Watched by IMF, Pakistan Targets Steep Rise in Tax Revenue (Reuters)
Last Modified: 10:47 AM, Tue Jun 11, 2019

By Asif Shahzad and Saad Sayeed

11 June 2019

Word Count: 636

Pakistan's government targeted a sharp hike in tax revenues today as it presented plans for next year's budget. Revenue Minister Hammad Azhar forecast a budget deficit of 7.1% of GDP, after the gap in the current year blew out to 7.2%. He also targeted federal tax revenues of 5.55t rupees ($36.80b), up 25% and driven by a lower introductory threshold for income tax and a clampdown on tax evasion. The government failed to hit the last fiscal year's goal of 4.44t rupees. "Until we improve our tax system, Pakistan will not progress," Azhar said. Spending is set to rise to 7.02t rupees, 30% above last year's target, he said. "The first couple of years are going to be tough, but then we will start reaping the fruits of our hard work," Azhar said, promising to limit future borrowing.

By Asif Shahzad and Saad Sayeed

ISLAMABAD, June 11 (Reuters) - Pakistan's government targeted a sharp hike in tax revenues on Tuesday as it presented plans for next year's budget, amid shouts and protests from opponents in parliament angry at measures set under pressure for an IMF loan agreement.

Seeking final approval for an International Monetary Fund bailout, the government had already prepared the ground for widespread belt-tightening. But the goals unveiled by Revenue Minister Hammad Azhar for the fiscal year to June 2020 underlined the scale of the economic challenges it faces.

He forecast a budget deficit of 7.1% of gross domestic product, after the gap in the current year blew out to 7.2%.

He also targeted federal tax revenues of 5.55 trillion rupees ($36.80 billion), up 25% and driven by a lower introductory threshold for income tax and a clampdown on tax evasion.

The government failed to hit the last fiscal year's goal of 4.44 trillion rupees. "Until we improve our tax system, Pakistan will not progress," Azhar said.

Spending is set to rise to 7.02 trillion rupees, 30% above last year's target, he said.

Amid chaotic scenes in parliament, opposition lawmakers brandished banners reading "Say no to IMF budget!" and shouting slogans against the government.

Prime Minister Imran Khan's administration has been forced to seek what would be Pakistan's 13th IMF bailout since the late 1980s to stabilise an economy that has seen growth plunge while teetering on the verge of a balance of payments crisis.

The rupee has lost about a third of its value this year and inflation has jumped above 9%.

In April, the government secured a provisional $6 billion IMF loan, but it is contingent on measures being taken to cut a budget gap that the Fund forecast at 7% in 2018/19.

TINY TAX BASE

Handicapped by a weak fiscal system, Pakistan has historically struggled to collect tax revenues. Only 1.8 million people file income tax returns in a fast-growing nation with a population of 208 million and a large informal economy.

The agricultural sector, dominated by big, politically powerful landowners, makes up around 20% of the economy but accounts for only 0.22% of direct taxes, according to the World Bank.

With households increasingly squeezed by high prices for food, energy and household goods, the government has faced increasing anger and Azhar announced a 10% cut in ministerial salaries and an increase in the minimum wage.

"The first couple of years are going to be tough but then we will start reaping the fruits of our hard work," Azhar said, promising to limit future borrowing.

Pakistan expects to raise $2 billion from the sale of two liquified natural gas (LNG) power plants, and another $1 billion from the auction of mobile licences, he said.

The government has already slashed its year to June 2019 growth forecast to 3.3% from the 6.2% predicted at the time of the last budget. The IMF's estimates growth of around 2.9%.

For the coming year to June 2020, the government expects growth at 4%.

Under the terms of the IMF loan, the government is also expected to let the rupee depreciate to help tackle an unsustainable current account deficit and aim for a primary budget deficit - excluding debt servicing costs - of 0.6 percent.

Despite promises the army would rein in spending and widespread expectations that the military's hefty budget would be cut, the spending target for the armed forces was increased by 4.5% to 1.15 trillion rupees.

Last year the government allocated the military about 20% of the 5.6 trillion federal budget. Officials say the military overshot that figure, in part due to a flare-up with India over Kashmir.

($1 = 150.8000 Pakistani rupees) (Writing by Drazen Jorgic and James MacKenzie; Editing by Simon Cameron-Moore and John Stonestreet)

Pakistan unveils austerity budget in bid to secure IMF loan
Farhan Bokhari is Islamabad and Stephanie Findlay in New Delhi
FT.com. 11 June 2019
Imran Khan's government looks to raise tax revenues and restore investor confidence

Pakistan prime minister Imran Khan's government unveiled an austerity budget as part of a rollout of harsh measures designed to secure a desperately needed IMF bailout and restore investor confidence.

In an address to parliament on Tuesday evening, Hammad Azhar, the junior minister for revenue, outlined an ambitious tax revenue target of 5.55tn rupees ($36.5bn) - an increase of more than 30 per cent compared to last year - to balance its 7tn rupee budget.

"Our main objective will be to increase tax collections," said Mr Azhar, adding that only 2m people out of Pakistan's 210m file income tax returns. "In this new Pakistan, we have to reform out tax collection system to move forward."

Projecting the fiscal deficit to be 7.1 per cent for the financial year to June 2020, Mr Azhar said the government wants to increase revenue by imposing a 17 per cent tax on ghee and poultry, and doubling a sugar tax to the same rate.

As he delivered his speech, Mr Azhar was heckled by opposition polticians who held up banners saying "IMF budget is unacceptable".

The budget is part of a rollout of reforms undertaken by Mr Khan's government as it struggles to contain a balance of payments crisis. Gross domestic product expanded by 3.3 per cent this year, well below the target of 6.2 per cent.

Pakistan and the IMF announced a $6bn preliminary loan agreement last month, but it is conditional on Pakistan implementing a series of austerity-driven measures.

Mr Khan, who was elected prime minister last year, has had to postpone his dream of building an Islamic welfare state and has instead overseen government belt-tightening that is set to be a test for his administration.

Pakistan has already increased gas and electricity tariffs and implemented a tax on mobile phone scratch cards, hitting consumers at a time when inflation is hovering above 7 per cent.

Experts questioned whether Mr Khan's government could deliver on its tax drive, given that previous governments have failed to increase revenues. "There is a very ambitious effort this time, whether it will succeed remains to be seen," said Asad Sayeed, a Karachi-based economist.

"What they are trying to do is counter cyclical. If they succeed, they succeed at the expense of further dampening aggregate demand and slowing down the economy," he added. "It's the wrong time to do it, but the pressures are such that they will attempt it. They don't have a choice."

Some Pakistanis expressed concern that the new measures would add further pressure on households that are already feeling squeezed.

"Life has become unbearable since Imran Khan became the prime minister. I don't have money to send my children to school now after paying for food, electricity, gas and clothes," said Mubarak Khan, a taxi driver in Islamabad.

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Creditline: Reuters
Slugline: PAKISTAN-BUDGET/ (UPDATE 1)