The purpose of the exercise is to clear the backlog and reduce the workload of the commission, as these schemes have lost their viability in the ‘changing priorities’, say sources in the commission.

Total cost of these 295 unapproved schemes is Rs4.1 trillion, of which Rs1.33 trillion is to come from foreign loans, according to official documents.

Foreign funds comprise almost a third of the total cost, highlighting the country’s dependence on global lenders that heightens the risk of delay due to unavailability of funds.

The schemes had been submitted to the PC for endorsement and subsequent presentation to the Central Development Working Party for its approval.

The pending portfolio is in addition to over Rs3 trillion worth of projects approved in the past five years including schemes costing Rs1.8 trillion where work is underway but is facing delays due to scarcity of resources.

For the current fiscal year, Rs360 billion was set aside for development projects, of which a significant amount, Rs52 billion, went to meet the needs of former prime minister Raja Pervez Ashraf and the parliamentarians.

For next year, the proposed development budget is Rs450 billion, not enough to meet financing needs of ongoing schemes requiring Rs1.8 trillion.

According to sources, there is a possibility that projects received up to 2011-12 may be returned by the PC as their cost estimates have become irrelevant after the lapse of a significant time period.

The move highlights an interesting historical trend of changing policies and priorities with the change of government. The PML-N introduced Vision 2010 in 1997 that was shelved by General Pervez Musharraf government and replaced with Vision 2030. The PPP government threw Vision 2030 and introduced the Framework of Economic Growth. Now, the new PML-N government is likely to introduce Vision 2025.+

Sources said many unapproved projects have no economic viability as these were designed under political considerations in the previous PPP government. This showed that the projects were floated without keeping in view national planning perspective, which indicates that the commission also compromised while receiving such projects for consideration.

The number of projects submitted in 2008 but remained unapproved was three. The figure jumped to 17 in 2009, 20 in 2010 and 23 in 2011. The rest were from the last two years, indicating the use of projects for political purposes.

Asif Sheikh, spokesman for the PC, confirmed that the commission was reviewing the possibility of returning unapproved schemes to the sponsoring ministries. He said new priorities would have to be set by the ministries given the available fiscal space.

Of the pending 295 schemes, 55 are in the health sector costing an estimated Rs54 billion. The transport and infrastructure sector has 53 projects worth Rs2.1 trillion including Rs161.3 billion in foreign loans. The water resources sector has 51 projects of Rs231.9 billion including Rs17 billion in foreign loans.

In physical planning and housing, there are 47 unapproved schemes costing Rs26.8 billion whereas the energy sector has 26 projects worth Rs1.3 trillion including Rs830 billion in foreign funds.

In the field of agriculture and food, five schemes worth Rs417 billion are yet to be cleared, higher education has 14 unapproved schemes of Rs15.2 billion and science and technology has eight schemes of Rs4.4 billion.

Published in The Express Tribune, May 26^th, 2013.

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The power crisis has worsened in the last 48 hours, as cities and rural areas alike plunged into darkness after four power plants tripped due to overload. Believe it or not this was the good news, as the tripping of the power plants avoided the near-collapse of the National Grid System, similar to the one that took place on February 24.

While there are no easy fixes to this problem, despite what politicians may have claimed in their election campaigns, short-term relief is possible if enough money is injected to temporarily resolve the circular debt issue. But even that’s not happening. After making an initial commitment to interim Prime Minister Mir Hazar Khan Khoso to provide a sum of Rs22.5 billion to the water and power ministry, a defiant Ministry of Finance remains reluctant to release the remaining Rs17.5 billion for fuel purchases.

Currently, power stations are producing energy well below their capacity. Against the public sector’s available installed thermal capacity of 3,580MW, Friday’s production stood at a paltry 1,305MW.

Out of the 11 thermal power plants in the public sector, seven are completely shut down, while the rest of the power plants are not running at even one-third of their capacity due to fuel shortages and technical faults.

Independent Power Plants (IPPs) are also facing production shortfalls. With a generation capacity of 7,687MW, energy production at IPPs is currently at 5,024MW as most of the plants remained closed due to non-availability of fuel.

