Amidst scepticism about its ability to deliver on a tight budget, the government on Saturday vowed to stand firm and implement its proposed fiscal framework. This, it said, will be done by authorising power sector regulators to pass on an increase in the power rates and by widening the tax net significantly.
Addressing a post-budget press conference, which would hopefully not be an indicator of things to come as it was very badly managed, Finance Minister Dr Abdul Hafeez Shaikh informed the media that during the forthcoming financial year, “energy prices would be determined by regulators.” This has been a long standing demand of international lenders.
For second year in a row, Shaikh reiterated his stance that the budget was not the only tool to manage the economy and that it would also be managed by adopting a deregulation policy.
Shaikh said that lesser allocations for subsidies would not automatically translate into an increase in electricity prices. “The reductions have been made on the assumption that energy reforms started this year would yield results in the coming year.” For the next financial year, the government has proposed Rs166 billion in subsidies, down 58 per cent over the current fiscal. Shaikh said the budget “cannot provide solutions to all the problems of the country”, building up for the last 64 years. He admitted that the new budget’s success or failure depends upon the government’s “capacity to implement difficult decisions” like phasing out subsidies and cracking down on influential lobbies. The government unveiled a Rs2,767 billion federal budget envisaging a four per cent or Rs851 billion deficit. This is 1.7 per cent or Rs403 billion less than the revised estimated deficit of Rs1,212 billion. On the revenue side, it has relied on the assumption of netting Rs50 billion in taxes from 700,000 tax evaders.
The minister said the government prepared the budget keeping in mind the forthcoming general elections.
Shaikh is facing criticism for not levying any new taxes on the more prosperous sections of society. Shaikh argued that the government would instead bring these people in the tax net. So far, he admitted, they were not touched because of their clout or because of the “inefficiency of the Federal Bureau of Revenue”. He said the government has identified 2.3 million tax evaders who “live in posh areas have at least two foreign currency accounts, are fond of foreign trips but do not have national tax numbers”.
Published in The Express Tribune, June 5th, 2011.
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