- Key measures include revenue enhancement strategies including tax revisions in sectors such as retail, agriculture, and real estate, alongside a wealth tax on movable assets, as deemed appropriate
ISLAMABAD: The federal government has hinted at revising tax on retail, agriculture and real estate, alongside a wealth tax on movable assets under the economic revival plan.
The Ministry of Finance stated this in its monthly Economic Update and Outlook of September 2023 uploaded on Thursday. The key measures under the economic revival include revenue enhancement strategies including tax revisions in sectors such as retail, agriculture, and real estate, alongside a wealth tax on movable assets, as deemed appropriate.
In addition, tax exemptions worth billions will be limited to essential sectors only such as food and medicine, whereas, austerity measures to rationalise government expenditures, along with a review of subsidies and grants are also on the cards.
The government will also review the Development Plan and emphasise Public Private Partnership (PPP) projects besides compliance with quarterly budget targets and IMF agreements, including tax collection and debt liabilities.
Furthermore, the government under the proposed plan will also focus on the 5Es framework (exports, equity, empowerment. environment, and energy) in order to address socio-economic challenges and to encourage export expansion and business facilitation.
According to the Finance Division, the use of information technology to digitise the economy and expand the tax net is also on the cards.
The proposed plan also includes state-owned enterprises (SOEs) reforms including an SOE policy to be enacted while Central Monitoring Unit (CMU) and SOE performance reports will also be prepared while focus on the implementation of a treasury single account (TSA), remittance incentives, energy conservation, and price controls.
The Privatisation Commission will also privatise selected public sector enterprises using various modes. Initiatives include assessing privatisation options for DISCOs, restructuring options for PIA-CL, and unbundling studies for SNGPL and SNGPL will also be conducted.
On the other hand, the government under the proposed plan will reduce corporate taxes in order to improve non-bank finance and promote the capital market.
For export enhancement, implementation of Weighted Average Cost of Gas (WACOG), operationalisation of EXIM bank, and faster clearance of sales tax refund are priority short-term measures.
The short-term initiatives for business facilitation and promoting investment, are to be taken by the Board of Investment, including the Asaan Karobar plan (establishing central e-registry, development of Pakistan Business Portal, National Regulatory Delivery Office).
The IT exports are to be boosted through training, a Startup Pakistan Program, and policy interventions. In telecommunications, reforms aim to foster growth and introduce 5G technology.
In Maritime Affairs, initiatives include reducing freight charges, enhancing ship recycling, developing port master plans, and revitalising the fisheries sector. Pakistan Railways to focus on governance, private sector participation, technology and digitalisation. The National Highways Authority (NHA) to restructure resources, focus on maintenance and optimisation, and seek private-sector financing.
The Petroleum Division to implement price reforms and attract foreign investment, along with other initiatives.
In the power sector, short-term actions include an anti-theft campaign, cost reduction through solar initiatives, and renegotiating IPP agreements.
According to the Finance Division, recent administrative measures aimed at improving the availability of essential food commodities and expected ease in supply constraints have improved the inflation outlook.
Administrative and regulative action for curbing illegal activities in the foreign exchange market have started to yield desired dividends and narrow the gap between interbank and open market exchange rates.
On the external front, the current account deficit and aligned indicators are showing some developments in August. Similarly, fiscal performance remains satisfactory at the start of fiscal year 2024.
It is expected that the economic revival plan and prudent actions - policies including SIFC and IT policy- will attract new investments to create a multiplier effect in the economy for higher and inclusive economic growth in the fiscal year 2024 and further in the medium term. Since the beginning of FY2024, Pakistan’s economy has stepped up on the recovery path.
In August FY2024, month-on-month exports increased by 14.2 percent while imports grew by 2.1 percent for the same period.
The upturn in the global economy coupled with relaxed import restrictions, is mitigating disruptions in the supply of raw materials and supporting export-oriented industries.
The FDI also increased by 16.1 percent during Jul-Aug FY2024 on account of rise in Chinese investments and exchange rate stability.
In the agriculture sector, the arrival of cotton in September 2023 posted a remarkable growth of 79.9 percent to 3.93 million bales compared to 2.19 million bales during the same period last year. This surge reflects a growing focus on enhancing cotton production which is encouraging for the export and overall economic outlook inFY2024.
The large manufacturing scale sector (LSM) is recovering from a slump. Although LSM remained negative in July FY2024, however, nine out of 22 sectors picked up positive growth including food (10.0 per cent), tobacco (54.0 per cent), wearing apparel (30.8 per cent), pharmaceuticals (54.0 per cent), chemicals (5.9 per cent), and others.
The better input situation through the lifting of import restrictions paved the way for sectoral growth. However, several sectors are still under pressure as tight financing facilities and inflationary pressures persistently hinder their production activities.
CPI inflation was recorded at 27.4 percent on a year-on-year basis in August 2023 as compared to 27.3 per cent in August 2022. On a month-on-month basis, it increased to 1.7 per cent in August 2023 compared to an increase of 3.5 per cent in the previous month.
The government’s stern administrative measures to curtail the hoarding of commodities and foreign currency measures resulted in moderating the inflation pressure. However, given the international oil price pressure and adjustment in energy prices, uncertainty in inflation will remain.
On the fiscal side, the fiscal deficit in July, FY2024 remained 0.2 percent of GDP almost the same level as last year whereas the primary balance surplus improved to Rs311.2 billion from Rs142.2 billion last year.
The improvement in fiscal accounts is attributed to a significant upsurge in net federal revenues, which outpaced the growth in total expenditures.
Net federal revenues grew by 66 percent largely primarily driven by a notable increase in non-tax collections, particularly stemming from higher receipts related to the petroleum development levy.
On the other hand, new tax measures and increased collection from import-related taxes contributed to raising tax collection. Within expenditures, although markup payments grew by 52 per cent, non-markup spending was reduced by 48 per cent.
This reduction in non-markup spending played a key role in improving the primary surplus during July FY2024. The current account posted a deficit of $ 935 million for July-Aug FY2024 as against a deficit of $ 2.0 billion last year, largely reflecting an improvement in the trade balance. The government is laying the foundation for short to long-term measures that will improve the near-term economic situation during FY2024.
According to the Finance Division, the recent administrative measures aimed at improving the availability of essential food commodities and expected ease in supply constraints have improved the inflation outlook.
Administrative and regulative action for curbing illegal activities in the foreign exchange market have started to yield desired dividends and narrowing the gap between interbank and open market exchange rates. On the external front, the current account deficit and aligned indicators are showing some developments in August.
Similarly, fiscal performance remains satisfactory at the start of FY2024. It is expected that the economic revival plan and prudent actions - policies including SIFC and IT policy- will attract new investments to create a multiplier effect in the economy for higher and inclusive economic growth in FY2024 and further in the medium term.
Copyright Business Recorder, 2023