“In the past 10 days, I ran my plant for five days but only received payment for running it for a day and a half,” complained the Chief Operating Officer of Saif Power Plant Sohail Haidri.

Haidri threatened to shut his plant on Saturday, if the government did not clear his dues.

DESIGN: FAIZAN DAWOOD

Out of 26 IPPs, nine – with an accumulated generation capacity of 1,756MW – are currently shut down, and the rest are operating below capacity. The HUBCO power plant, for example, was producing only 18MW against a capacity of 214MW due to the government’s failure to pay outstanding dues of Rs14 billion.

Furthermore, there was a partial blackout in parts of the country on Thursday with a sudden shortage of 1,377MW from the system. Guddu power plant, Uch power plant, Habibullah Energy Limited and Engro Daharki all tripped on the same day.

The ministry of water and power’s decision to over-stretch the system to get 500MW more electricity caused the problem.

“We avoided a complete breakdown by isolating the problematic areas from the rest of the country,” said Zargham Eshaq Khan, the joint secretary power of the ministry of water and power.

On February 24, when the country plunged into darkness the power shortage due to the system’s trip was 900MW.

The situation remained almost the same on Friday. Cities like Lahore and Faisalabad faced power outages for 18 to 20 hours, while in Islamabad, most areas of the federal capital faced up to 10 hours of load shedding.

However, this is not an out-of-the-blue scenario, officials admit.

“There is no predictability in planning as there hasn’t been effective asset management over the years”, said Khan. “If I bring one plant on the system the other goes out.”

On Friday, average electricity generation stood at 10,200MW while the average demand was 15,000 MW. The breakdown of this is as follows:  hydel generation was 3,144MW, which was 48.8% of the installed capacity. Thermal public sector generation was 1,305MW – just one-third of its installed capacity. IPP generation was 5,024MW, slightly less than two-thirds of the total generation capacity. Nuclear power generation was full at its capacity of 615MW.

The total generation was thus less than two-thirds of the available installed capacity of 16,261MW. Going by the numbers, load shedding in cities should not have been more than ten hours and in rural areas up to 12 hours. That is, if all else was equal. It’s not.

Khan explains the problem like this: Due to non-equitable load shedding, some areas faced the brunt of power shortfall more than others. Load shedding waivers given to hospitals, airports and military installations resulted into power outages in many areas.

Another element that is aggravating power outages, particularly in rural areas, is the corrupt elements in power distribution companies. The second-tier hierarchy in almost all the power distribution companies takes bribes to exempt certain areas from load shedding, according to sources. Where this is not possibly, they at least try and reduce the duration of power cuts.

The Ministry of Water and Power officials admit that they face difficulties in measuring the flow of power towards power distribution companies on a daily basis. “Based on a metering system, we get information after every month, but for load management purposes real time information was not available,” said Khan. He hoped that by June 30 the system would be installed that would allow them to get real time information.

Power protests in Faisalabad

Naturally, all this has an effect on the ground. People fed up with prolonged load-shedding took to the roads in Faisalabad on Friday and staged demonstrations against the Faisalabad Electric Supply Company (Fesco).

Zulfiqar Ahmad, a resident of Thikriwala,  said, “We spent all Thursday night without electricity as power went out at about 8.00 pm on May 23 and came back at 5.00 am on May 24.”

Waheed Khaliq Ramay, chairman of the Council of Loom Owners Association (CLOA), led the protest and said that due to unprecedented load shedding, factory owners were unable to operate their units, leaving thousands of workers jobless. The elections may have symbolically empowered the people of Pakistan, but in a very literal sense, they remain powerless.

Published in The Express Tribune, May 25^th, 2013.

The Federal Board of Revenue has proposed to only nominally increase withholding tax rates in the next fiscal year 2013-14. The move is aimed at maintaining the status quo. Beneficiaries of presumptive tax pass it on to consumers by adding it to prices of goods.

Originally, the proposal called for converting the presumptive tax regime into minimum tax regime where taxes deducted at source would be treated as minimum liability and taxpayers would file income tax returns to provide complete information. At present, less than 800,000 people pay income tax.

