Finance Minister Dr Hafeez Sheikh said on Sunday that the path of recovery “must be protected”, even as the economy remains caught in a low-growth-high-inflation cycle, tax to GDP ratio (8 percent) is among the lowest in the world and the reformed General Sales Tax (RGST) initiative has failed. “We have made considerable progress considering the economic implications of the floods and the security situation,” Dr Sheikh said while delivering the concluding address at Pakistan Today’s first Pre-Budget Seminar.
Pakistan’s economy was thrown badly off track by last summer’s devastating floods. It was a seminal moment, said Dr Sheikh, adding that it “reoriented the development program” in just a few months. The floods cost the economy an estimated $10 billion, set GDP back by two percent and increased inflation. Pakistan’s security concerns, besides disturbing the development budget, also keep foreign investment away, with its own financial spillover.
He recalled the economy’s vital statistics at the time of the 2008 general election when the present dispensation took over to emphasise the “reform”. “With the fiscal deficit at 7.6 percent, reserves alarmingly low, the rupee sliding from the 60s to 80s against the dollar in a matter of months and a balance of payments crisis, the country was on the brink of default, he said. Inflation at around 13 percent now is considerably reduced from the 25 percent level at that time.
There was little choice but to approach the IMF when Dr Sheikh’s predecessor Mr Shaukat Tarin took over the finance ministry in October 2008. Dr Sheikh approved of the decision to approach the Fund as a “reasonable path out of a real danger zone,” describing the austerity package that invariably accompanies IMF help as necessary prudence. Since then the government has been repeatedly accused of surrendering budgetary autonomy to the IMF, which froze aid in May last year when Islamabad failed to meet diktat that came with an $11.3 billion loan issued in 2008.
The upcoming budget will focus on an improved tax-regime to increase revenue. There will also be measures to stimulate private sector investment and streamlining the role of government. “We are moving towards equitable taxation by incorporating new sectors and people still out of the tax net,” Dr Sheikh said yesterday. Existing taxpayers will not be further burdened. The Federal Board of Revenue (FBR) has already identified 700,000 people responsible for approximately Rs7 billion in tax evasion.
Notices have been sent to 55,000 and recovery worth Rs1.25 billion already made, FBR Chairman Salman Siddique confirmed to the audience. Dr Sheikh emphasised that agriculture tax was provincial domain. The finance ministry lacked authority to implement it unless requested to by the provinces or mandated by two-third constitutional majority.
