ECONOMIC TIMES OF PAKISTAN
Tax collection shortfall widens to PKR 440 bn
The shortfall in tax collection has widened to Rs440 billion in the first eleven months of this fiscal year with only 1percent growth rate, which may push the total collection at the end of the year even below the level left behind by the Pakistan Muslim League-Nawaz (PML-N) government.
The steep shortfall in tax collection has also made the next fiscal year 2019-20’s proposed target of Rs5.550 trillion unrealistic – even before the start of the fiscal year, which will begin from July.
From July through May of fiscal year 2018-19, the Federal Board of Revenue (FBR) has provisionally collected Rs3.31 trillion in taxes as against the target of Rs3.75 trillion for July-May period, according to the FBR officials. It missed the eleven-month target with a record margin of Rs440 billion.
Overall, the revenue collection during the first eleven months was higher by only Rs36 billion or 1percent, which also places a serious question mark over the credibility of the government of Prime Minister Imran Khan. The PM Khan used to blame his arch-rival Nawaz Sharif for poor tax collection.
Due to poor revenue performance, the FBR’s tax-to-GDP ratio is expected to fall close to 10percent – far lower than the 11.6percent of the GDP’s level left behind by the PML-N government.
In its last year in power, the PML-N government had collected Rs3.842 trillion in taxes, which now seems an uphill task for the Pakistan Tehreek-e-Insaf (PTI) government.
The PTI government has introduced two mini budgets in the past ten months to improve revenue collection and boost economic growth. However, neither the tax collection improved nor the economy picked the momentum.
The rate of increase in tax collection for July-May period was far below the nominal Gross Domestic Product (GDP) growth rate of 11percent. The FBR was required to attain 14.5percent growth rate to achieve the annual target of Rs4.4 trillion. During the July-May period of last fiscal year, the FBR had collected Rs3.275 trillion, according to State Bank of Pakistan (SBP) data.
The eleven-month collection was equal to only 75percent of the annual downward revised target of Rs4.4 trillion. Former finance minister Asad Umar told the International Monetary Fund (IMF) that the FBR may pool Rs4.1 trillion. It seems this too will be an uphill task now.
Now the FBR’s internal assessment is that the total collection by end of this fiscal year may slip below Rs3.9 trillion. This is despite the fact that the prime minister has given a tax amnesty scheme by going against his elections promise of even reversing the tax amnesties given by the last PML-N government.
Petrol price more jacked up by Rs4/litre
The government on Friday increased the price of petrol by Rs4.26 per litre for the month of June 2019, following hike in global oil prices and depreciation of the rupee against the dollar.
The Oil and Gas Regulatory Authority (Ogra) had recommended an increase of Rs8.53 per litre or 7.8 per cent. After the increase, petrol will now be available at Rs112.68 per litre price from the earlier Rs108.42 per litre.
It is being said that the people of Punjab would suffer the most from the increase as they had opted for petrol due to high prices of compressed natural gas.
The government has also jacked up the price of high speed diesel (HSD) by Rs4.50 per litre against the proposed Rs8.99 per litre. The HSD price has increased to Rs126.82 per litre as against Rs122.32 per litre.
The HSD is widely used in transport and agriculture sectors. The increase would likely cause a further hike in inflation due to the surge in gas and electricity prices.
The government increased the price of kerosene oil by Rs1.69 per litre in line with the regulator’s proposal. The price of kerosene oil has risen to Rs98.46 per litre as against Rs96.77 per litre. Kerosene is used in those areas where LPG is not available for cooking purposes.
On Ogra’s recommendation of increasing the price of light diesel oil (LDO) by Rs1.68 per litre or 1.7percent, the government approved it. The LDO’s price has increased to Rs88.62 per litre from the earlier Rs86.94 per litre. LDO is used in industry.
The regulator had forwarded the summary of increase in petroleum prices on Thursday and the government passed on the partial increase in prices of petrol and diesel before Eid. At present, the general sales tax (GST) stands at 13 per cent on petrol, 13 per cent on HSD, 17 per cent on kerosene oil and 17 per cent on LDO.
PKR recovers to 148.21 in inter-bank
Pakistani currency dramatically recovered a significant Rs1.42 to Rs148.21 to the US dollar in the inter-bank market on Thursday following the recent massive hike in key interest rate made the rupee attractive.
“Institutions and people are converting dollars into rupees after the rate of return on investment in rupee became attractive as the central bank aggressively increased the key interest rate by 150 basis points to a 91-month (eight-year) high at 12.25percent on May 20,” a leading banker, who spoke on condition of anonymity, told.
“Banks have made record investment of Rs3.1 trillion in three-month treasury-bills in the first auction of government securities after the rate hike,” he recalled. “The cut-off yield (rate of profit) on short-duration T-bills also increased 150 basis points to 12.75percent in the auction.”
Before the latest rate hike, banks’ participation in the three-four T-bills auctions had remained dull, the analyst pointed out the other day. The banks have also aggressively invested in the long-term (three and 10 years) Pakistan Investment Bond (PIB) a couple of days ago, the banker maintained.
