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Revenue collection before the budget

The feared shortfall of Rs. 30 billion have disturbed all calculations

From Shamim Ahmed Rizvi,
May 14 - 20, 2001

The budget makers who are working these days on the projections for the financial year 2001-2002 are faced with a difficult situation. The projected increase of over Rs. 100 billion for the current financial year over the last year's actual realisation is nowhere in sight. The original estimate of Rs. 450 billion was first brought down to Rs. 430 billion and then to Rs. 417 billion. Taking the revenue collection made upto April 30, the final figure may not exceed Rs. 400 billion. The feared shortfall of Rs. 30 billion have disturbed all calculations making the task of budget makers still more difficult.

The Chief Executive Gen Pervez Musharraf who attended a briefing on CBR performance in March last and reluctantly approved the second downward revision of revenue estimates had warned the CBR officials that he will not allow any further slippage and the CBR official must ensure to collect at least Rs. 417 billion by June 30. The government has managed to meet the already sustained shortfall in revenues though repeated increase in prices of utilities, extension of GST even on Agriculture inputs like fertilizer etc. and reduction in public sector development. There is a limit and these options will no more be available in the coming financial year. On the contrary, government is committed to reduce the number of taxes, bring down the tax tariff on import and raise the salaries of public servants which has become almost a must in view of the increased cost of living.

The Income tax revision committee has submitted its final report to the Ministry of Finance to incorporate its recommendations in the next year tax proposals. The major recommendation is doubling the exemption limit from Rs. 40,000 to Rs. 80,000. The maximum tax rate is also proposed at 30 per cent from present 35 per cent. The salaried class has a tax exemption up to 50,000 rupees. With the doubling of the tax exemption there will be no tax on individuals who earn up to 80,000 rupees per annum.

The individuals who earn 80,001 rupees to 300,000 rupees will pay 10 per cent as income tax, while from 300,001 rupees to 400,000 of earning there will be 15 per cent tax rate. The profits stretching from 400,001 to 500,000 will pay 20 per cent as income tax while earning from 500,001 rupees to 700,000 rupees will pay 25 per cent as income tax. On profits beyond 700,000 rupees, 30 per cent income tax will be levied.

The committee has recommended to double the penalty for concealment from 100 per cent to 200 per cent. It has, however, asked not to impose any surcharge.

Unlike the measure for individual income tax sector, the committee has recommended against a uniform tax rate for corporate sector. The committee has maintained that a uniform tax rate for banks, public companies and private companies will have adverse effect on revenue collection as the single rate will have to be around the lowest level of 30 per cent. It, however, has suggested to reduce tax for banks from 58 per cent to 50 per cent, for public companies from 34.65 per cent to 30 per cent and for other companies from 45.1 per cent to 40 per cent.

Addressing a seminar on budget 2001-2002 last month, Finance Minister, Shaukat Aziz, had said that broadening of tax base, alongside reduction in the number of taxes will be the main areas of focus for the government while it tailors the next federal budget. He assured the audience that coming year budget would be business friendly and growth oriented.

The onus of debt of Pakistan is too much as compared to its debt retirement capacity. The foreign debt is US $ 36 billion. The amount of local debt is nearly the same. To minimise debt servicing over the country, the government decided to replace old debt with the new debts of low interest. Moratorium, default or rescheduling is not the proper way to get rid off the foreign bad loans, he said. It will damage Pakistan's credibility in the world and will do an everlasting damage to the country.

The Chief Executive Gen. Pervez Musharraf has also directed the budget makers to cut the number of taxes. The number of federal taxes should be kept at the minimum. More emphasis should be on tax collection, catching tax evaders and cleansing the tax collection machinery. He said that he had been told by the experts that the revenue generation could be more than double if the tax evasion is effectively checked and that could be possible only through a corruption free tax collection system.

Federal Minister for Commerce and Industries Abdul Razak Dawood said that under the agreement with IMF and impending World Trade Organisation regime the maximum tariff would be 35 to 30 per cent from July 1. Afterwards the tariffs would be further brought down to 30 to 25 per cent. He said it is an area of great concern and "It depends on how we utilize the tariff reform to give necessary flip to our engineering sector".

Coming from the top level, it all sounds well, but the ground realities do not support these optimistic views. According to CBR sources the government will have to abandon all its plans to reduce the number of taxes and the rate of taxation. Poor receipts, sources said, have discouraged them to cut tax-rate or reduce the tax deduction stages as this would further reduce the desperately required deposits.