Tarin pins hope on FoDP aid to avoid more IMF loan

April 03, 2009

ZULFIQAR AHMAD

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Advisor to Prime Minister on Finance Shaukat Tarin has said that if Pakistan succeeds in gathering sufficient assistance from the Friends of Democratic Pakistan (FDoP), there will be no need to approach the International Monetary Fund (IMF) for additional loan.

Talking to journalists here on Thursday after addressing the 24th annual general meeting and conference, organised by Pakistan Society of Development Economics, he said that 1.5 billion-dollar assistance would be given to Pakistan soon after the passage of Kerry-Logar bill.

Replying to a question, he said Pakistan was expected to get special aid package from the FDoP to revamp health, education sectors as well as to alleviate poverty, besides budget specific support. He also said that inflation would come down to single digit by July-August, giving space to revisit interest rates.

Terming war against terrorism as Pakistans own war, Tarin said that the US would start aid payment soon to upgrade security apparatus in Pakistan. Earlier speaking at the conference, he said that real estate and other untaxed sectors as well as all individuals, earning over Rs 0.2 million per month, had to be taxed if the tax to GDP ratio was to rise, besides ensuring sufficient allocations to social sector development.

He said that about 60 percent tax contribution was made by the manufacturing sector and 40 percent come from imports. With manufacturing sector experiencing negative growth and import of luxury items, having been curtailed to avoid trade deficit tax collections had declined.

He pointed out that agriculture sector contributed about 23 per cent to the GDP, whereas its contribution to revenue was zero. To a question about taxing the agricultural income, he said the sector was not in good shape for the last four decades and before imposing tax on it, measures would be needed to increase the farmers income.

Tarin was of the view that with the increase in revenue, more could be allocated for social sector uplift, which was extremely low at present. "The problem is that in view of trade deficit, current account deficit and fiscal deficit, many governments of developing countries cannot invest desired amount of resources in human capital," he added.

"Pakistan lags behind social sectors as compared to other countries of the region," he said, adding that in these circumstances, it was not possible to tackle the problems of illiteracy and health. In Pakistan, he said, macroeconomic development and stability had benefited only a small portion of population, and majority of the urban and rural poor had become economically worse off because of the failure of the system that was entirely entrenched in nepotism and favouritism.

Tarin said that there should be two taxes, ie on income and on consumption. "Income tax and sales tax are already in place, however, a large chunk of tax revenue is collected through sales tax, ie, tax on consumption," he added. "If the government cares for the poor and disadvantaged sections of society, it should increase income tax and reduce tax on consumption," he said, adding that income tax was a direct tax on income and those who made more money should pay more tax.

In this way, he explained, income tax was a social equaliser, as tax was collected from the opulent and spent on indigent sections of the society in the form of free education, healthcare and provision of other basic facilities. "But when the rate of sales tax is increased or more items of daily use are brought under sales tax net, prices shoot up squeezing the purchasing power of common man drastically," he added.

He lamented that the countrys economic managers, when not in corridors of power, spoke for the common man, highlighted his problems and suggested measures to alleviate poverty and improve the living standards of people. But once in the corridors of power, they suggested tax on consumption, which adversely impacted the poor masses, who could not take minimum required calories per day due to hyperinflation, he concluded.