PRE-BUDGET PREPARATIONS

Hoping to cut the number of taxes and rules broadening the tax base and arranging more funds for development

From SHAMIM AHMED RIZVI,
Islamabad

Mar 08 - 14, 2004

The Finance Minister Shaukat Aziz told newsmen in Islamabad last week that the budget for the next financial year will focus on investment and all necessary steps would be taken to achieve this basic objective including the revision of tariff structure with particular reference to smuggling prone items.

The Finance Ministry has kicked off the federal budget 2004-5 exercise hoping to cut the number of taxes and rules broadening the tax base and arranging more funds for development and poverty alleviation programme.

At a special press briefing, the Finance Minister described the erntours of the next budget. He declared that the next budget would be investment-oriented for which the process of consultation with stakeholders has already been initiated. All Ministries, chambers of commerce, trade bodies, civil society organizations and other sectors have been formally asked to send their proposals directly or through press. Discussion and consultations would be held at all the provincial and federal capitals afterward.

The Finance Minister disclosed that the government will review the existing import tariff structure before the budget with a view to further curtailing the rate of taxation specially on smuggling prone items. The government was determined to curb smuggling and in his view the best way to fight smuggling was through tariff reduction.

He also announced draft sales tax and customs rules to automate the system on modern lines, with the introduction of green, red and yellow categories of recipients. Pakistan reduced the maximum customs tariff rate of 30 percent to 25 percent in July 2002, and number of slabs were restricted to four, including 25, 20, 10 and 5 percent rate structure.

The collection of customs duty has increased by 44 percent during first seven months of the current fiscal year, from Rs. 33.6 billion to 48.4 billion, despite a reduction in the effective rate of duties. Higher levels of import, showing over 16 percent increase, helped both customs duty and import related sales tax collection to go up. The government collected Rs. 120.4 billion GST during July-January period of the current fiscal year, showing over 10 percent growth. Overall tax collection during this period totaled Rs. 274.2 billion against Rs. 238.64 billion of the corresponding period of the last fiscal year, showing 14.9 percent increase.

Aziz announced that the government is intent to curb the menace of smuggling though various initiatives. Pakistan's porous borders with Afghanistan (2150km), Iran (775km), India (2250km) China (1200km) and coastal belt (950km) are said to be the haven for various smuggling rackets, which move around scot-free. When the military took over in 1999, it announced a crackdown to eliminate "bara markets" in all major parts of the country, but backed out after severe resistance from the racketeers. Since then no action has been taken against smuggling despite existence of a huge market of smuggled goods in the very heart of the capital Islamabad, and across the GHQ in Rawalpindi. Aziz indicated that the government would deal with the issue through rationalization of customs duties on smuggling prone items.

There is no official estimate on the precise quantum of smuggled good in the country. Various independent studies show that the country loses between Rs. 35-00 billion per annum on account of loss of revenue to this illegal trade. Aziz said the government would check smuggling taking place through the diplomatic channels.

He said 'Economic Survey 2004-05" would be released before the budget, with expected over 5.3 percent GDP growth as indicators show that most of the targets are within grasp. He said that only wheat crop figures were to come whereas cotton was likely to cross 10 million bales, lower than production target. Sugarcane crop was bumper, nearing 3.8-4.0 million tons higher than last year's production by 3.6 percent. Rice is also showing value addition production. Wheat has started coming form Sindh, while Punjab production is yet to be ascertained.

In industrial sector, large-scale manufacturing has registered 14.7 percent growth in six months; tax collection is around 15 percent higher than last year. There is 23 percent increase in machinery import. Simultaneously, the private sector credit off take is around Rs.215 billion against Rs.74 billion of last years.

This is good of the Finance Minister that he is sharing with the people information relating to budgetary proposals. It is undeniable fact that the budget impacts on the life of each and every citizen in one-way or the other. With this in view, it is incumbent upon the government to make its intentions known well before announcement of the budget so as to get feedback for possible incorporation. However, the budget making process remained a closely guarded secret until a few years back and the credit goes to Mr. Shaukat Aziz for introducing the element of transparency in it. It is a welcome declaration of the Minister that the new budget would be growth and investment-friendly. He has also indicated that while it will be effort of the government to broaden the tax base, the number and rates of taxes would be curtailed to facilitate the taxpayers. Growth and investment is directly linked to our performance in agriculture and the pace of industrialization, which have not picked up despite incentives by the successive governments. Devising attractive packages for corporate farming and electronic, electrical, telecom and IT sectors can bring about a change. By doing so we will not only be meeting our own requirements and tackling the problem of growing unemployment but can also significantly increase our exports. Similarly, there should be a quantum jump in allocations for education, science and technology, and research and development to sustain the pace of economic development on long-term basis.

Finance Minister is also reminded of his unfulfilled promise about de-freezing of house rent and other allowances of the government employees. Government claims notwithstanding, rising inflation has eroded their purchasing power and it is utter injustice to pay them allowance on the basis of old scales. Financially, the government is quite comfortable and therefore, it is time to provide relief to the poor in line with oft-repeated claims of the President, the Prime Minister and the Finance Minister. One way to do this would be to eliminate or lower taxes on electricity, gas and petroleum products.