government made the fixed tax on retailers and shopkeepers part of Finance Act 2022 so the government would have to introduce ordinance to withdraw this tax and then it would be amended after three months period.The government so has increased primary balance by Rs.60 billion along with two decisions including allocating Rs.30bn funds for PSO to avert its default with the help of supplementary grants and now waiving Rs.30bn through fixed tax for retailers.
It was reported that the senior officials of the FBR believed that they would have to find out avenues including imposing additional taxes to satisfy the IMF. The decision to this effect will be made after analysing the performance of first quarter (July-September) period of the current fiscal year. It must be recollected that the FBR tax collection target has been fixed at Rs.7,470 billion for the current fiscal year and materialising the desired target will depend upon the performance demonstrated by the tax machinery in the first quarter of the current fiscal year. With this measure undertaken it would require extra efforts to achieve the target but FBR is positive that some administrative measures would fill in this gap.
Another difficulty faced by Pakistani finance managers is reported to be the yawning gap in finances required to be fulfilled by Pakistan before obtaining the revival of IMF’s programme. This gap is mentioned to range between $4 billion that apparently was difficult to be met through indigenous resources. However, it is now reported that this additional difference will be met by friendly countries. Discussions in this respect are taking place on various options to secure assurances for $4 billion financing and it is hoped that it will be done this week and it is quietly mentioned that Saudi Arabia will be the first country to arrange the payment. It was also mentioned that Pakistan was also in discussions with China for additional financing.
It is reported with satisfaction that the assurances are now expected to end uncertainty in the markets and put the government and the State Bank of Pakistan on solid footing to manage the current crisis. It is stated that on showing the available financing Pakistan expects that the IMF would convene the board meeting in two weeks. It is also pointed out that Pakistan and IMF already agreed on the Letter of Intent and it would be signed once the financing assurances are formalised. The board meeting will approve a $1.2 billion loan tranche in addition to extending the programme tenure to June next year and increasing the total size to $7 billion. Though it was the joint responsibility of Pakistan and IMF to arrange $4 billion financing but the onus is more on Pakistan because it needs the money but IMF is accordingly assisting in getting these assurances.
In this context it is pointed out that against the estimated $34 billion external financing requirements, Pakistan has already lined up $36 billion and the additional $4 billion demand is for increasing the foreign exchange reserves as IMF insists that Pakistan’s foreign exchange reserves position is uncomfortable and it wants Pakistan to create some extra cushion. The delay in the IMF programme has cost Pakistan a lot of foreign exchange reserves. The reserves, which were $17bn in February, have been depleted by half due to external debt repayments. Moreover, the political uncertainty has also reduced after the government has given a statement that it will complete its term in office. The combination of political uncertainty and the high current account deficit seems to be getting under control which has also helped strengthen the rupee.
Exporters also offloaded their dollars in the market, which led to better inflows and as a result the rupee recovered by a record Rs.10 to a dollar in a single day and closed at Rs.229. The current account deficit will also improve because of the tightening of the monetary policy while the fiscal policy will be further tightened under the IMF programme. It was stated that about half of the reduction in the value of the Pak rupee since December was because of the strengthening of the US dollar against other currencies. The remaining half was because of the high current account deficit and the sentiments about the IMF programme and the political uncertainty. TW