Currently, withholding tax at varying rates is imposed on importers, exporters, contractors, real estate owners, dividend income, bank interest and telephone and electricity bills. Furthermore, to get easy money the FBR also imposes this tax on cash withdrawals and the salaried class.

The importers, retailers, exporters and contractors benefit from the system as they pass the cost of taxation on to consumers and at the end of the day their personal liabilities remain nil.

FBR’s reliance on presumptive tax is causing billions of rupees worth of loss to the public exchequer. By bringing these sectors into the normal income tax regime, the FBR can get billions of rupees in additional taxes, experts say.

Instead of abolishing the presumptive tax, the FBR has proposed to increase the tax rate for exporters from 1% to 1.5%, for registered importers from 5% to 6%, for unregistered importers at 6.5%, for contractors from 3% to 3.5%, on cash withdrawals from 0.2% to 0.3% and on electricity consumption above 1,000 units per month a 10% additional withholding tax.

The FBR treats collection under the head of withholding tax as direct tax, which according to experts is not a direct tax in real terms. In the first half of the current fiscal year, the FBR collected Rs190 billion in withholding tax, which is 55% of the total income tax collected from July to December 2012, according to the FBR.

From contractors, Rs49.5 billion was collected in six months, Rs44.5 billion from importers, Rs21.5 billion from salaried class, Rs16.3 billion from bank interests, Rs10.8 billion from exporters, Rs9.2 billion from telephone bills, Rs8.6 billion from dividend income and Rs5.6 billion from cash withdrawals.

The presumptive tax regime has kept documentation at a low level and resulted in lower tax rates, said Ashfaq Tola,
Senior Partner at Naveed Zafar Ashfaq Jaferry & Co.

He suggested that instead of moving straightaway to the minimum tax regime, the FBR as a first step could implement a maximum tax regime for a period of three years. Under this system, he proposed that presumptive tax should be treated as final liability but with a requirement to file income tax return.

Through this system, he said, the FBR could achieve the desired level of documentation and at the same time would allow the taxpayers to make proper systems and gradually align to documentation.

Published in The Express Tribune, May 25^th, 2013.

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With fresh payment, Pakistan will have returned a total of $3.8 billion to the IMF out of $7.8 billion that it borrowed under a bailout programme, signed in November 2008. The $383 million will be the second-last tranche for the current fiscal year and the last installment of roughly $260 million (SDR 175.5 million) will be paid on June 28.

With that, Islamabad will have returned $2.6 billion in this fiscal year alone. Next year, it will pay back the biggest chunk of $3.6 billion.

The repayments to the IMF have taken a heavy toll on foreign currency reserves of the State Bank of Pakistan with foreign investment remaining negligible.

According to the SBP, until May 17, its net foreign currency reserves stood at $6.38 billion. The amount includes $2.7 billion that the central bank has pledged in forward contracts for import.

Despite the drop in foreign currency reserves, the incoming PML-N government has not yet decided on seeking a fresh bailout programme from the IMF. Its senior leader Sartaj Aziz has already stated that a new programme is “not desirable at least for three to four months”.

Sources in the banking industry revealed that uncertainty about the new programme has started unnerving foreign goods suppliers who are seeking confirmation of letters of credit. They are expressing doubts about ability of Pakistani importers to pay for imports on time.

So far, some suppliers from the United States and Europe have sought guarantees for LCs and they are charging the cost of guarantee from the importer by adding it to the cost of goods.

The confirmation of LC is sought only when there is a substantial risk of default on foreign payments. After the 1998 nuclear tests by Pakistan, foreign suppliers sought LC confirmation, which was provided by international banks like the Asian Development Bank and Citibank.

“Western and European banks are seeking LC confirmation from first-class banks only in cases where the amount is substantial and the Pakistani bank is smaller,” said Mirza Ikhtiar Beg, Chairman of Federation of Pakistan Chambers of Commerce and Industry’s Standing Committee on Banking and Credit Finance.

He, however, said he did not know about any case where a payment guarantee has been sought due to depleting foreign reserves.

MNCs repatriate dividends

According to sources, multinational companies have also started repatriating hefty amounts in the shape of dividends. They do this on fears that the rupee may drop significantly against the US dollar because of a continuous fall in foreign currency reserves.

