Asrar Raouf describes the ebbs and flows of the national economy
The political instability in the country has exerted tremendous pressure on the national pressures faced by the economy and coupled with rising inflation the economic downturn has shown no signs of abating. The issue of widespread devastation caused by the unprecedented floods has also added to the worries of the economic planners of the country who are facing the uphill task of countering the myriad difficulties in this respect. Though the coalition government appears to be successful in obtaining loans from many international donors but still the amount required to keep the national economy afloat is quite large and may require additional funding to bridge the gap. The problem also is of the paucity of time as many payments are required to be met in certain time frame and it may not be possible to delay them. This implies that Pakistan would be constrained to revert to the indigenous sources of raising finances and may have to resort to devise measures that may prove politically unpopular.
In this context, the coalition government may bring about a kind of a mini-budget that may include imposing taxes on duty free imports and raising customs duty aimed at collecting revenue to the tune of Rs.60 billion. In addition the government may also impose 17 per cent sales tax on high grade petrol. Imposition of 17% sales tax on high octane blending component (HOBC) was at an advanced stage, aimed at collecting Rs.6 billion in the remaining period of current fiscal year. The government is already charging a tax of Rs.50 per litre on HOBC and motor spirit (petrol). The cost of HOBC (97 octane) is higher by Rs.45 per litre than the 92-octane petrol. In this respect, the IMF has asked Pakistan to impose 17% sales tax on petroleum products in addition to the Rs.50 per litre levy. These measures may also include a reduction in the regulatory duty to allow imports aimed at compensating for the revenue loss.
These worries arose due to the fact that the FBR was unable to achieve its October tax collection target of Rs.534 billion, falling short by Rs.22 billion, primarily because of contraction in imports. The monthly goal was missed despite 15% growth in collection over tax receipts of Rs.445 billion in October last year. However, the Inland Revenue Service (IRS) exceeded its July-October target, partially offsetting the low collection by the Customs Department. The collection of customs duty, which was the cornerstone of FBR’s performance earlier, remained below target for the fourth consecutive month in October. Against the four-month target of Rs.343 billion, the FBR collected Rs.302 billion in customs duty – a gap of Rs.41 billion. It was mainly due to the import restrictions as the duty collection on imports dropped by 10% in rupee terms despite appreciation of the greenback. The government has set customs duty collection target of Rs.1.150 trillion, which may be missed by Rs.100 billion in the current fiscal year.
On the other hand, the IMF has given no firm schedule for the completion of the pending 9th review though the fund would continue engagement with Pakistani authorities for providing relief to flood-affected people while ensuring sustainable policies. It clearly indicates that the IMF so far seems reluctant to finalize any firm schedule for holding parleys for the completion of the 9th review and release of next tranche to the tune of around $1 billion. It also implies that the political uncertainty in the country has restrained the IMF to go for resuming parley and the fund has decided to follow the policy of wait and see. The IMF has so far expressed its concerns over fiscal framework and raised questions about missing of tax and non-tax collection targets as well as exceeding expenditure heads so the budget deficit and primary deficit are projected to be beached with margins. Some kind of revision in fiscal framework in shape of exploring possibility of presenting a mini-budget is still under discussion while Pakistani authorities argued that they would be able to materialize both tax and non-tax collection targets in the current fiscal year.
By the look of it the IMF is quite uncomfortable with the notion that Pakistani government will be able to materialize its envisaged target on account of the Petroleum Development Levy (PDL) as so far the government could fetch Rs.47 billion in the first quarter (July-Sept) period against the desired target of Rs.855 billion for the whole financial year. With existing pace, the government could collect a maximum of Rs.200 billion and by jacking up the PDL, it could go up to Rs.300 billion to Rs.350 billion. At any cost, there is a possibility of shortfall in the range of Rs.500 billion. On the other hand, the official circles have informed the IMF that they have re-calculated the non-tax revenue target and the SBP profit could fetch an additional funding by Rs.71 billion as now the government was eyeing to collect Rs.371 billion against the earlier envisaged target of Rs.300 billion through SBP profits. In addition the government has also intimated the IMF that it may also miss its desired target of Rs.7,470 billion and it may have to take additional measures to increase tax to the GDP ratio in the current fiscal year. In this context it is also reported that the IMF expressed concerns over an agriculture package and energy subsidy announced for five export-oriented industries for the current fiscal year and termed it unsustainable for the struggling economy of Pakistan.
The shortfall experienced in receiving tax return forms has caused serious concerns compelling the FBR to consider introducing a simplified tax return form, probably in Urdu, for bringing at least 0.6 million retailers into the tax net during the current fiscal year. Out of a total of 3.6 million commercial electricity connections, the FBR has estimated that there are around 2.3 million retailers, while the remaining 1.3 million are service providers such as tailors, barber shops and beauty parlours in the country. Out of 2.3 million commercial connections of electricity around 2 million retailers must be brought into the tax net. However, all schemes introduced by the FBR in the last 30 years had failed to achieve the desired results. The government has committed to the IMF for bringing 300,000 new potential taxpayers into the tax net. So far, the FBR received a poor response as it has secured only 2.5 million income tax returns till 31 October, 2022 against the returns of 3.5 million it received in the last financial year. This means that the percentage of received returns has fallen by 28.6 per cent.
In a major development, the federal government and central bank have decided to limit the amount of foreign currency purchased per person and capped the outflow of remittances to $50,000 annually, aimed at reducing the speculations-driven high dollar value in the open market. It has also been decided that the Federal Investigation Agency (FIA) will be used against those foreign currency dealers involved in speculative currency trading. It has been decided that that per day currency purchase and outward remittance limit has also been cut by half, to $5,000 with a maximum annual cap at $50,000. TW