Govt imposing strict discipline to rescue economy

NASIM AHMED

LAHORE: Budget making was a difficult assignment for the economic team of the newly installed PML-N government. Not only was the time short, but the choices before the budget makers were also limited. The numerous acts of omission and commission by the previous government cast a long shadow over the economy and it was not easy to find a way out of the quagmire of rising debt, falling revenue and uncontrolled expenditure. The fiscal year was nearing its end, the national kitty was empty and all major economic indicators were touching rock bottom.

It was in these daunting circumstances that the PML-N team of economic managers was called upon to provide a road map for the coming year. The choice was between presenting a populist budget affording some immediate relief to the common man through fiscal adjustments and tightening the belt by imposing strict discipline to rescue a bleeding economy. After much deliberation, the government chose the latter course. Taxes have been raised and subsidies are to be slashed. In the days ahead, there will be a slow, painful rise in prices.

Keeping in view the larger picture, the PML-N’s economic managers have tried to do the best they could, although at some places they unnecessarily overplayed their hand. For instance, they could have easily avoided upping the GST by one percent which will touch off a new wave of inflationary pressures and make life more expensive for the common man. Similarly, the budget makers did not allow even a nominal increase in the salaries of government employees who are out in the streets agitating.

On the issue of raising revenue, the government has shied away from direct taxation like wealth tax, capital gain tax, agricultural income tax, etc. and relied more on indirect ones. New taxation measures announced by the government include an increase in the general sales tax rate from 16 to 17 percent and withholding tax from 0.2 to 0.3 percent on cash withdrawals from banks. There is also no explanation why the government has imposed the Federal Excise Duty at the rate of 40 paisa per kg on imported seeds and Re1 per kg on locally produced oil.

The budget with a total outlay of Rs 3,591 billion envisages raising the revenue collection by Rs 455 billion and increasing the public sector development spending to Rs 540 billion. The fiscal deficit is to be reduced from 8.8 percent to 4 percent, and the GDP growth rate is to be raised to 4.5 percent, besides increasing the investment-to-GDP ratio to 20 per cent in the medium term. These are ambitious targets and economists doubt if they are achievable in the present circumstances.

Given the severity of the power crisis, the budget specially focuses on solving the problem of circular debt which is to be eliminated in 60 days. An amount of Rs 225 billion would be invested in the energy sector with Rs 107 billion from the PSDP and the remaining amount by Pepco/Wapda through government support to complete Neelum-Jhelum Hydro Power Project (1,000 MW), DiamirBhasha Dam and Hydropower Project (4,500MW), Tarbela Fourth Extension Project (1,410MW), Thar Coal Gasification Project (100MW), Chashma Civil Nuclear Power project (600MW). With Pakistan losing 2-3 percent of GDP annually due to the energy shortfall, the focus on these projects is justified and point in the right direction.

Given the fact that there is too much leakage and wastage in government expenditure, it is a welcome decision to abolish the Prime Minister’s and other ministers’ discretionary funds and put a ban on the import of duty-free vehicles by VVIPs. Other austerity measures include considerable reduction in the expenditure incurred on PM Office and PM House. Against the revised expenditure of Rs725 million incurred during 2012-13, the budget for the Prime Minister’s Office for 2013-14 is only Rs396 million, showing a decrease of 45 percent. Similarly, the budget for the Prime Minister’s House has been reduced by 44 percent. There will also be a complete ban on the purchase of new cars for the Prime Minister’s Office. But the austerity regime should not remain confined to the highest level. It should be applied all across the board, especially with regard to the use of government vehicles and local and foreign travel by ministers and bureaucrats.

 

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Dar eyes bailout package from IMF

SM HAIDER

ISLAMABAD: Finance Minister Ishaq Dar has said the international donors had appreciated the direction set by the government in the budget and there was no harm to get fresh bailout package from the IMF for repaying its outstanding loans.

“The IMF Mission is coming to Pakistan from June 19 for holding Post Program Monitoring (PPM) talks as I had refused to go abroad for holding talks with them in Washington or Dubai,” he said while addressing post budget press conference. He said the previous government obtained $8.5 billion from the IMF and utilised them and currently foreign currency reserves held by the State Bank of Pakistan were just standing at over $6 billion.

