Pakistan is facing the worst-ever fiscal deficit with
increasing expenditures and declining revenue collection. The fiscal deficit rose
to its peak at 5 per cent in nine months of the current fiscal year (2018-19),
one of the highest in the decade.
According to official figures released by the Ministry of
Finance early this week, the country’s fiscal deficit went up to Rs. 900
billion which is 2.3 per cent of Gross Domestic Product (GDP). Revenue
collection, however, remained dismal till March 2019 as the Federal Board of
Revenue (FBR) collected just Rs. 3,582 billion which is 9.3 per cent of the
GDP as compared to 10.4 per cent during the corresponding period of previous
fiscal year. Pakistan is still short of Rs 816 billion in the revenue target,
which the government is trying to achieve through a tax amnesty scheme.
Every year the tax collection machinery shows a dismal
performance and the federal government has to revise revenue collection targets
several times during the year. The present PTI government had projected a tax
revenue target of Rs 4,398 billion for the fiscal year 2018-19, which seems to
be a gigantic task before this government. It has made many adjustments in
various targets after coming into power in August last year as well as recent
changes in Finance Bill 2018-19 and its financial team by installing a
private-sector income tax expert as head of the FBR, besides importing its
Finance Ministry’s head Dr. Hafeez Shaikh and State Bank’s Governor Dr. Reza
Baqir.
The total expenditures, however, remained on the higher side
as they touched 14.3 per cent of the GDP in the first nine months of the current
fiscal year. Last year as well, during the corresponding period the total
expenditure remained higher at 14.7 per cent of GDP in nine months.
“Despite less revenue collection, the government expenditure
remains almost the same or higher than the targets in the budget as no
government department is ready to lower their expenditures,” says Muzammil
Islam, a senior economist based in Karachi.
Talking to TNS he says no integrated method
is adopted at the time of budget-making to fix the target for income and
expenditure. “All estimates, thus, prove to be incorrect when we look at the
figures at the end of the fiscal year. Interestingly, the government lowers the
revenue targets during the fiscal year, but it has never lowered its
expenditures.”
According to estimates by the World Bank and IMF, Pakistan
has the potential to collect Rs 8000 billion on account of revenue collection,
but despite fixing its targets at a lower side, the FBR has always failed to
meet its targets.
Similar is the situation in the four provinces where they
have a lot of potentials to raise their revenues through taxation. The provinces
also look for their share in the divisible pool under the National Finance
Commission (NFC) Award, which last adjusted its formula in 2009. Under the 7th
NFC award, the four provinces are collectively entitled to 57.5 per cent from
the divisible pool taxes which also included income tax, wealth tax, capital
value tax, general sales tax (excluding services), customs duties and federal
excise duty.
According to the Constitution of Pakistan, provinces can
collect income tax on agriculture income, general sales tax on services and
duties on properties, besides other levies like motor vehicle tax and stamp
duties, etc.
“Provinces have never bothered to raise their revenues by
exploiting their potential and at the end of the day they complain about fewer
transfers from the federal government,” adds Muzammil.
The present government, in a bid to save the economy’s
downslide, has taken various difficult decisions like allowing drastic
devaluation of the Pakistani rupee, an increase in the discount rate by the State Bank
to 12.25 per cent and an increase in power and gas prices. This has impacted common
people a lot as the inflation rate has touched double digits and prices of almost
all essential items have increased exponentially.
Additionally, the PTI government has also announced a tax
amnesty scheme to whiten the undeclared assets, expenses and sales in order to
generate more revenues. The amnesty scheme 2019 launched through the promulgation
of an Ordinance on May 15 provides the facility to declare black money by paying
lower taxes for the fiscal year that ended on June 30, 2018. The government expects
to generate Rs 200 billion through this scheme.
The tax rate will be 1.5pc for whitening domestic immovable
properties like real estate and for foreign assets, the fair market value will
be determined at the exchange rate prevalent on the date of declaration.
The tax rate on undisclosed sales or supplies will be 2 per cent,
which will also be offered for the first time for bringing undeclared sales
into the tax net. This will cover the sales or supplies chargeable to sales tax
or federal excise duty, which has not been declared or has been under-declared
up to June 30, 2018.
This facility will be available for both individuals and
companies and those who had filed, or not filed, their income tax returns for
the tax year 2018. The filers are offered an option to revise their returns.
This is the second amnesty scheme in a row as last year
former government of PML-N, under the then prime minister Shahid Khaqan Abbasi,
had announced a similar amnesty scheme, which was severely criticised by the
PTI leaders and present Prime Minister Imran Khan. He had termed the amnesty scheme
of April 2018 a shameless attempt by then Prime Minister Abbasi to save
criminals.
It may be noted that the PML-N government led by Mian Nawaz
Sharif had also given three earlier schemes to bring black money into the
mainstream economy in 2013, 2015 and 2016.
“First they steal money and then introduce tax amnesty
schemes,” said Khan at a public rally in Hyderabad on April 6, 2018.
The main slogan of the PTI during the July 2018 election was to
bring back the looted money and utilise it for the development, education and
health sectors of the country. But instead of finding the real defaulters and
even those who did not avail of the previous scheme, the present government has
provided across-the-board amnesty.
“The tax rate of 1.5 per cent on properties is minimal so why
the government cannot easily recover the tax at a normal rate on visible assets
on the ground,” asks Dr. Shahid Hasan Siddiqui, Chairman of the Research Institute
of Islamic Banking and Finances.
Talking to TNS Dr. Siddiqui says the
country is facing a serious external sector crisis and needs foreign exchange,
but instead of focusing on increasing exports, the government is providing
relief to plunderers.
The government has not taken any serious measures to plug
corruption and money laundering. It is doing the same things which the previous
government did for years. Corruption is still a norm in government departments
and there is no relief to the common people. They have lost their jobs as
unemployment is increasing.
Appeared in The News on Sunday, May 26, 2019