People associated with the banking industry said MNCs have posted huge profits in the past few years and now their managements are sending back the money to parent companies abroad before any deepening of crisis.

Portfolio investment is another area where a dollar shortage can create problems, they said.

SBP officials were not immediately available for comment on issues of LC confirmation and dividends sent home by MNCs.

In 10 months of the current fiscal year, the current account deficit stood at $1.4 billion or 0.7% of gross domestic product.

The deficit looks like within manageable limits, but with the country’s financial problems, officials said, this small gap can take a toll on foreign currency reserves by the end of fiscal year in June.

Published in The Express Tribune, May 24^th, 2013.

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Talking to The Express Tribune, senior leader of PML-N Sartaj Aziz said that in spite of time constraints the budget for fiscal year 2013-14 can still be presented in between June 10 and 12. He added that after the new cabinet is formed the party’s nominee for the finance minister slot Ishaq Dar will have around two weeks to set his priorities.

Elaborating the party’s plan of action Aziz stated that the expenditures part of the budget was almost already complete while the taxation measures were to be decided over the course of a few weeks. He said the party would not face many problems in presenting the budget on time.

According to political analysts, if desired the president can summon the NA session by May 26 which would assist the PML-N to form the government at the earliest, giving it more time to plan the budget. However, if the president wishes to exploit maximum 21 days limit that the constitution sets to call a session of new assembly, the PML-N will form the government by June 3 or 4.

According to clause 85 of the constitution, the NA shall have powers to make any grant in advance in respect to the estimated expenditures for a part of any financial year, not exceeding four months.

Aziz, who is expected to be Adviser on Economy and Foreign Affairs to the premier, said that the party was not considering any proposal to delay the budget for four months. “Extending the current budget further for four months will mean that the wasteful expenditures will continue,” he said.

He added that the parliament would need 15 days to pass the budget and that time will be given. “The PML-N enjoys a comfortable majority in the National Assembly therefore the party will not face difficulty in getting the budget through,” he explained.

The PPP-dominated Senate will have only recommendatory powers in case of Finance Bill where the decisive powers rest with NA. However, the Senate Standing Committee on Finance can take up to 14 days to give recommendations on the proposed budget after it is presented in the NA.

After the Senate sends out its recommendations, at least three days will be required for the NA to pass each demand for grant and budget will have to be approved by June 30, the last day of the current fiscal year.

Sources reveal that as a backup the finance ministry is working on a proposal to fast-track the process of budget approvals from the agencies concerned before its presentation to the parliament. They added that there was a possibility that meeting of Annual Plan Coordination Committee would not be called. The APCC finalizes the development and current budgets and macroeconomic targets on recommendations of the Priorities Committee for approval of the NEC. The recommendations of the priorities committee may directly be presented to the NEC.

There will also be a need to reconstitute the NEC and a summary for the purpose will be put for approval of the prime minister immediately after his oath-taking. However, the sources added that Sindh may take time to nominate its members which may delay the NEC constitution for a couple of days, given the fact that PPP is still the ruling party in the province.

Published in The Express Tribune, May 23^rd, 2013.

Budget makers have estimated receipts worth Rs112 billion as loans for projects falling under the Public Sector Development Programme (PSDP) 2013-14, sources in the finance ministry said. This foreign loan component forms almost 25% of the total proposed development budget of Rs450 billion for the next fiscal year.

The National Economic Council, which will be headed by the new prime minister, will accord a final approval to next year’s PSDP before it is presented to the National Assembly.

Foreign contributions are pivotal to the overall size of the PSDP, as loaned money is usually used to procure machinery and equipment for different projects. However, there always remains an element of uncertainty regarding the timely disbursement of foreign funding, due to factors such as the timely execution of projects and the country’s relations with international creditors.

Sartaj Aziz, tipped as the next adviser to the prime minister on the economy and foreign affairs, recently said that his government would not negotiate for a new programme with the IMF for the next three to four months at least.

The IMF usually does not provide funds for project assistance and releases money only for balance of payments crises. However, the other creditors who do – like the World Bank and the Asian Development Bank (ADB) – always look to the IMF before extending any assistance to Pakistan.

