On Thursday, Finance Minister Muhammad Aurangzeb declared his intention to raise the tax-to-GDP ratio from the present level of more than 9 percent to 13 percent over the course of the next three years.
“Our basic principles while framing this budget were to expand the tax base,” Aurangzeb stated, speaking at a post-budget news briefing in Islamabad. It is just not sustainable to have a tax-to-GDP ratio of less than 10%.
“We need to raise it annually in order to reach 13 percent in the next three years,” he said, speculating as to whether any other nation in the world could survive with a tax-to-GDP ratio lower than 10 percent, as Pakistan was able to.
With a total expenditure of Rs18.9 trillion, Aurangzeb unveiled the federal budget for the next fiscal year (FY2024–25) on Wednesday. According to commentators, this budget is essentially “in line with IMF guidelines.”
The budget for Pakistan for the next year intends to raise taxes on the salaried classes and remove tax exemptions for the remainder, with a moderate 3.6% GDP growth forecast and an ambitious target of Rs13 trillion in revenue collection.
During the budget presentation, Aurangzeb stated that expanding the tax base was the intention in order to minimise the impact on current taxpayers.
Speaking at today’s news conference alongside Federal Board of Revenue (FBR) Chairman Malik Amjad Zubair Tiwana, State Minister of Finance Ali Pervaiz Malik, and other attendees, Aurangzeb stated that one of the objectives of the budget recommendations was to discourage the non-filing of taxes.
“I wish to do away with the idea of non-filers. He said, “I believe Pakistan is the only nation with non-filers,” and that non-filers will pay more in “tax in transaction.”
“We aim to end the undocumented economy and digitise finances,” stated the finance minister, emphasising the importance of digitization. Given that the enforcement and compliance were subpar, discussion of the FBR’s performance is also appropriate.
Human intervention tends to decrease with end-to-end digitization. There would be increased openness, less corruption, and better client service, he continued.
The finance minister answered questions from reporters on the projected federal budget during the briefing.
Regarding the rise in the petroleum levy, Aurangzeb made it clear that the changes will be implemented gradually over the course of the “first fiscal year,” rather than all at once. “We’ll put this into action while keeping an eye on fuel prices worldwide.”
“If you look on an individual level, the burden is not that heavy,” Aurangzeb said, acknowledging that “some changes” had been recommended about the tax slabs and that the salaried class shouldn’t be saddled with progressive income tax.
In response to a question on including traders and retailers in the tax system, the finance minister stated that 2022 was the appropriate year to take this measure and that “retailers are our brothers and sisters.” To lessen the load on them, we must include them in the [tax] system.
“We must make sure that this area enters the net; we have no other choice. July is when these taxes will go into force, according to Aurangzeb.
He said that in an effort to “try and document cash transactions as much as possible,” the government will revive the Point of Sale pricing programme. Cash transfers are associated with the undocumented economy and digitization. There is Rs9tr in cash on hand, he underlined.
The finance minister described Pakistan’s “biggest upside”—having the “third-largest freelancer population in the world”—when questioned about youth programmes and incentives. Funds would be allotted, he added, and improvements to digital infrastructure would result in “better Wi-Fi for people to work from home.”
Additionally, Aurangzeb emphasised the need for improved financing for small-to-medium-sized businesses (SMEs), saying, “The ministry of finance has already allocated [funds] to SMEs, they will be subsidised.” We’re willing to guarantee a first-loss because banks aren’t showing much interest.
Regarding the significant increase in funding for the Public Sector Development Programme (PSDP), he stated that the government “was trying to make sure that projects already in the works be completed,” pointing out that 81 percent of the cash had been granted for projects that were almost finished.
Questioned about leakages from the tax base, Aurangzeb highlighted that the track and trace system had been rolled out and would be expanded from cigarettes to cement and other sectors. “Sales tax has a big leakage as well. We need to plug all of these through digitisation,” he asserted.
Asked if the target of bringing down inflation to 12pc was realistic, Aurangzeb said, “We should have shut down ministries and sectors that were not contributing. This is how we’ll cut expenditures. There is still work to be done, the prime minister will make decisions around ministries and devolved subjects.”
The finance minister declared, “The more things we exclude the government from, the more fiscal space we will get.”
The team member who was present for the briefing, Finance Secretary Imdadullah Bosal, concurred that the policy rate at the moment was still “considerably high.”
“We understand the impact of inflation on the common man, but we need to remember that we have made steps in the right direction,” stated the state minister in reference to inflation.
Malik stated, “If you hand things out, your deficit rises, in which case you print more money, or take a loan and put the burden on future generations — we have done both of these things,” using Argentina as an example of a country with a significant debt load to the IMF.
He claimed that punitive measures were now in place and that “give us time to enforce and impose direct taxation.”
Malik acknowledged that the electricity sector received the largest investment and said, “There will be governance issues but it will protect the most vulnerable.”
In response to a query on farmers’ worries, particularly in light of the current wheat crisis, the head of FBR stated that duties on fertiliser DAP had not changed in response to tractor firms’ request to discourage imports.
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