PTI govt hints at cutting PSDP to bridge tax shortfall

Walks a tight rope in meeting IMF target of controlling circular debt


Shahbaz Rana October 02, 2019
Despite missing the first-quarter revenue target by Rs114 billion, FBR Chairman Shabbar Zaidi was happy with performance of the tax machinery. PHOTO: FILE

ISLAMABAD: The government on Tuesday hinted at cutting the development budget to compensate for the Rs114-billion revenue shortfall in a desperate attempt to meet the International Monetary Fund (IMF) condition of restricting the primary budget deficit to Rs102 billion in the first quarter.

The government has already missed two IMF targets of collecting Rs1.071 trillion in taxes and releasing Rs75 billion in tax refunds in first quarter (July-September) of the current fiscal year. It is also walking a tightrope in meeting another IMF condition - restricting the increase in circular debt to only Rs23 billion in first quarter of this fiscal year.

Payables of the power sector stood at Rs800 billion at the end of June which cannot go beyond Rs823 billion as per the IMF condition. Sources said initial indications were that the circular debt ceiling may also be breached but the government would try to meet it by giving more power subsidies. However, the situation would be clear by next week, they added.

“We expect to collect over Rs5 trillion in taxes and if we could not make up for the shortfall in tax revenues in the first quarter, we will have to cut the PSDP (Public Sector Development Programme) to stick to the primary deficit target,” said Ahmad Mujtaba Memon, Additional Secretary Finance.

Memon spoke during a meeting of the sub-committee of National Assembly Standing Committee on Finance.

“We have stuck to the primary budget deficit target in the first quarter and hopefully we will be sticking to it in the remaining period of this fiscal year,” said the additional secretary finance. He was responding to a recommendation by the sub-committee that the federal government should not cut the PSDP to compensate for the shortfall in revenue collection.

In the first quarter, the Federal Board of Revenue (FBR) could collect only Rs957 billion in taxes and fell short of the target by Rs114 billion despite taking huge advances and releasing less refund.

“We have to place a cut in expenditures somewhere to compensate for the shortfall in tax revenues,” said Memon.

For this fiscal year, parliament has approved Rs701 billion in development budget and according to the ways and means limits, the spending should be Rs140 billion in the first quarter. However, due to a stringent mechanism defined by the Ministry of Finance, the spending is expected to remain around Rs50 billion.

Unlike the last programme, this time the IMF has given the primary deficit target, which is being calculated by excluding interest payments. Total annual primary budget deficit target was Rs276 billion while the total budget deficit is estimated at Rs3.15 trillion in the current fiscal year.

The first-quarter budget deficit target was Rs102 billion and Memon claimed that the government was within the limit. However, final figures will be available by the middle of this month.

Sources in the finance ministry said in case the government met the primary budget deficit target, it would be entirely because of the strict control on development spending and late payment to provinces of their share in federal taxes.

A significant chunk of FBR revenues came after September 27 and the provinces will get their share out of this in the next tranche. But this has for the time being provided a breathing space to the finance ministry whose projections have been affected by low collection of revenues by the FBR. Despite missing the first-quarter target by Rs114 billion, FBR Chairman Shabbar Zaidi was happy with performance of the tax machinery.

The $3-billion reduction in dutiable imports adversely affected the FBR’s revenues at the import stage, said Zaidi on Tuesday.

He said against the Rs422 billion collection at the import stage in the first quarter of last year, the FBR provisionally collected Rs441 billion in the first quarter of current fiscal year, which was higher by only Rs25 billion or 6%, Zaidi told The Express Tribune.

The collection at the import stage was equal to 46% of the total collection of Rs957 billion in taxes in the first quarter.

He said at the domestic stage, the tax collection picked up from Rs412 billion to Rs516 billion - an increase of 25% over the previous year.

Import compression was a big issue and the FBR was taking a big hit on its revenues, said the FBR chairman.

However, the government was consciously slowing the economy by curbing demand for economic stabilisation. The current account deficit was improving because of import compression, not because of improvement in exports. Demand-curbing policies have not only slowed down the economy but are also taking a heavy toll on tax revenues.

Published in The Express Tribune, October 2nd, 2019.

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