Now the PML (N) had to make heavy repayments for these loans, he added. He said that he had constituted a committee to finalise exact figures in this reference which would be shared with everyone. Dar said some 3114 affectees of higher salaried income slabs earning had ganged up against the government on the social media but he would not be blackmailed and the decision would not be reversed.

“We have found that there will be only 3114 individuals who will contribute more in terms of paying increased income tax as they are having handsome annual income from the next financial year. I have seen that those people ganged up against the government on the social media,” he added. He said the taxation measures taken in the budget would yield additional revenues upto Rs 202 billion by increasing GST rate from 16 to 17 percent. He argued that the rate of Value Added Tax (VAT) just like GST in UK was standing more than 22 percent and people accepted it for the sake of betterment of their country’s economy.

The FBR, he said, was assigned to collect Rs 2475 billion tax collection target in the next financial year against revised estimates of Rs 2007 billion in the outgoing fiscal year. Answering criticism on return of decade of 90s for increasing reliance on Withholding Tax regime, he said that it was imposed in adjustable mode and it could not be termed as indirect tax. “There will be inflationary impact on account of withholding taxes,” he claimed.

The maximum rate of salaried slabs was proposed at 30 percent while in case of non corporate and Association of Persons (AOPs), the proposed tax rate was 35 percent in the Finance Bill 2013. He explained the government did not impose taxes on essential items of foods in the budget and added in the same breath that those who used imported beverages they should pay their due share in taxes. “Those who claimed to be patriotic Pakistanis should come forward to contribute into national kitty on voluntary basis,” he said and concluded that the FBR would find out 0.5 million new taxpayers in a bid to broaden the narrowed tax base.

FBR chairman optimistic to achieve target

SM HAIDER

ISLAMABAD: Chairman FBR Ansar Javed has said that taxation measures in the budget 2013-14 would yield additional revenues of Rs 202 billion and the envisaged target of 2475 billion would be achieved.

Talking to reporters on the occasion of post budget press conference, he said the FBR would achieve its revised tax collection target of Rs 2007 billion in the outgoing fiscal year 2012-13 ending on June 30, 2013. The FBR will have to collect Rs 322 billion in the ongoing month (June 2013) in order to meet revised tax target of Rs 2007 billion in the outgoing financial year.

He said the FBR was authorised through Finance Bill 2013-14 for obtaining online access of account holders of the banks in order to broaden tax base by bringing the upto 0.5 million potential tax dodgers into the net. The information of account holders will be sought in certain specified formats from the banks where deposits of account holders stood at aggregating Rs one million; loans written off of exceeding Rs one million in a year and suspicious transactions report generated and submitted by it to the Financial Monitoring Unit under Anti Money Laundering act, he added.

However, Chairman FBR said the tax authorities were authorised to get such data in many parts of the world especially in OECD countries and proposed it in Finance Bill 2013 with the idea to broaden the tax base. Ansar said the FBR had developed its database to prepare profiles of 0.5 million potential non filers and this task would be accomplished till December 2013. Answering a query about NADRA’s demand to pay fee for utilizing its data for preparing tax profiles of potential tax dodgers, he said that there should be no fee charged by another government department for sharing its data with the FBR and Finance Minister had assured him for getting the required data without paying any fees.

 

Wagha trade potential yet to unearth

SYED MOHAMMAD TAHIR

LAHORE: There is no doubt that newly-elected PML-N government’s stalwarts have decided to enhance bilateral trade relation with India and to boost trade up to $5 billion within next two years.

The stakeholders including government officials, exporters and importers should have complete faith upon Customs officials that Wagha Trade Complex has sufficient potential to handle more than 100 times existing trade volume. At this moment, nearly 150 Pakistani trucks are loading and off-loading different items at Bab-e-Tijarat Zero Line for India. Customs Department is also going to introduce another scanner to thoroughly scrutinise goods vehicles for which government has already granted permission and allocated funds.

These views were expressed by Wagha Customs Additional Collector Noureen Ahmad Tarar while giving exclusive interview to Customs Today’s team at his office.

Noureen Tarar further said that although all economic indicators are showing that previous governments could not achieve revenue collection and economic growth targets but luckily Customs department has not only achieved its target but in current fiscal year this department has deposited more cash than target in national kitty. She further elaborated that until Sales Tax Department was working under Customs Department, it was meeting its revenue targets because of special planning and efforts of Customs Department’s officials. Besides this, there were no major scams in Sales Tax Department. But unfortunately since government had separated Sales Tax Department from Customs, its revenue collection volume has decreased while on the other hand, different mega scandals are now emerging day after day.