Due to Islamabad’s already strained relations with the IMF, the World Bank and the ADB have suspended budgetary support to Pakistan as well. The latter two are also in the process of cancelling various project loans, primarily because of Pakistan’s inability to complete projects on time and also because of bureaucratic dillydallying.

Aziz’s statement has added an element of uncertainty as economic managers plan their budgetary projections for next fiscal year, an official of the Planning Commission said.

Foreign loans for development projects are important, but there is always a risk factor attached to them as their disbursement is in the hands of donors, says Dr Ishrat Husain, former governor of the State Bank of Pakistan. Dr Husain has written a paper on the “National Economy and Impact of Foreign Aid”. He said that slow progress on projects cause slow disbursements from international lenders.

Dr Husain is also critical of the PSDP structure: he maintains that the fragmentation of PSDP allocations into various categories, like the Peoples Works Programme (which is spent at the discretion of the prime minister and parliamentarians), has rendered the PSDP ineffective and leaving little impact on economic growth.

Planning Commission spokesperson Asif Sheikh said a final decision will be taken regarding the share of the foreign loan component in the total size of the PSDP after due diligence. He said the Planning Commission, having learnt from past mistakes, would take only those foreign loans into account which have already been affirmed by lenders.

Out of the total Rs360 billion size of the PSDP for the current fiscal year, the foreign loans component summed to Rs100 billion. Approximately Rs84 billion had been received till early May, Sheikh said.

Pakistan’s increasing reliance on foreign loans lends it to exploitation by international lenders, sources warned. For instance, China’s Exim Bank has withheld $448 million despite committing that sum to the 969 megawatt Neelum-Jhelum Hydropower Project, which has greatly affected work on its development. The Exim Bank is forcing Pakistan’s hand, asking the country to take out another loan for the controversial Safe City Project, designed to protect major cities from terrorist attacks by installing scanners at key areas. The Supreme Court of Pakistan had earlier struck down the project after finding serious flaws in the award of its contract.

After the Exim Bank’s refusal to release funds otherwise, the government has been forced to negotiate an expensive $500 million loan from the Standard Chartered Bank in a bid to keep work on the Neelum-Jhelum project moving.

Published in The Express Tribune, May 22^nd, 2013.

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The Additional Secretary-I (AS-I) is the most important position in the defence ministry after Secretary Defence. The AS-I deals with all military organisations and also handles the affairs of lands owned by the military, Civil Aviation Authority and Pakistan International Airlines. The AS-II and AS-III are taken from Air Force
and Navy, respectively, though by law.

Though AS-I, AS-II and AS-III are civilian posts, they have traditionally been occupied by men in the military.

The sources said Major General Arif would stand retired from the armed forces, and would be keeping his current post despite doffing the uniform.

The extension to General Arif Raja has been given at a time when the caretaker government is coming under pressure for making abrupt transfers and postings, a move viewed by many as transgressing its mandate. Its actions have been challenged by the law ministry and the PML-N.

Narida Farhan, the public relations officer of the Ministry of Defence, confirmed that two-year extension was given to Major General Arif Raja from May 14. She maintained that all the prerequisites were met before seeking extension.

However, press Secretary to the prime minister, Shafqat Jalil, said General Arif Raja’s extension was not in the knowledge of the PM House.

The leading newspapers on Monday quoted the interim Law Minister Ahmer Bilal Soofi as giving warning to the caretaker set-up against overstepping its mandate by making undue transfers and postings in important government departments.

While talking to The Express Tribune, the Law Minister Soofi said the PM has the right to make appointments and give extensions but these decisions should not be controversial.

On Monday, Khawaja Asif of PML-N challenged the caretaker government’s transfers and postings in the Supreme Court. The apex court has already issued a contempt of court notice to caretaker PM Khoso on a petition filed by Shafqat Nagmi, a Grade-22 officer. 

Published in The Express Tribune, May 21^st, 2013.

Of this, Rs95,910 is claimed in car monetisation allowance while a 20% additional allowance is charged on the same account, according to the pay slip of the auditor general.

Rana has been making these car allowance claims since January 2012 – even though he has been riding in a chauffeur-driven car.

