Tarin briefs journalists about fiscal policies

[Naveed Yaseen]

MUSHTAQ GHUMMAN
ISLAMABAD (December 05 2008): Advisor to Prime Minister on Finance Shaukat Tarin said on Thursday that the government would not impose any new taxes before next federal budget but admitted that certain measures have to be taken to increase revenue that would include an upward revision of duty on luxury and non-essential items.

Talking to a select group of journalists at his office in the Finance Ministry, Tarin frankly discussed a wide range of economy-related issues including the possibility of a mini budget, random audit of tax payers, imposition of new taxes, increase in electricity tariff , hurdles in the removal of the floor in the Karachi Stock Exchange(KSE) and appointment of a new SECP chief.

When asked if the government was going to announce a mini budget as part of International Monetary Fund conditions, Tarin said that the government has no plans to impose any new taxes but would definitely take certain steps to increase duty on non-essential and luxury items.

The Letter of Intent (LOI) submitted by the Government of Pakistan to the IMF Board for approval of the 7.6 billion dollar standby arrangement available on the IMF website by agreement with the member (Pakistan) specifically states "an integrated tax administration organisation on a functional basis will be established at the FBR (integrating both the income tax and sales tax administration)". In addition audits will be reintroduced as part of a risk based audit strategy that will be implemented by end of December 2008. A full description of these reforms are to be provided to the IMF by end of December following a planned seminar to review tax policy and administration. The government will begin to initiate a process following the seminar to implement full VAT with minimal exemptions to be administered by FBR. The first quarterly IMF review would focus on the progress in developing the tax reform agenda.

The Advisor to the Prime Minister on Finance elaborated all these conditions that were agreed by the Government and contained by LOI.

The government, he added, was deeply concerned over the reduction in November tax collections that were less than government target. "We are very upset with the tax collection figure of November which are 5-7 per cent less than the target of Rs 80- 82 billion in one month," he said, attributing the decline to lower custom duty collections.

He stated that the government would fill the reduction in duty collection on imports by taking administrative measures. "It is not good for the government to increase the percentage of income tax and sales tax or impose new taxes in the middle of the financial year but the system will be fine tuned to improve tax collection," Tarin maintained.

When asked whether the reduction in collection was due to corruption in FBR, he rejected it. "I do not say it's because of corruption, what I can say is it is negligence on the part of the tax administration," he added. "Suppose if tax is 20 per cent and collection is 9-10 per cent - this implies there is something wrong which needs to be rectified," he explained.

"We are starting a random audit of 5 to 7.5 per cent of tax payers and if any one is found evading taxes, action will be taken against him," he added. He, however, clarified that audit will be outsourced so that business community would be unable to complain of harassment as in the past.

So far, nobody from then tax department has challenged the self-assessment of tax payers but now it will be challenged if it is not done appropriately, he warned. Tarin said he would definitely release his own tax returns and hope that tycoons would follow the suit. He further said real estate and stock exchange will be brought into the tax net.

Answering another question regarding provision of foreign exchange for oil imports, he said that this would be completed within one and half year to bring it back to the Central Bank. Responding to another question regarding provision of foreign exchange for oil imports, Tarin said that this would be phased out - a process that would be completed within one and half years. This is also a commitment made by the government of Pakistan in the LoI.

Tarin also mentioned a study undertaken by M/s Invest Cap, which found that the rupee was 7-8 percent over valued. He said the rupee is hovering around Rs 77-78 per dollar in the interbank rate and as we include oil it will further come down.

To a question he said that the government will not increase electricity tariff for the time being but in April there will be some adjustments. This may be seen as consistent with the commitment made by the government in the LOI where it is specifically stated that "the average base tariff will be further increased during 2008/09 according to a schedule to be agreed with the World Bank by end December 2008 (structural benchmark) and the government will use fuel and other surcharges, as necessary. "

Tarin clarified that Nepra had allowed 64 per cent increase in electricity tariff to recover Rs 92 billion but when the people came out to streets in protest, the government revised it and passed on Rs 41 billion to consumers.

Now there is a gap of Rs 185 billion but it will not be passed on to the consumers because of reduction in furnace oil prices, he added. Nepra has intimated that savings will be around Rs 45 billion due to reduction in furnace oil prices. It means now the gap is around Rs 140 billion of which the government has retained Rs 65 billion subsidy earmarked in the budget, he added.

The remaining gap is about Rs 75 billion. Discos have been asked to reduce their line losses of about Rs 20 billion which means gap will be Rs 55 billion and in the mean time furnace oil prices would further come down and the government may pass on very less burden to the consumers, he added.

Replying to a question, Tarin said that the government will not support lifting of KSE floor by establishing any fund. He was of the view that the government would not support 'big fish' of the stock market, who had made big money in the past but maintained that the small investors would be helped.

"KSE floor will be lifted and we will try to get a support fund but we need to discuss with the IMF first," he added. He held the SECP responsible for the problem, saying that the regulator should have moved in time to save the small investors from losses.

Replying to a question, he said that the incumbent Chairman had resigned a couple of months ago and the government will appoint his successor very soon. He defended Governor SBP who, according to media reports, had deplored that the Central Bank was not independent.

"She is right, if she is giving reference of overdraft of Rs 678 billion taken previously, which the SBP arranged through printing of currency notes. Government could arrange this amount from the market," Tarin continued. This year, federal government borrowed only Rs 200 to 225 billion from the SBP and after October there was no borrowing, as pledged in the LoI.

"Now we are paying back the borrowed money to the SBP," he clarified. Asked if the government is considering to extend the contract of incumbent SBP Governor Dr Shamshad Akhtar, he said "frankly speaking I do not know, the matter is with President Zardari and Prime Minister, Gilani'.

Answering another question he said that Public Sector Development Program will be slashed by at least Rs 100 billion and all the concerned ministries and departments have been asked to spend the un-disbursed amount of Rs 425 billion in their accounts. He said, the federal government will not notify the revised power tariff determined by the Nepra.

After the foreign exchange reserves, the big problem was the issue of Pakistan Electric Power Company (Pepco) which has log jammed the whole system. " Pepco is a crocodile and if remedial measures are not taken it will swallow all of us," Tarin further said.

Next year, the federal government will make arrangements to deduct at source the stuck up receivables of Fata. In reply to anther question, he said that the government will privatise all the power companies running in losses.

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