While answering a query, she said that June, July are considered to be the slowest months for Wagha trade, so just from 120 to 150 trucks are being used to load/off-load items that have been traded between India and Pakistan at Wagha Zero Line, adding that Pakistan is currently importing Soyabean, tomato, mix vegetable, carbon dioxide liquid and cabbage from India while exporting cement, gypsum, dry dates, salt, sugar, H2O2, seed, plastic scrap and furniture to India.

The disgruntled and disappointed Noureen Tarar complained that in previous government era, a large number of FBR officials drew their handsome salaries while staying at their respective homes because perhaps this country does not want honest and competent officers to run the affairs of government. Only those corrupt officials get space to grow in their respective departments who are involved in plundering national kitty and harming national interests at their will.

She also disliked the idea that the new incumbent government of Mian Nawaz Sharif is also going to International Monetary Fund (IMF) for further loan in a bid to repay their debt services, adding that instead newly-elected government should act upon its party manifesto and endeavour to break begging bowl and repay loans to global lender agencies through their own resources. She suggested that government should try to collect revenue by imposing agri and other taxes to run the affairs of government, adding that Customs officers are not policymakers, they are just catalysts to implement the policies carved out by government in letter and spirit.

Additional Collector Noureen Tarar further said that she is spending her last day here at Wagha Customs office as her department has sponsored her to get professional education from Australia for two years adding that she is ready to fly with her family to Australia.

Noureen Tarar further said that there is a wrong perception that all Customs officials are corrupt. Appreciating the efforts of Customs Today for dispelling this impression among masses, she further said that Customs officials from top to bottom have also their grievances which need to be redressed on war footing. She said that in Lahore Customs officials haven’t any residential colony.

Their hands have been tied up and they cannot take action against influential and unlawful importers, adding that percentage of Customs duties on almost all imported items are determined in Customs law but still influential traders try to evade these taxes and compel Customs officials to act upon according to their will, she added. She said that import invoices are being made in Gulberg fraudulently and are not coming from China and other countries. Government should take steps to curb these illegal activities so that a conducive and friendly environment for traders could be created in the country so that they could deposit their duties in national kitty and resultantly Pakistan could be put on the track of prosperity and progress, she concluded.

Gold rates remain stable; may fall further

SYED MOHAMMAD TAHIR

 LAHORE: At a time when gold buying season is going to out owing to the advent of Ramazan month in Pakistan and plummeting demand in India, the world’s largest gold consumer, when wedding and festival season came to an end, the shopkeepers and buyers have taken a sigh of relief on the stability of precious metal’s rates.

Conversely, gold prices soared in America as resilient demand for coins and bars remained high in the US equities market in last week. The brokers are of the view that rising geopolitical tensions in the Middle East also boosted the metal’s safe-haven appeal.

Western diplomats said the United States is considering setting up a no-fly zone in Syria, which would represent its first intervention in that civil war, after the White House said Syria had crossed a “red line” by using nerve gas.  The metal rose about 0.3 percent on the week. It has now posted gains in three of the last four weeks following a historic two-day selloff in mid-April.

Last week, gold prices in Pakistan hovered near Rs 52,700 per tola after touching a peak of Rs 65,000 per tola last year.  While US data in last week showed consumer sentiment edged off a six-year high in June, whereas manufacturing output picked up a bit last month after two straight months of declines, suggesting the economy remains on a moderate growth path. Markets will watch closely the US Federal Reserve policy meeting on June 18 and 19. Most economists expect the Fed to scale back the size of its bond purchases by yearend, and several expect reduced buying as early as September.

Likewise, in London gold held steady near $1,385 an ounce last week and was on track to end the week little changed as dealers’ awaited clearer direction on the Federal Reserve monetary easing policy. The Fed’s next policy meeting takes place early next week. An array of firmer-than-expected US data recently has fuelled speculation it could be on track to rein in its $85 bullion monthly bond-buying programme. Spot gold was steady at $1,385.61 an ounce at 1337 GMT, having earlier dipped as low as $1,378.04, down 0.5 percent. Gold is little changed since last Friday, and has ended the last four weeks in a $10 range. “(Gold) cannot break below $1,370 and cannot break above $1,420,” Afshin Nabavi, head of trading at MKS, said.

