Budget announcement put off to first week of June

[Lahore_Real_Estate]

ISLAMABAD: With technicalities relating to withdrawal of sales tax exemptions still being sorted out, the government has pushed back the announcement of federal budget 2011-12 to the first week of next month — most probably on June 3 — as the finance ministry tried to reach out to major stakeholders on broader budgetary proposals.

All other important meetings relating to the budget, including those of the National Economic Council and advisory committees on revenue and economy have been postponed.

This provided an opportunity to Finance Minister Dr Abdul Hafeez Shaikh to hold a marathon session in Karachi on Saturday with the powerful American Business Council representing 67 corporates. The council had complained that it had been ignored in pre-budget consultations.

Sources said the economic team had informed the government about insufficient consultations held with some important stakeholders, including business circles and trade bodies. Also, some more issues are to be sorted out with the International Monetary Fund about a course of action on reformed general sales tax.

The sources said the government had given an understanding to the IMF in Dubai early this week that it would gradually implement a full-fledged GST in the form of value-added tax to increase the tax base. As a first step, a four per cent sales tax was imposed on a number of exempted sectors in March which will be expanded by doing away with more exemptions during the current year to yield an additional revenue of Rs90 billion with the existing GST rate of 17 per cent.

The government is of the opinion that RGST has become politically controversial and hence difficult to be implemented in one go. Therefore, the reform in the GST regime should be made an ongoing process to be completed in two years, without calling it RGST. Also, the government believes that the introduction of full RGST will require lowering its rate to about 15 per cent which will reduce government’s total revenue and may not achieve the additional revenue of Rs72 billion as
envisioned.

It was also considered an unaffordable proposition when IMF executive directors and other lending agencies decided against allowing Pakistan to cross fiscal deficit limit of four per cent during the next financial year.

In was against this background, the sources said, that the government had shot down a petroleum ministry’s proposal supported by the revenue advisory committee to fix GST on petroleum products and natural gas in absolute terms instead of
its fluctuating rate of 17 per cent on the advice of Dr Hafeez Pasha.

Dr Hafeez was of the opinion that fixing of GST in fixed rupee terms would deprive the government of a cushion to have high revenue yield because oil prices in international market might rise to $125 per barrel over the next financial year.

The government had earlier announced that the budget would be presented in the National Assembly on May 28 to provide more time to legislators to debate economic policies. Under the schedule of events announced by the government and
approved by the National Assembly, the budget session was to begin on May 28.

But now it has been postponed to observe the parliamentary tradition of budget presentation in June.

Consequently, a meeting of the National Economic Council scheduled on Saturday has been postponed for about a week.

Two other important meetings of the revenue advisory committee and the economic advisory committee have also been
postponed.