The rupee has maintained uptrend for the past six working days (May 23-30). It has regained 2.5percent or Rs3.75 in the last one week to date.
Earlier, the rupee had lost 7.5percent to an all-time low closing at Rs151.95 to the greenback in the latest round of rupee deprecation during May 16-22.
To recall, Pakistan aggressively increased the key interest rate and let the rupee depreciate against the dollar under apparent tough conditions set by the International Monetary Fund (IMF) to award a 39-month long loan worth $6 billion to Pakistan.
IMF set the conditions to fix structural issues in the faltering economy.
The banker added rupee has also strengthened following overseas Pakistani workers sending increased remittances, which usually peak during second half of Ramazan every year.
Head of remittances department at a state-owned bank said workers remittances should be worth around $2 billion during the month of May compared to $1.7 billion received in previous month of April. Thirdly, the drop in international petroleum oil prices has also eased import payment pressure on Pakistan as the country remained net oil imports and almost one-fourth of the total import bills are paid for oil imports. Exchange Companies Association of Pakistan (ECAP) Secretary General Zafar Paracha said the rupee has recovered after Saudi Arabia activated credit line worth $3.2 billion from July to provide petroleum oil to Islamabad on deferred payment during the next three years.
“Remittances increase by 10-15percent in second half of Ramazan,” he estimated. The supply of dollars is increasing in the system as exporters have asked its buyers in overseas markets to make the due payments. Earlier, they had withheld export proceeds with the international buyers in wait for the then expected rupee depreciation. Laws in the place allow exporters to receive payment in 90 days.
Govt to revive PSM by public-private partnership
The government has taken another U-turn in its efforts to resume operations of the sick Pakistan Steel Mills (PSM) and has pressed ahead with the plan of reviving the mill through public-private partnership.
The Economic Coordination Committee (ECC) has decided to put PSM on the privatisation list, but the adviser to prime minister has held meetings with Chinese and Russian companies to initiate the process of reviving the steel mill through public-private partnership.
Earlier, the Sindh government had scuppered a plan of the Pakistan Tehreek-e-Insaf (PTI) administration in the centre to revive the financially troubled and closed PSM by resisting the sale of its land for settling liabilities.
An expert group, formed by the current PTI government and tasked with suggesting ways for reviving PSM, in its report recommended that land assets available with the steel mill could be utilised to settle outstanding liabilities worth Rs206 billion.
The Ministry of Industries and Production had proposed two options to the ECC – putting PSM on the privatisation list and hiring a transaction adviser for bid selection. The economic decision-making body had put the steel mill on privatisation list.
However, the government has started the process of reviving the steel mill through public-private partnership again. In this regard, Adviser to Prime Minister on Commerce Abdul Razak Dawood chaired a meeting on Friday on the revival of PSM.
Representatives of Mercury Group (Tyazhpromexport), REP Holding Russia, TMK Russia (Core Corporation Pvt Ltd), Sinosteel Equipment and Engineering Co Ltd, Essa Corporation (Engineers, Consultants & Suppliers), Karachi and MCC-Donghua Consortium participated in the meeting.
The adviser assured that the government aims to revive PSM on a fast track basis. The government will be rigorous in carving out a plan for the said revival, and the same will be implemented efficiently. The adviser informed the participating companies that the government would keep the whole process of revival of PSM transparent and competitive.
He informed the participants that the government will soon appoint a transactional adviser, who will be entrusted with the responsibility to develop a framework to ensure equal opportunity for potential bidders. The PSM liabilities and different options to settle these liabilities were also discussed.
CM authorises revenue board to collect power duty
Sindh Chief Minister Syed Murad Ali Shah has authorised the Sindh Revenue Board (SRB) that it can collect electricity duty from power distribution companies from the next financial year.
In a meeting held on Friday, Shah approved the appointment of a well-reputed auditor to audit and reconcile accounts of previous years.
The meeting was attended by Energy Minister Imtiaz Shaikh, Principal Secretary to CM Sajid Jamal Abro, Finance Secretary Najam Shah, Energy Secretary Musadiq Khan, Local Government Secretary Khalid Hyder Shah and others.
The chief minister worked out the units that K-Electric billed its consumers in 2015-16 and estimated collection of Rs2.4 billion in electricity duty on behalf of the Sindh government. That amount must have increased in subsequent years “but we have not received a single penny so far”, he said.
He directed the provincial energy minister to appoint an auditor for auditing the accounts of power distribution companies – K-Electric, Hyderabad Electric Supply Company (Hesco) and Sukkur Electric Power Company (Sepco) – in order to assess the amount they had to pay to the Sindh government.
The chief minister also constituted a three-member committee which would hold a meeting with the State Bank of Pakistan governor and request him to direct commercial banks accepting electricity bills to deposit the electricity duty directly in Sindh government’s account.
Meanwhile, the SRB after amendment in its law would deal directly with the power distribution companies.
The chief minister directed the SRB to propose amendment in its law so that it could be authorised to collect, audit and reconcile electricity duty.