Govt sets sights on 13% tax-to-GDP ratio in three years

ISLAMABAD:

Finance Minister Muhammad Aurangzeb on Thursday claimed that the middle class can pay 18% sales tax on packaged milk and the salaried persons can also bear an increase in income tax.

He; however, ducked a question on furnishing a surety about not bringing a mini-budget even after unleashing a tsunami of taxes.

In his post-budget news conference, the finance minister also defended the Rs75 billion allocation for the parliamentarians’ schemes but admitted that the government should have abolished some ministries.

“The middle and upper middle class can afford the packaged milk, so this is not a big thing,” said the
finance minister while responding to a question about 18% sales tax on packaged milk that translates into Rs50 per liter.

“You know who buys this milk. It is the middle and the upper middle classes,” said the minister.

Irrespective of what the minister believes about the tax bearing capacity of the middle and the upper middle income groups, the 18% sales tax on packaged milk and the infant milk are going to adversely affect the population and may aggravate stunting in children.

The current per liter milk price is Rs290 per liter, which is going to increase to Rs342 after the budget.

On negotiations with the IMF, Aurangzeb reiterated that the talks for a new programme are moving in a positive direction. “However, I cannot say much until we reach a staff-level agreement (SLA),” he said. “We are hopeful to reach the SLA with the IMF by July.”

The government will raise Rs75 billion from 18% tax on packaged milk –- a sum that is equal to what has been given for the parliamentarians’ schemes in the budget.

Most of the development schemes of the parliamentarians are at different stages of development, therefore, the money has been allocated for their completion, said the Finance Minister. Had we not allocated the Rs75 billion budget, it would have resulted into loss of money already spent on the schemes, he added.

To a question whether he can assure that there would not be a mini-budget after massive new taxation, “There is no need to give an assurance, therefore, there is no answer to this question”, said the finance minister.

However, a day earlier, FBR Chairman Malik Amjad Zubair Tiwana said that in case of a shortfall against a record Rs12.970 trillion tax target, the contingency measures have already been finalised.

The minister admitted that the government “should have abolished a few ministries and departments but we could not do it”, But he added that the prime minister would soon make an announcement in this regard. “Actions have to speak louder than the words.”

In his news conference, Aurangzeb addressed the concerns about the credibility of the new budget. The journalists staged a protest against increase in taxes on the salaried class but the minister said that the increase was not huge.

Aurangzeb said widening the tax base was essential, and a priority, as “the current tax-to-GDP ratio, which stands at a sub-par 10%, is simply unsustainable. In three years, we want to enhance this tax-to-GDP ratio to 13%,” he said.

The Rs75 billion additional burden on the salaried class looks like a big number but at the individual level there has not been a significant increase in the tax burden, said the minister.

Minister of State for Finance Ali Pervaiz Malik said that the government was cognizant of the difficulties that the people were facing but due to economic compulsions the prime minister could not provide relief.

A person earning Rs100,000 a month will have to pay only Rs1,500 in tax, said the Minister of State.

The Finance Minister said that the government has increased the allocations of the Benazir Income Support Programme, the Utility Stores Corporation and the power subsidies aimed at providing relief to the poor people. In the same context, the minimum wage has also been increased by 15% to Rs37,000 per month, he added.

But neither the finance minister nor the minister of state for finance could count any goods that might have gotten cheaper after the budget.

The finance minister said that the Petroleum Levy will be gradually increased from Rs60 to Rs80 per litre and the government will implement an increase whenever it would find a space due to reduction in international oil prices.

The Finance Minister said that non-filers will see an increase in “tax on transaction and the government wants to end the concept of non-filers.

The federal minister said it is important to bring the retail and wholesale segment into the tax net to widen the tax base.

“Back in April, we initiated registration of retailers on a voluntary basis and only 75 traders registered with the FBR. He said that after the enforcement drive, so far over 31,000 traders got registered. From July onwards we will start imposing taxes,” he said.

At present, Aurangzeb said cash to the tune of Rs9 trillion remains in circulation. “This shows the weight of the undocumented economy,” he said.

The finance minister shared that the Export Refinance Scheme is being shifted from the State Bank of Pakistan (SBP) to EXIM Bank. “We have made it mandatory that a huge chunk of refinance funds shall be provided to the SME sector,” he said.

On the IT sector, Aurangzeb said that the country’s IT exports have reached $3.5 billion, which the government aims to take them to $5 billion. “Our focus is to give as much facility to the IT sector,” he said.

The Minister said that the government has made a record allocation for the IT sector in the budget.

However, Rs20 billion of that is meant for erecting social media firewalls by importing Chinese technology.

Inflation target

On the inflation rate targeted at 12% for the new fiscal year, Finance Secretary Imdad Ullah Bosal said the rate is realistic and has been agreed with the IMF. “The policy rate remains at 20.5%, which is considerably high leading to demand compression.”

Meanwhile, on the issue of privatisation, Aurangzeb said the government is working with all the stakeholders. The finance minister quashed the impression that the government’s coalition partner, Pakistan Peoples Party (PPP), was not on board with the budget proposals.

“We gave budget presentations to all our partners; they were taken on board. Yesterday, you saw their representation in parliament, when the budget was being presented,” he said.

Meanwhile, while answering a query, the finance minister admitted that the current policy rate regime and energy prices are creating hurdles for the industrial sector. “The policy rate is coming down, and with a decline in inflation, we will see a further decline in the policy rate. Whereas, on energy prices, we will hear good news soon,” he said.