Need for tax reforms: Development budget will be cut by a tenth, projects IMF

Lender’s reports shows PSDP spending won’t exceed Rs477b

ISLAMABAD:

The International Monetary Fund (IMF) has projected that Pakistan’s development budget for this year will be sliced by a tenth in order to avoid the adverse impact of the steep decline in tax revenues on the budget deficit target.

Against National Assembly’s approved Public Sector Development Programme (PSDP) of Rs525 billion, IMF’s latest reports show that the spending will not exceed Rs477 billion. It will be the second consecutive year that the PML-N government will fail to ensure full utilisation of PSDP outlay.

IMF has also projected an approximate 10% cut in provincial development budgets. Against the accumulative development budget of Rs486 billion approved by the four provincial assemblies, the lender is now projecting Rs440 billion spending.



With power outages already shaving off the growth rate, the reduced development expenditures will further undermine the economic growth in the current financial year.

The government has set a 5.1% economic growth rate target for this year, which IMF says will remain around 4.3%. It could also be the second consecutive year that the PML-N government will miss the growth target.

The government’s fiscal problems are compounding primarily due to its inability to introduce tax reforms. It is reluctant to take drastic steps, fearing backlash from voters, who are predominantly industrialists and traders, according to tax experts.

In the last fiscal year, the Federal Board of Revenue (FBR) had fallen short of its budgetary tax collection target by Rs220 billion. For the current financial year, parliament has approved a Rs2.81 trillion revenue collection target. However, the latest IMF report shows that FBR may not be able to collect more than Rs2.756 trillion, Rs54 billion less than the approved target.

FBR’s senior officials paint an even more dismal picture privately, saying that the tax machinery would not be able to collect more than Rs2.61 trillion, resulting in a shortfall of Rs200 billion.

The higher revenue shortfall will lead to a further cut in the development budget, according to finance ministry sources.

Published in The Express Tribune, December 25^th, 2014.