The amount the auditor general was getting was Rs21,000 over and above the car allowance that the previous government had fixed for Grade-22 officers.

Currently, the auditor general is getting a salary 20% higher than the maximum salary payable to a Grade-22 officer. On the same grounds, he got a monthly car allowance which is 20% higher than what is available to a Grade-22 officer.

Rana is also illegally getting 20% special pay or Rs17,140 per month in addition to his normal salary, which is already 20% higher than any Grade-22 officer, his pay slip shows. On account of special pay, the AGP claimed Rs1.6 million arrears.

Sources within the Accountant General of Pakistan Revenue office said the AGP was availing car monetisation facility despite opposition by both the finance ministry and the cabinet division. The cabinet division had opposed the move on the grounds that the constitutional position holders like the AGP were not entitled to such an allowance, the sources said. Under the rules, holders of constitutional positions are not allowed to claim car monetisation allowance

In order to curb misuse of official cars by the bureaucrats the previous government had withdrawn cars and in return gave cash to Grade 20 to 22 officers.

After finding the demand illegal, the then AGPR Farah Ayub Tarin refused to extend the facility to the AGP Rana. Vexed by the refusal, the AGP replaced Tarin and appointed Manzar Hafeez Mian as AGPR who sanctioned him the car allowance, the sources added.

The Express Tribune contacted the former AGPR, Manzar Hafeez Mian, who is currently serving as the Deputy Auditor General of Pakistan. “I do not wish to  comment,” said Mian in a terse response. The incumbent AGPR Tahir Mahmood was also not available for comment.

The disclosure came on the heels of the AGP’s demand for a 400% increase in salary. His continued misuse of taxpayers’ money put a question whether he is really a custodian of the exchequer.

The auditor general’s office is the prime institution in the country for ensuring public accountability and fiscal transparency in governmental operations. It is also responsible for bringing improvements in the financial discipline and internal control environment in the executive departments for minimising the possibility of waste and fraud.

The AGP’s spokesman Imran Iqbal also refused to respond to any of the questions on illegal car allowance, getting pension on a job and whether Rana was really a custodian of the taxpayers’ money.

According to the AGP Ordinance of 2001, the AGP is paid a pension of Rs25,000 per annum for each completed year of service. This amount is in addition to what the AGP will get in normal pension after retirement. However, the sources said, the AGP Rana pushed the former AGPR Mian to give him Rs25,000 per month in pension that he had to agree.

Till 2001, the auditors also used to perform the audit of the AGP under 1973 laws. However, the AGP’s audit had been stopped after this function was deleted in the 2001 Ordinance.

Published in The Express Tribune, May 20^th, 2013.

In April alone, the federal government spent Rs185 billion more than its income, which is equal to 0.8% of national output.

Officially, considering the old base year of 1999-00 which the Ministry of Finance insists on using, the deficit stands a little lower at 5.4% of gross domestic product (GDP).

The 10-month gap between federal income and expenditures is Rs103 billion higher than the annual ceiling of Rs1.184 trillion, or 5% of GDP, set by the parliament for the current fiscal year. The breach of the limit points to the previous government’s failures in curbing expenditures and boosting revenues.

According to sources, the overall budget deficit stood at Rs1.207 trillion or 5.3% of GDP, calculated with the new base year of 2005-06, considering Rs80 billion worth of savings by provinces.

On the revenue side, against the annual target of Rs2.381 trillion, the Federal Board of Revenue may hardly hit the Rs2 trillion mark by the end of fiscal year in June, a fact acknowledged in official correspondence of FBR officials.

In 10 months, FBR’s tax collection have reached only Rs1.485 trillion, making it nearly impossible to collect the remaining amount of Rs896 billion in the remaining two months of the year.

In the case of expenditures, total power subsidies are likely to clock in above Rs350 billion, compared to the budgetary target of Rs185 billion. So far, in 10 months, over Rs320 billion have already been doled out to the power sector under this head.

According to revised assessments, the budget deficit is likely to reach around 8% of GDP by the end of the year because of a massive revenue shortfall, surge in power subsidies and high interest payments.

