ECONOMIC TIMES OF PAKISTAN
Government mulls GST hike, tax relief withdrawal
In a bid to collect over Rs2 trillion through sales tax, the government is weighing between walking on an easy path and increasing general sales tax (GST) rate to 18percent or taking politically challenging decision of withdrawing concessional rates being availed by politically connected sectors.
The current sales tax collection is in the range of Rs1.7 trillion and the government is looking for avenues to generate additional over Rs350 billion from sales tax alone in fiscal year 2019-20. If the Federal Board of Revenue (FBR) takes the politically challenging route, the government will have to sacrifice‘sacred cows’ like the textile and steel sectors. One of the budget proposals for fiscal year 2019-20 is to withdraw zero-rating facility being availed by five export-oriented sectors, said source. The FBR also wants to do away with the special sales tax procedure meant for steel sector.
The new FBR Chairman Syed Shabbar Zaidi is aiming at domestic sales of these sectors that according to him have not been fully tapped. The income tax and sales tax payments by the textile sector are paltry compared with the volume of their sales.
The total annual turnover of the textile sector is roughly Rs900 billion but the sector paid only Rs32 billion in income tax and Rs16 billion in sales tax, according to a senior member of the FBR. More than 90percent of the Rs16 billion is paid by handful retail outlets.
PM aide assures renault of resolving challenges
Adviser to Prime Minister on Commerce, Textile and Industry Abdul Razak Dawood has given assurances to the UAE’s Al-Futtaim and French automaker Renault that the government will assist and support them in resolving numerous issues, including the proposed extension in tax exemptions.
Earlier, Renault had asked the government to give additional time for the launch of its vehicles in Pakistan, otherwise, it would quit the market. The new auto policy for 2016-21 has offered benefits to new players, including many tax exemptions, under the Greenfield investment status, if the companies set up local assembly plants before June 2021.
The company was eying other benefits as well, which were offered to the companies setting up their plants in the Special Economic Zones (SEZs) and planning to start production before June 2020.
Govt to cushion domestic power users with Pkr 230 bn subsidy
The government will allocate a subsidy of Rs230 billion in the upcoming budget to protect consumers using 300 or less units each month when it increases the electricity tariff in compliance with the International Monetary Fund (IMF) condition for a bailout package.
“The government has protected domestic consumers who are using up to 300 units per month. They account for 75percent of the total consumers,” Power Minister Omar Ayub Khan said at news conference on Friday.
He added that 95percent commercial consumers had also been protected.
The minister said the National Electric Power Regulatory Authority (Nepra) had sought an increase in the electricity rate by Rs3.84 per unit but the Pakistan Tehreek-e-Insaf (PTI) government only raised it by Rs1.27 per unit.
“The same policy will continue after availing the IMF bailout package and the government will allocate a subsidy of Rs230 billion in the budget.”
About the increase in electricity rates for consumers falling in other categories, the minister said Nepra would determine the tariff.
Government sets growth target at 4pc for fy20
The government has set the economic growth target for its second year in power at a modest 4percent and projected average inflation of 8.5percent, reflecting an unimpressive economic outlook due to the International Monetary Fund (IMF) loan programme.
The per capita income in dollar terms is also expected to remain lower in next fiscal year 2019-20 at around $1,500 due to further currency depreciation compared to the outgoing fiscal year.
The low economic growth target coupled with higher inflation will make it difficult for the government of Prime Minister Imran Khan to implement its plan of creating 10 million jobs and building five million housing units.
The government has also set an ambitious current account deficit target at 3percent of the total national output or $8.2 billion for the next fiscal year, starting July 1. The next fiscal year will coincide with the Pakistan Tehreek-e-Insaf’s (PTI) second year in power.
“The economic growth target for the next fiscal year is 4percent and inflation target is 8.5percent,” said Federal Minister for Planning and Development Makhdoom Khusro Bakhtiar, after a meeting of the Annual Plan Coordination Committee (APCC). The APCC approved on Thursday the macroeconomic framework for fiscal year 2019-20. The plan will now be tabled before the National Economic Council (NEC) – the constitutional body responsible for macroeconomic planning – for its formal endorsement.
PM Imran will chair the NEC meeting while the APCC huddle is headed by the planning minister. The 4percent target is slightly higher than the outgoing fiscal year’s growth rate of 3.3percent. The agriculture sector, which grew 0.8percent in the outgoing fiscal year, is projected to grow 3.5percent in the next fiscal year.
