ISLAMABAD: The government will announce a tax-free budget and cut income tax and regulatory duty rates in a bid to provide maximum relief for all segments of the society, Dr Miftah Ismail said on Tuesday.
Talking to The Express Tribune, the adviser to the prime minister on finance said the government would also aim to strike a balance between the consolidated and expansionary fiscal policy by trying to restrict the budget deficit to around 4.5% of total national output in fiscal year 2018-19 (FY19). But the target was not final and was subject to internal reviews, he added.
He vowed to reduce the number of withholding taxes in the new budget that had not contributed to the revenue growth but increased problems for the people. Tax rates for the salaried class would also be considerably reduced, Ismail emphasised.
The adviser declared that the outgoing government would not launch new development projects nor announce a fattened Public Sector Development Programme (PSDP) for 2018-19.
It was for the first time that the government’s new economic wizard spoke about the budget 2018-19, which would be the current government’s sixth budget, slated for announcement on April 27.
The government has advanced the budget calendar by at least six weeks as it does not want to leave the task of fiscal policymaking with the caretaker setup which will be announced in the first week of June.
Ismail said all the export incentive schemes announced in the previous budgets would be rolled back, arguing it was not the government’s job to provide concessionary loans for only a limited segment of the society.
In the 2018-19 budget, there would not be any winners or losers and the government would not give preferential treatment to one class over the other, he added.
The budget 2018-19 would not be complicated, would be liberal, tax-free and focus on a few areas where the government could ensure improvement, Ismail said while explaining the philosophy of his government’s sixth budget. To a question about the possibility of an expansionary fiscal policy ahead of general elections, the adviser said contrary to common perception, the government would not announce new development programmes.
“It is the right of the next government to announce new development projects and the PML-N government will not take away this right,” said the adviser.
He said the PSDP 2018-19 would focus only on national priority projects like highways and water reservoirs. In terms of size, the PSDP would not be fattened and focus would be on allocating financial resources for schemes that had already been initiated and were close to completion, he added.
“No new taxes will be imposed in the budget, instead, the government will reduce the number of withholding taxes that are contributing very little to the kitty, but are creating huge problems for the people,” said Ismail.
The finance adviser said the government would also rationalise tax rates, adding the current income tax exemption threshold of Rs400,000 per annum would be significantly increased, which would lower tax burden on the salaried class.
To a question on whether the government would increase the exemption threshold to Rs1 million, Ismail said the issue was “close to the prime minister’s heart” and that his decision would be implemented.
However, the Federal Board of Revenue (FBR) could resist the move as the annual tax returns filed by the salaried class were providing face-saving to the 21,000-strong FBR workforce that has failed to expand the tax base.
Ismail said the government would also roll back most of the regulatory duties imposed to curtail the import bill. “The regulatory duty on intermediate goods and raw material will be withdrawn.”
Concessions to be withdrawn
Ismail said the government would also roll back all the export incentive packages, adding it would support export-oriented sectors by leaving the exchange rate to realistic market forces.
In the last budget, the government had announced a mark-up of only 5% on the Long-term Financing Facility. It also allowed duty-free import of textile machinery. The export refinancing facility is also offered at a rate lower than the key discount rate. Compared to this, farmers are getting loans at the mark-up ranging from 10% to 18%.
Published in The Express Tribune, March 14th, 2018.