ISLAMABAD: Adviser to Prime Minister on Finance Shaukat Tarin on Monday said “prior actions” – withdrawal of exemption of Rs350 billion, petroleum levy increase of Rs4 monthly, as well as, ex-post audit of Covid expenditure and amendments in SBP Act would be taken to pave the way for International Monetary Fund (IMF) Board meeting for approval of sixth review.
Addressing a news conference along with the Minister for Energy Hammad Azhar, he said that amendments initially agreed on the State Bank of Pakistan (SBP) Act with the IMF have been rationalised.
He stated that the government has agreed with the IMF to increase the Federal Board of Revenue (FBR) tax collection target to Rs6.1 trillion for the current fiscal year from Rs5.8 trillion. He said that Rs200 billion in PSDP would also be reduced from Rs800 billion to Rs700 billion for the current fiscal year.
He further stated that the reforms are being introduced to define the responsibilities of the State Bank of Pakistan (SBP) to help maintain price stability, besides monetary policy and exchange rate policy would be entirely, as he believes, in the autonomy of the central bank like other countries is important. “We believe that SBP like other countries should be independent in monetary policy and exchange rate policy and price determination and the government would get the law approved from the parliament.”
Tarin said that the Law ministry was involved as some clauses, initially agreed with the IMF in March 2021, required constitutional amendments. As the government did not have the two-third majority, after detailed discussion and involving Law Ministry the IMF got agreed on rationalizing the SBP Amendment Act.
The adviser said that the governor SBP and board of directors would be appointed by the government; however, it would be made autonomous body in terms of monetary policy independence, exchange rate, etc. He said that the IMF also agreed after it was told that if the NAB law is applicable on Prime Minister, parliamentarians, judges, it would also applicable on the SBP. He said that instead of Fiscal and Monetary Policy Board, a liaison has been envisaged in the proposed rationalized between Finance Minister and Governor SBP.
He said that the programme has been started from where it was left in March 2021, the then team agreed while taking $500 million that it would either increase taxes of Rs 700 billion or withdraw exemptions besides increasing power tariff by Rs4.95 per unit and amendment in the SBP Act.
After assuming the office, he stated that he believes in broadening the tax base, adding increase in tariff by itself was not the solution because problem was coming from capacity payment. There was also need to rationalize the SBP Act so that it should look an institution of this country. He said when the IMF was told that the growth in tax collection was Rs200 billion is up, the Fund wanted to implement the policy decisions.
He said that something in exemption was given, but exemptions to agriculture, food items, as well as, fertilizer and pesticides would be remain while in income tax everything was saved including exemption on provident fund, and slabs of personal income tax. He said that exemptions have been reduced to Rs350 billion from initially agreed Rs700 billion.
He said that IMF wanted continuation of reforms in power sector and tax system. He said prudence in expenditure and fiscal discipline are few measures that would help develop the economy on sustainable basis. He said that IMF has acknowledged that Pakistan has been on the right track and emphasized on medium term policy reforms to remove the issues and wanted continuation of reforms in the power sector and tax reforms.
The Fund also stated that the there is pressure on external account and State Bank should take timely measures. The IMF wanted some action to be taken on inflation and overheating of the economy and it has to be toned down.
The minister Hammad Azhar said that transparency in state-owned enterprises (SOEs) have to be ensured and public finance reforms would be done, besides continuation of reforms in the FBR and to create facilities for business. He said that the IMF noted that the reforms being introduced would increase problems for the low income group; therefore, it should be provided targeted subsidy through Ehsaas and Kamayb Pakistan. He said that the GDP growth would be 5 percent for the current fiscal year and during the first four months of current fiscal year the economy was growing very fast which was evident from tax collection, electricity consumption. He said there was a concern that the rapid growth was also contributing to inflation.
Replying to questions, he said that prerequisite prior action for the IMF board meeting included withdrawal of GST exemption of Rs350 billion, increasing Petroleum levy Rs. 4 per month to collect Rs356 billion against budgeted Rs 610 billion, amendments in the State Bank of Pakistan Act and ex-post audit of Covid expenditure to show beneficial owner of vaccine suppliers.
Minister for Energy said that as per agreement with the IMF on energy, prior action has been taken last months and there would be no increase in base tariff before next few months.
Copyright Business Recorder, 2021