Uplift budget cut by 13pc for fy2019-20
The federal and four provincial governments have proposed nearly Rs1.6 trillion for development spending in next fiscal year, which is lower by Rs227 billion or nearly 13 per cent due to International Monetary Fund-backed fiscal consolidation programme.
The Annual Plan Coordination Committee (APCC) recommended on Thursday Rs1.586-trillion National Development Budget for fiscal year 2019-20 to the National Economic Council. The budgetary allocations for new fiscal year are lowered by Rs227 billion when compared with Rs1.813 trillion original allocations for the outgoing fiscal year.
In an illegal move, Asif Sheikh whose contract was terminated on May 15 after Islamabad High Court declared his appointment illegal, made presentation on the next year’s budget to the APCC. The Planning Ministry last week notified to terminate Sheikh’s contract and his action of sitting in the APCC meeting tantamount to contempt of IHC judgment.
Government to set up 1,000 garment stitching units
In an effort to boost value addition in the garment sector, the Pakistan Tehreek-e-Insaf (PTI) government has revived the project of establishing 1,000 industrial stitching units, which will provide employment and business opportunities to youth of the country.
Though the project was approved by the previous Pakistan Muslim League-Nawaz (PML-N) government, it came to a halt as the previous administration could not earmark funds for the project from the Public Sector Development Programme (PSDP) for the ongoing financial year 2018-19.
However, the present government has endorsed the transfer of funds from the “Research/Holding of Workshops and Technical and Feasibility Studies” programme for the “Establishment of 1,000 Industrial Stitching Units” project to give it a fresh lease of life.
SBP reserves decline $788 mn to stand at $8.06 bn
The foreign exchange reserves held by the central bank shrank 8.9percent on a weekly basis, according to data released by the State Bank of Pakistan (SBP) on Thursday.
Earlier, the reserves had spiralled downwards, falling below the $7-billion mark, which raised concern over Pakistan’s ability to meet its financing requirements. However, financial assistance from the UAE and Saudi Arabia helped shore up the foreign exchange reserves.
On May 17, the foreign currency reserves held by the SBP were recorded at $8,057.6 million, down $788 million compared with $8,845.6 million in the previous week. The decline in reserves was due to external debt servicing and other official payments, the statement added. Overall, liquid foreign currency reserves, held by the country, including net reserves held by banks other than the SBP, stood at $15,126.5 million. Net reserves held by banks amounted to $7,068.9 million.
Pakistan, France ink credit facility deal
Pakistan and France signed a credit facility agreement on Thursday worth €94.01 million (Rs11.7 billion) for the Extension of Water Resources Faisalabad phase-II project.
The agreement was signed by Economic Affairs Division (EAD) Secretary Noor Ahmed, French Ambassador to Pakistan Marc Barety, and French Agency for Development (AFD) Country Director Jacky AMPROU.
Under the agreement AFD would provide a soft loan for the project for a period of 20 years, including a grace period of six years at an interest rate of six-month Euro interbank offered rate (Euribor) with a spread of 52 basis points.
Dr. Hafeez urges us business community to invest in Pakistan
Adviser to Prime Minister on Finance Dr Hafeez Sheikh has urged the business community of the United States to invest in Pakistan and benefit from the country’s “business-friendly environment”.
The development came after US Chargé d’Affaires, Paul W Jones called on PM’s adviser in Islamabad on Thursday .
The adviser briefed the US diplomat about the measures being taken by the government with regards to its commitment towards Financial Action Task Force’s action plan against money laundering and terror financing.
He also apprised the US official about measures being taken by the government for the stabilisation of the economy.
Both the dignitaries discussed bilateral ties and emphasised the need to enhance the scope of cooperation for the mutual benefits of the two countries.
It was agreed to build upon the bilateral relationship based on promotion of private sector and investment.
The US ambassador also congratulated the adviser on assumption of charge and reaffirmed that bilateral economic and commercial relations needed to be strengthened.
Government borrows record pkr 3.1tr in t-bills auction
The Pakistan Tehreek-e-Insaf (PTI) government has borrowed a record Rs3.1 trillion from commercial banks to finance the budget deficit as its revenue collection has remained short of the target so far in the current fiscal year.
The government made the hefty borrowing against the target of Rs600 billion through the auction of treasury bills on Wednesday, according to the State Bank of Pakistan (SBP).
The government borrowed the money for a duration of three months by selling three-month treasury bills to commercial banks at an increased rate of return after the central bank hiked the key interest rate by 1.5 percentage points to a 91-month (eight-year) high at 12.25percent on Monday.