ISLAMABAD: Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh on Tuesday stated achieving the revenue target of Rs4.9 trillion and the GDP growth rate of two percent in the next fiscal year 2020-2021 would depend on the fallout from the Covid-19 pandemic.
"The budget has a revenue target of Rs4.9 trillion and some people think it is ambitious. I can a sort of agree with that because in this time it does appear ambitious at the same time," said the advisor, while addressing a post- "Budget Conference 2020" organised by the Institute of Chartered Accountants of Pakistan (ICAP), here on Tuesday.
He further said that it was very hard to be certain or be confident about making forecast because nobody knows how long coronavirus would be around, whether its severity will increase or decrease.
"We are a little humble about our capacity about giving correct forecast but if coronavirus begins to recede in a quarter or so, the economy really picks up, then this target of over the year is achievable," he added.
He further hoped to achieve the growth target of two percent, while saying that a lot depends on how events unfold not just domestically but also internationally, because if the corona-affected countries get going soon enough, the demand for Pakistani exports would pick up and economic activities would be positively affected in the country.
The advisor said that it was quite challenging to come up with budget in this environment.
The philosophy of new budget was three folds, including that no new taxes should be imposed, because they did not want that at this time when the economy was in severe historic contraction, further burden on the existing taxpayers with new taxes be put.
The second was to give as much relief as possible to the citizens and to businesses because the government had to strike a good balance between protecting the health and safety of the people, and at the same time ensuring that the economy does not suffer in such a way that the lives of individuals get stressed, he added.
He further said the government would reduce the cost of doing business for businesses, so about 1600 tariff lines, where tariffs and duties were brought down to zero in the budget, which could cover up to 20,000 raw materials items, and that would be around 20 percent of the entire import.
"We have struck the duties to zero, and that is going to be having a significant impact on cost of doing business because these are all raw materials. We have brought down duties on 200 other items, and those are intermediates inputs and tried to bring down the regulatory duty on other 166 tariff lines," said Sheikh, adding that the government lowered the withholding tax on imports of raw material intermediate goods to two percent from 5.5 percent, and especially on import of capital machinery brought down to one percent. The FED on cement has been decreased from 1.75 percent from two percent and the general sale tax has been lowered for retail outlets, which are connected to the FBR, he added.
The first reaction of the government after the virus outbreak was to do something, and the government came up with a stimulus package, where 16 million people are being given cash transfers, and principal amounts of loans of the SMEs were deferred by up to a year, electricity bills were paid by the government, the Utility Stores Corporation (USC) were given an extraordinary amount to reach the middle-income people by giving them subsidized food products.
"Experts can defer the impact of corona but we think the GDP could be affected by Rs3 trillion. We were reaching Rs4.5 trillion of revenue but now Rs3.9 billion which means a loss of Rs600 billion in revenue; exports are down remittances are down, the LSM is down, employment is down, retail trade is down and in fact it's a big calamity," he added.
When the incumbent government took over the country it was in a state of economic crisis and for that reason it had to go to the International Monetary Fund (IMF). Nobody goes to the IMF without serious economic situations. And the incumbent government was forced to do that, said Sheikh, adding that after that several tough decisions were made, which included sources of mobilization to pay huge amounts of debt.
In the two years, a Rs5,000 billion of debt payment has been made, he added.
He further said that in the outgoing fiscal year, the first challenge was how to mobilize tax revenue, which has been at a historic low, which is never going beyond 11 percent of the GDP.
"We did not make very ambitious target and were going at the rate of around 17 percent of GDP growth, if we had continued on that path, we could have tax of around Rs4.5 trillion," he said.
Further, the government was very aggressive in cutting current expenditure, and it was in a rare time in the country before the corona, the primary balance in fact was positive, which means that expenditures were less than income, if not included interest then that number was around Rs194 billion, he added.
The current account deficit, which was at a historically high level of $20 billion had been brought down to $3 billion, and exports, which were stagnant during the last five years began to move up.
During this time non-tax revenue increased by 134 percent growth over the last year i.e. Rs1.5 trillion against the target of Rs1.1 trillion, the advisor added.
Former principal economic adviser Sakib Sherani said that pandemic has hurt the economic growth prospects of Pakistan by around five percent.
The government announced stimulus package of around 1.2 percent of the GDP in terms of fiscal against 10 percent in India, 8.8 percent in Bangladesh.
If the SBP measures are added, the package is around 2.5 percent of GDP of Pakistan, he added.
He said Pakistan has a high degree of contagion because of low surveillance, screening and testing, contact tracing, culture facts, and low awareness.
Pakistan is not insolated and external impacts are very much there on Pakistan.
He further said there should be three elements of the federal budget included to be relevant and meaningful: it should respond to the macroeconomic context, be based on realistic assumption, having an anchoring theme or reform idea set in the medium term.
Speaking about the macroeconomic environment Pakistan will face in 2020-2021, the said the country is likely to face five percent GDP loss, exports could lose by eight billion dollars, employment of 12-18 million are vulnerable, around 20-25 million people could be below the poverty line, remittances could be lost by 4.4 billion dollars, and its fiscal loss could be four percent of the GDP in the next year including revenue loss, direct loss, expansion of safety net, and additional borrowing cost.
There were some conflicting objectives before the Advisor to the Prime Minister before making the budget including need to revive growth, investment, preventing business failure, job losses, fiscal consolidation, IMF programme targets, avoiding public debt blowout, but the number one priority of the country is preventing business failure and jobs losses.
He said avoiding economic scaring (permanent loss of productive capacity) was more important at this stage than a fiscal stimulus.
He said that relief for businesses under the stimulus package is 0.4 percent or Rs165 billion including tax refund, duty drawbacks, reduction in the RD and reduction in petroleum products.
"In addition, interest rate reduction, payroll financing, however it is not enough," he added.
He described FBR's revenue collection target as unrealistic, completely unwarranted "and goes against the relief declaration, no new tax."
"The policy option was to recognize scale of the problem, bold heterodox policies, make business survival, job retention number one priority, write off fiscal 2021, negotiate a one year suspension of IMF programme targets, greater tax relief to businesses, minimum turnover tax, reduce GST, restore zero rating for one year, use one year off-budget loan guarantee for SMEs, saving one salary freeze, interest payment , defense, other discretionary expenditures, introduce one year sunset clause documentation/registration requirement," he added.
Chairman FPCCI Anjum Nisar said the budget is status quo and the interest rate should be reduced to four to five percent. Nisar said that the oil prices relief should be passed on to the masses.
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