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New budget by mid-June

The next budget would be on broadening the base of tax net

Apr 23 - 29, 2001

Federal Minister for Finance, Mr. Shaukat Aziz, has assured the nation the next year (2001-2002) budget to be announced by mid-June will carry no additional taxation measure. Rather rate of many existing taxes will be reduced.

Addressing a press conference in Islamabad on Thursday the Finance Minister said that the main emphasis in the next budget would be on broadening the base of tax net to engulf the hitherto uncovered areas. At the federal level, Aziz said, the government is considering to reduce the tax burden further, to the possible extent. In this regard, he indicated rationalisation of labour levies and lowering of import tariffs to maximum 30% with 4 slabs. The raw materials would be at the lower end of the scale and the finished goods would be taxed at a higher rate of duty. The minister said there were massive anomalies that are being addressed at the moment.

There are four federal taxes: Income Tax, Sales Tax, Customs Duty and the Central Excise Duty (CED). The government is endeavouring to extend sales tax coverage by replacing it with existing excises. Similarly, the retail sector with minimum threshold of Rs.5 million per annum would be brought under the Value Added mode of sales tax (VAT), and through survey and registration drive new tax payers would be detected.

Shaukat Aziz also announced details of the Survey and revenue collection data for first 9 months of the fiscal 2000-2001. Dr Ashfaq Hasan Khan, Economic Advisor to the Ministry of Finance and Vakil Ahmad Khan Member Central Board of Revenue (CBR) also assisted him. According to the official data, CBR has detected a large number of new taxpayers through the countrywide survey for registration and documentation of the economy, a process, which the minister said, would continue in the coming months with the support of armed forces. He said by close of the fiscal total taxpayers would increase from the current level of 1.9 million to 2 million.

CBR claimed that 27,800 assessment were made during last two months yielding about 53.14% additional revenue than the declared returns. This, according to the minister, was in agreement with the taxpayers.

Vakil stated that the survey had helped the authorities in building a database of 56,800 taxpayers that has been sent to the field offices for better tax compliance. He also said that a Circle Management System had been developed by the CBR to facilitate payment by taxpayers.

According to the official revenue collection statistics, the Revenue Board had collected Rs.276.7 billion (provisional) during first three quarters of the current fiscal year, against the target of Rs.279.3 billion as agreed with the International Monetary Fund. The actual revenue collection during the corresponding period of the last fiscal year was Rs.240.8 billion.

However, the revenue collection target of Rs.140 billion for the last quarter is stiff one. Last year, the actual collection during April-June was Rs.106 billion. Apparently, it looks quite an uphill task for the authorities to meet the required goal of Rs.417 billion, unless some strong efforts are made to liquidate Sales Tax arrears of Rs.30 billion. The minister said that army's help had been sought to achieve this target.

The minister claimed that all other programme benchmarks agreed with the IMF have been fully realized. So, the authorities would seek another waiver on this issue for the release of third tranche of standby loan.

On the crucial issue of the fiscal deficit target, the minister stated that the government would strive to maintain a fiscal discipline by ensuring adequate cuts in its budgetary expenditures both development and current, to make up for revenue slippages. Aziz also said that report of the income tax review committee had been received, and some of its recommendations would be incorporated in the upcoming budget.

He said that this marginal shortfall was defendable in the backdrop of prevailing drought like situation that had lowered the growth forecasts to 3.8% from the original 4.5%.

As far as the industrial growth of first eight months of the current fiscal year is concerned, the official data shows 6.5% growth. The trends of industrial sector growth are extremely positive for last two months, showing 10.8% growth in January and 24.9% in February 2001. The growth in December 2000 was negative 12.3%.

The minister said the government was in close contact with all multilateral and bilateral donors to put together a package for drought relief operation in the country. He said details of this would be announced soon. Finance Ministry, he said, has directed Agriculture Development Bank of Pakistan (ADBP) to extend loans on priority basis for water schemes, land leveling etc., to mitigate sufferings of the people of drought-hit areas.

The minister claimed the government is current on its international debt obligations, and no emergency appeal has been made for balance of payments support as a result of the drought. He hoped that foreign exchange reserves would grow further in the coming days due to no regulatory framework for maintaining reserve requirements under foreign currency deposits (FCDs). He also hoped that the rupee-dollar parity would remain fairly stable at the current levels.

The Finance Minister sounded confident that revised revenue collection target of Rs. 417 billion will be met despite set back in the agriculture sector. It augurs well for the national economy. This rising trend in national revenues should continue by bringing tax-evader into tax net rather raising the rate of taxation. The Finance Minister assurance that there will be no more taxes and the number of taxes will be reduced in the coming budget is welcome. It is however not enough because even the existing taxes have made the common man's life miserable. Periodic increase in electricity and gas charges during the current financial year and linkage of petroleum charges with international (without reducing government levies) the taxation is already on the saturation point. The government should keep the plight of common man in mind. It should also bring some element of equity in the taxation structure. The present taxation system places all the burden on middle and lower middle classes through its reliance on indirect taxes and utility charges for revenue maximization. Even the incidence of the low direct taxes is allowed to be passed on to the general public through the mechanism of withholding and presumptive taxes. When taxes are levied in advance of the accrual of the income, they are included in the cost and passed on to the end-user of the product or the service who actually bears the burden of those taxes. And yet the traditional official perception is that these revenue earnings are a contribution of the middle man the tax assessee. Again, the 15 per cent sales tax is excessive, especially when its sweep is so wide that it covers almost all items of consumption of raw material and machinery and also services. If the government is considering reduction in the rates of some taxes, sales tax should be the first candidate for slashing.