. .



This will be the third downward revision originally fixed at Rs. 457 billion

From SHAMIM AHMED RIZVI
Islamabad
April 01 - 07, 2002

Pakistan has signed a letter of intent (LOI) extended by the International Monetary Fund (IMF) seeking waiver in certain economic targets set for the current financial year to enable it to receive $109 million tranche under medium term Poverty Reduction Growth Facility (PRGF) due by end March 2002.

The LOI will be presented before the IMF Board of Director for approval. According to the sources in the IMF resident mission the request would be approved and Pakistan is almost sure to receive the due instalment during first week of April.

Pakistan has sought waiver in revenue collection target as the CBR has failed to achieve the already agreed target of Rs. 429.9 billion. Now the target is being reduced to Rs. 414 billion for the current fiscal year. This will be the third downward revision in revenue collection target which was originally fixed at Rs. 457 billion.

Pakistan decided to increase fiscal deficit target in current fiscal year from 5.3 per cent to 5.7 per cent-and Islamabad also sought waiver in achieving this target from the IMF's Board also sought waiver in achieving this target form the IMF's Board of Directors. The government has taken decision to go ahead with upward revision in fiscal deficit target mainly due to hike in its defence spendings this year as Pakistan had to mobilise its entire army to plug the infiltration of Al-Qaeda fighters into Pakistan. On its eastern border as well, Pakistan had to deploy its forces following tension with India.

The IMF has taken into consideration Pakistan's problem keeping in view the prevailing stand-off along with eastern borders and the Fund's Board will provide waiver in fiscal deficit target," the official was of the view. The upward revision in fiscal deficit target means that now Pakistan and the IMF are willing for fiscal deficit to be around Rs 212 billion from earlier target of Rs. 187 billion set for ongoing fiscal year.

"The IMF has appreciated government's efforts to increase foreign exchange reserves that would touch US$ six billion by end of current fiscal year," the official said. The IMF has already indicated that it would only allow Pakistan to increase fiscal deficit target up to level of 6 per cent if Islamabad decided to spend more money only on social sector.

True to their tradition the CBR has come out with an explanation for the revenue shortfall of over Rs. 40 billion because of decline in imports from Sept. 11 event depriving them of import duties. Even during the last financial year when there was no Sept. 11 the revenue target was originally fixed at Rs. 450 billion then revised to Rs. 417 billion against the actual collection of about Rs 400 billion. The CBR officials assured the Chief Executive, in a meeting called by him to know the causes of shortfall, that the revenue collection will increase to Rs. 550 billion as a result impact of tax survey and documentation of economy during which CBR has dedected massive tax evasion.

The authorities sounded so confident that they made CE to believe that revenue generation could be increased to Rs. 550 billion for the year 2001-2002 when the tax survey exercise would be completed throughout the country. According to the CBR the initial survey of the first 13 big cities which was completed by end 2000 had revealed massive tax evasion and the optimism that revenue generation could be increased to Rs. 600 billion during the next 2 years (during which period all tax evaders will be brought into tax net) was fully justified. A senior member of CBR said, we never thought tax evasion was of that high level. Now there should be no problem in adding Rs. 100 billion to the national revenues during the current financial year."

Sounding more them confident the Finance Minister also said that we will no only achieve but exceed the target fixed. Expressing confidence that country is headed in the right direction Aziz said that "the entire government machinery will be dedicated to meeting the target set in the budget. He said that "the way to look at the targets is not to look at the year to year increase only but to see the tax collection percentage of GDP. In the developed countries its 30 to 40 per cent of GDP, we only have 13 per cent. The developing countries average ranges between 18, 20 or 22 per cent of GDP".

The former Chairman CBR in an interview to this correspondent in Aug 2001 said that Scrutiny of the forms already received by the tax authorities reveal that more than half of the taxable income earning population of posh localities of 13 major cities have never filed a tax return, "We never thought tax evasion was of that high level. In such a situation there should be no problem in adding Rs. 100 billion to the national revenues during the current financial year, he confidently said.

President Musharraf has been frequently calling the meetings of officials of CBR and Ministry of Finance to check the position of revenue collection month wise. This had a positive impact on all concerned. But after Sept. 11 events followed by serious developments in the region could not keep this schedule. It is, however, high time that he spares some time to call a meeting and take all those to task who had been painting a rosy picture before him. Decline in the volume of imports alone cannot possibly cause such a high dent in the revenue generation. What is worth finding is the fact as to what happened to massive tax evasion CBR had detected and the positive impact" of tax survey and documentation of economy exercises.