Fast changing financial position



April 30, 2022

Fast changing financial position

Asrar Raouf describes the existing
financial pressures


To fast changing financial position & begin the process of arresting the economic downturn the new government is taking swift actions including reaching an agreement in principle with the IMF and visiting friendly countries to mend the fractious relations that the previous government caused with a view to seek financial assistance to improve the extremely low foreign exchange reserves that may negatively impact the balance of payment position both in the long and short term. Keeping in view the pressures on the national taxation machinery the government has decided to change the top hierarchy of the Federal Board of Revenue (FBR) so that the increased revenue collection target could be met. The previous government had made a mockery of the top echelons of the FBR particularly of the position of chairman FBR going to the disastrous extent of bringing and ousting six chairmen in a span of three years and seven months enabling each chairman to remain in office just for six months and expecting him to overhaul the organisation and deliver the needful.
In this context, the government has decided to appoint Asim Ahmed as chairman of the FBR, bringing him back to this office and mandating him to undertake the uphill task of collecting a mammoth revenue target of Rs.7 trillion along with preparing the next year’s budget. The appointment of Asim Ahmed is making him the eighth chairman in the last four years. The new chairman will also have to work to end harassment of taxpayers who were subject to undue tax demands. For the ongoing fiscal year, the IMF and Pakistan had agreed on Rs.6.1 trillion tax collection target that now seems impossible due to FBR’s inability to focus on domestic sales tax and income tax collection. The FBR’s sales tax collection at the domestic stage was negative 8% when the inflation rate in Pakistan was 12.7%, highlighting its inefficiency.
The new cabinet decided to remove Dr. Ashfaq Ahmad as chairman FBR who remained in office for eight months and his removal was imminent in the new political setup due to his role in framing a tax case against Justice Qazi Faez Isa, which backfired. Asim Ahmed became the frontrunner after the government considered the names of Nadeem Rizvi and Tariq Huda along with the prime minister having interviewing a few officers of the Pakistan Administrative Service. It is not yet clear whether the new chairman will be given the charge of secretary Revenue Division or not. Asim Ahmad – a grade-21 officer of the Inland Revenue Service (IRS) – had not been given any post after his removal as chairman of the FBR in August last year and it will be the second time that he will be made FBR chairman. Former finance minister Shaukat Tarin had blamed Asim Ahmed for his mishandling of cyber-attack on the FBR’s database though all other characters directly responsible for the protection of database remained untouched instead some of the personnel working in PRAL got promotions and bonuses.
On the other hand, the Fast changing financial position new government is trying hard to restore the good relations with the kingdom of Saudi Arabia and it is conjectured that the prime minister during his current visit is going to request the kingdom to increase the deposits amount from $3 billion to $5 billion and double the Saudi Oil Facility (SOF) from $1.2 billion to $2.4 billion. If approved the total financial assistance facility will be increased to $7.4 billion from the existing $4.2 billion. Pakistan will also make a request to the kingdom for rollover of the existing package of $4.2 billion for one year till June 2023 in order to align it with the IMF programme as Pakistan has already asked the Fund to extend the existing Extended Fund Facility (EFF) for nine months till June 2023 coupled with increasing the size of the programme from $6 billion to $8 billion.
It is already known that Saudi Arabia had already given $3 billion deposits to the State Bank of Pakistan and an oil facility on deferred payment worth $1.2 billion during the tenure of the last PTI-led regime. The deposits were given in December 2021, while the Saudi Oil Facility (SOF) started in March 2022 and so far, $100 million were disbursed. Saudi Arabia had placed stringent conditions with the last package amount of $4.2 billion and linked it to the IMF programme. The kingdom was visibly annoyed with the former prime minister who had no sense of priority and protocol and angered the Saudi royal family by selling the very valuable gift given by them to him. Earlier they brought about a serious indignity to the former PM when he was compelled to vacate the official aircraft of the kingdom midway from his return from America.
Many Fast changing financial position economic observers have pointed out that Pakistan requires $12 billion injection in order to avert the balance of payment crisis and further depletion of the foreign currency reserves. Pakistan will have to seek rollover of $4.3 billion from China, including $2.3 billion commercial loans and remaining $2 billion deposits. Pakistan’s foreign currency reserves held by the State Bank of Pakistan depleted rapidly by $5.5 billion in the last six weeks period and stand at $10.8 billion now. Any further depletion of the foreign reserves could put the country into a crisis so the government is making all-out efforts to get bridge financing from the friendly countries to avoid decrease in the foreign currency reserves till the time of reviving the stalled IMF programme. Pakistan and the IMF had already kick-started number crunching by sharing data and now the IMF review mission was expected to start parleys from the mid of May 2022 for accomplishing the pending Seventh Review and release of the next tranche of $960 million.
The FBR was required to protect information received from the Organisation for Economic Cooperation and Development (OECD) but this information was shared with the Asset Recovery Unit, which framed a case against the Supreme Court judge. In order to give legal cover to this act, the previous government had made changes in the Income Tax Ordinance 2001 by amending Section 216 and deleting Section 198 that dealt with punishment for breach of taxpayers’ information. The action was seemingly aimed at giving protection to the taxmen for illegally sharing the information of a Supreme Court judge with the investigators and also handing over the taxpayers’ data to the National Database and Registration Authority (NADRA). The new management team has stated that during any next legislative opportunity, Section 216 (T) of the Income Tax Ordinance will be withdrawn.
Earlier through an amendment in the tax law, the previous government had allowed the taxmen to share the personal information of the high public officials with National Accountability Bureau (NAB) and other investigation agencies with effect from 2001 though many then questioned the motives of the amendment. It is also mentioned that through another amendment, the Fast changing financial position government had also repealed Section 198 to protect taxmen from the punishment of sharing such classified information. However, the ordinance that deleted Section 198 would lapse on 15 May, which would restore Section 198 and could provide room for the prosecution of those officers who were responsible for the protection of the taxpayers’ information. TW

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Asrar Raouf is a former civil servant


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