Reforms in the State Bank of Pakistan (SBP) and the Federal Board of Revenue (FBR) would take time due to non-resolution of issues pertaining to the extent of autonomy to the central bank and a new structure of the tax machinery, the federal cabinet was informed on Tuesday.
Adviser to Prime Minister on Institutional Reforms Dr Ishrat Husain gave a presentation to the federal cabinet on the status of restructuring and strengthening of key institutions to improve economic governance.
The presentation on FBR reforms did not include some drastic restructuring proposals of the revenue board that could not be implemented until some parts of the 18th Constitutional Amendment were undone, according to sources. These proposals include separation of Pakistan Customs from the FBR and making provincial tax authorities a part of the Pakistan Revenue Authority (PRA) that may comprise the Inland Revenue Service (IRS) and provincial tax authorities.
The briefing to the cabinet was given about the status of reforms in the FBR, SBP, Competition Commission of Pakistan, Securities and Exchange Commission of Pakistan, Auditor General of Pakistan, Pakistan Railways and Pakistan International Airlines.
These institutions remain on the government list but the pace of reforms is painstakingly slow.
Even some of the decisions like separating tax policy from the FBR has remained unimplemented even after 15 months. Cabinet members also raised the issue of not enforcing the cabinet’s decision, according to a federal minister.
The cabinet was informed that reforms in the FBR could not be completed before December this year – the time when the Pakistan Tehreek-e-Insaf (PTI) government would complete 28 months or nearly half of its five-year term.
Husain has proposed an eight-member FBR board against the existing strength of 13. It has also been proposed that the FBR may be given financial autonomy and 1% of the total tax collection may be given for administrative expenses to the tax machinery.
This will be double the current spending envelope of the FBR - an organisation of 22,000 people.
It has also been proposed to delegate some powers of FBR members to chief commissioners and chief collectors in the field aimed at ensuring balance of power.
In early 2019, the federal cabinet had decided to separate the FBR’s tax policy board. But the decision could not be implemented.
The restructuring and autonomy of key government departments and organisations was one of the priorities of the PTI government. But the issue has lingered on due to resistance from the forces supporting the status quo.
In addition to these proposals, a separate exercise was under way to give a new shape to the tax machinery. Three major proposals were under consideration.
First proposal was to tinker with the existing laws and bring some improvement to the administration.
The remaining two proposals were more drastic in nature, the sources said. One proposal is to make the PRA by keeping IRS and Pakistan Customs Services and also bring provincial tax authorities under the PRA umbrella.
The second proposal was to separate Pakistan Customs from the FBR and then form PRA that may include IRS and provincial tax authorities, the sources said. Details for implementation were being worked out, which also required endorsement from the provinces, said the sources.
The federal cabinet was also informed about the status of SBP reforms. It was told that the SBP Act of 1956 had to be amended to strengthen autonomy, governance and mandate of the central bank.
However, the matter was deferred by the Cabinet Committee on Legislative Cases (CCLC) in April this year due to “differences in the Ministry of Finance and the SBP”.
The cabinet was informed that a revised bill was under preparation that would address most of the concerns expressed by the Ministry of Finance.
Now, the matter would again go to the CCLC and a revised draft would try to strike a balance between autonomy and check and balance, said the sources. No new date for CCLC meeting has been finalised yet.
The federal cabinet was also informed that Pakistan’s exports increased by 5.8% in July 2020 as compared to the previous year. Due to the coronavirus, the country’s exports fell by 6% in June, 34% in May and 57% in April. Comparing other regional countries, the cabinet was informed that Bangladesh’s exports declined by 17% in July while India’s exports declined by 4%.
While briefing on the economic indicators, the cabinet was apprised that the current account deficit had contracted by 78%. The cabinet was also told that in the last two years of the previous government, the current account deficit had increased from $6 billion to $20 billion and under the current government, the current account deficit has come down from $20 billion to just $3 billion.
During a briefing on the situation in the financial sector and the real economy, the cabinet was informed that a significant increase was witnessed in remittances from Pakistanis. During the meeting, it was observed that there is a positive trend of recovery in the economic process affected by the coronavirus and the economic indicators were showing improvement.
The cabinet expressed satisfaction over the significant reduction in current account deficit and increase in remittances as a result of government policies.
Meanwhile, the decisions taken at the meeting of the Economic Coordination Committee were approved by the cabinet. In these decisions, the Trading Corporation of Pakistan (TCP) has been given the responsibility to make arrangements to import 300,000 tonnes of sugar to meet the sugar needs in the future. At the same time, the TCP was directed to take immediate steps for the import of wheat.
While taking notice of the payment of arrears in respect of government advertisements by some ministries, the prime minister directed that all the ministries should complete the process of payment of arrears and submit a report within the next 24 hours.
[WITH ADDITIONAL INPUT BY RIZWAN SHEHZAD]
Published in The Express Tribune, August 5th, 2020.