Though the gold rates have been reduced significantly but still it is out of the reach of common people in Pakistan and people who intend to buy yellow precious metal are still waiting for more cut in its rates. As off-season in the shape of Ramazan month is just drawing to near, it is expected that rates of gold would further fall.  In the neighbouring countries like India, the demand of gold is also falling on the pretext of multiple reasons including wedding and festival season coming to an end.

Rupee remains stable after new govt set-up

SYED MOHAMMAD TAHIR

LAHORE: Though local currency rupee stabilised its value last week but the cruel fact is that newly-elected government of Pakistan Muslim League (PML-N) remained failed to provide cushion to strong it.

Earlier, it is expected that rupee might become strong enough on the back of new government set-up with clear majority for Nawaz Sharif in parliament and reforms in different departments to mitigate longstanding problems but federal budget against the wishes of masses has kept value of rupee intact if not plummeted. The rupee is still hovering just under 100 against a dollar.

Not only federal budget but there are also some other elements that became catalyst to support melting of local currency.

In six sessions of last week, the rupee remained firm since it has already been ruined against dollar in the interbank market amid quiet trading. The hope of increase in workers’ remittances ahead of Ramadan could keep dollar demand and supply in balance in the coming weeks but some facts are opposing this notion. An inside story revealed that some stalwarts of PML-N government ordered brokers to arrange million of dollars from local open market to send them Congo Republic for a special mission. The dealers and brokers lifted greenback from open market at every fluctuated rate and after achieving target, sent them to Congo Republic. This movement of collecting dollar from open market created panic in local currency world and its value could not be stopped to further melt despite the fact dollar remained sluggish in the world.

After the fall in dollar value in the world, the Indian rupee gained on the back of large dollar selling by exporters in spot and forward markets, ending a tough week that saw the currency slump to a record low as part of a broader regional market sell-off. Last week’s gains were not enough to prevent the rupee from falling 0.8 percent, its sixth consecutive weekly loss, having hit a record low of 58.98 on Tuesday. India’s large current account deficit has made the rupee particularly vulnerable, and its fall was exacerbated after foreign investors sold a net $3.8 billion in Indian debt over the past 16 sessions.

“Better than expected WPI and revised IIP, along with some expected dollar inflows, likely to see the rupee appreciate for the next two weeks or so,” said an expert. In the offshore non-deliverable forwards, the one-month contract was at 57.85, while the three-month was at 58.46.

Likewise, most emerging Asian currencies rose in last week as strong regional shares prompted short-covering. The Indonesian rupiah gained as the government said the country is preparing measures to cope with the reduction of quantitative easing. The Taiwan dollar rose on demand from foreign financial institutions, while bond inflows lifted the Thai baht.

The Philippine peso advanced after the central bank kept its policy rate and special deposit account rate steady. The South Korean won strengthened on exporters’ bids for settlements. “There is still some unwinding of long US dollar positions.

Similarly, the yen rose to its strongest levels against the US dollar and euro since the Bank of Japan embarked on an aggressive economic stimulus in April, as a slide in Japanese stocks triggered an unwinding of bets the currency would weaken. Pakistani rupee should also gain like other Asian currencies but unfortunately there are some other elements that could only stop rupee further falling and not gaining.

FBR waives off penalties on outstanding tax dues

SM HAIDER

 ISLAMABAD: The Federal Board of Revenue (FBR) has waived off whole amount of default, surcharge, and penalty on account of non-payment of any outstanding duty and taxes till June 30, 2013.  The aim of this step is to encourage taxpayers to pay their due taxes in order to maximize dwindling tax revenues during the outgoing financial year.

According to SRO 494 (1) 2013, the FBR has given incentives to get maximum outstanding amount with the condition that the principle amount of duty and taxes is not available to fraudulent refunds, drawback cases where prosecution proceeding has already been initiated.

During the outgoing fiscal year, the FBR’s tax target was revised downward by thrice as initially the tax target was fixed at Rs 2381 billion which was revised to Rs 2193 billion, then slashed down to Rs 2050 billion and finally lowered to Rs 2018 billion. So far in first eleven months (July-May) period of the outgoing financial year, the FBR’s tax collection stands at Rs 1682 billion, registering an increase in the range of just 5 percent compared to the same corresponding period of the last financial year.  The FBR will have to collect Rs 336 billion in ongoing month to achieve the revised tax target of Rs 2018 billion.