With a gap this wide, the new government will not have many options for restraining the expansionary fiscal policy when it will present next year’s budget, analysts say.

A realistic budget deficit figure for next fiscal year will be around 6.5%, as the new government cannot consolidate more than 1% to 1.5% of GDP in its first year, said Dr Ashfaque Hasan Khan, dean of the Business School of the National University of Science and Technology. He said bringing down the deficit to 4% will require three to four years of continuous consolidation.

To finance a deficit of around 6.5%, the new government will have to borrow Rs1.6 trillion from the market. Officials say that given the volume of borrowings, inflationary pressures will persist and private credit will be squeezed in the next fiscal year as well.

In the first nine months (July-March), net external borrowings remained negative at Rs4.2 billion. To finance the nine-month deficit, the federal government borrowed Rs1.05 trillion from the domestic credit market, finance ministry documents reveal.

Sources say any deficit target below 6% for the next year will be unrealistic and difficult to achieve. If the new government decides to play with budgetary projections, they cautioned, it will only be repeating mistakes of the previous regime and may face similar trust deficits.

Published in The Express Tribune, May 19^th, 2013.

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The items include cosmetic products, racing cars, filter rods of cigarettes, lubricant oils, air conditioners, deep freezers and various types of other oils.

Sources in the Federal Board of Revenue revealed that tax officials have proposed that the policy to phase out Federal Excise Act of 2005 over three years may be abandoned from the next fiscal year, 2013-14, following the previous government’s move to abolish duty on 25 revenue-generating items which hit tax collection hard.

If the duty stays, it will generate billions of rupees next year, but the final decision will be taken by the Pakistan Muslim League-Nawaz government that is poised to take the reins of the country after winning general elections.

PML-N stalwart Sartaj Aziz did not comment on his party’s policy on federal excise duty. He only said the PML-N wants to increase revenues, but the policy to achieve this goal will be formulated by the new finance minister and the cabinet.

In 2011, the PPP-led coalition government started phasing out excise duty and scrapped the duty on 15 items in the first phase. In his last budget speech, former finance minister Dr Abdul Hafeez Shaikh vowed that the Excise Act will be completely phased out in two years while announcing withdrawal of duty on more items.

The previous government was eliminating the duty in a bid to gradually reduce the number of taxes to two major ones – income tax and sales tax – aimed at simplifying the system besides reducing the cost of doing business.

Sources said excise duty on most of the goods had been removed as an incentive to the private sector to bring down product prices. But the duty on some of goods like motor oil and waste oil was scrapped allegedly in the face of pressure from some vested interests and in return for kickbacks.

The exchequer suffered a revenue loss of Rs8 billion on just these two items, they said.

Excise duty is universally imposed to curb consumption of luxury items, but this principle is violated by successive governments as the duty is levied on many essential items as well, said Ashfaq Tola, a renowned chartered accountant from Karachi and a tax expert.

Proposals

Tax authorities seek to impose again 10% of the difference between the price before tax and production cost as excise duty on air conditioners and deep freezers. Both of these are considered luxury items and are also subject to sales tax.

The FBR is also aspiring to levy 5% duty ad valorem on station wagons and racing cars with cylinder capacity exceeding 8,500cc.

Furthermore, it is planning to impose 10% duty ad valorem on viscose staple fibre, Rs13 per litre duty on organic composite solvents and thinners, Rs25 per kg duty on grease, 88 paisa on methyl tertiary butyl ether, 7.5% duty on carbon black oil, 10% of retail price or Rs7.5 per litre duty on waste oil, 15% duty ad valorem on other mineral oils excluding sewing machine oil, Rs185 per ton on other fuel oils, Rs13 per litre on solvent oil and Rs10 per litre on transformer oils.

Last year, FED was removed from lube oil, lubricating oils, filter rods and skincare products. FBR’s proposal includes levying 10% per litre duty on lubricant oils, 10% on skincare products and 20% of the difference between cost of production and price before tax on filter rods of cigarettes. The proposal also includes increasing federal excise duty rate for cement.

Sources said the government is also considering reintroducing federal excise duty on livestock insurance and asset management companies.

Published in The Express Tribune, May 18^th, 2013.

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