The government will keep punishing people for its own shortcomings, as it has assured the International Monetary Fund (IMF) that it will introduce more mini-budgets to offset any possible shortfall in tax revenues. It will also increase power tariffs if the Supreme Court strikes down electricity surcharges.
Finance Minister Ishaq Dar gave the written assurances in a letter to the IMF on June 12. According to the Memorandum of Economic and Financial Policies (MEFP), “If tax revenue falls below the level envisaged in the programme, the authorities will implement additional revenue measures, including plans to eliminate tax concessions and exemptions slated for fiscal year 2016-17.”
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In the last fiscal year, the government introduced five mini-budgets to achieve the Rs2.810-trillion tax target. Yet it miserably failed and collected only Rs2.580 trillion. The shortfall in last fiscal year’s tax collection will also erode the base of new fiscal year’s Rs3.104 trillion tax target, increasing prospects of mini-budgets.
Independent tax experts say that the FBR will also not achieve the new Rs3.104 trillion target, which has been set without introducing administrative reforms in the tax machinery.
While addressing a teleconference from Washington on Thursday, the IMF Mission Chief to Pakistan Harald Finger also underlined the need for administrative reforms in the FBR. “There is a need to continue with reforms in tax administration,” said Finger.
Finger also hinted at additional revenues measures in the new budget, saying that if there is a shortfall, “it will be a part of our discussions as we go forward.”
The eventuality of a mini-budget seems imminent, as the IMF disputes the government’s claim of withdrawing Rs120 billion worth Statutory Regulatory Orders (SROs) from the fiscal year 2015-16 that began from July 1.
The IMF’s report reveals that according to the Fund’s assessment, the SRO withdrawal amount was not more than Rs98 billion - a gap of Rs22 billion, which may have to be filled with more measures. But Finger said that Pakistan and the IMF can reconcile the numbers and “there is no substantive disagreement”.
On the expenditure side, the government has also assured the IMF that it will slow down releases during the first three quarters of the fiscal year, aimed at creating a buffer of Rs155 billion. The same tactic had also been applied during the last fiscal year, which led to a cut on the Public Sector Development Programme.
The government has also assured the IMF that if the Supreme Court struck down electricity surcharges, it will increase tariffs and would not hesitate from amending the National Electric Power Regulatory Authority Act to achieve the purpose.
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The government has imposed Rs1.86 per unit rationalisation surcharge and Rs0.43 per unit debt servicing surcharge, which the Lahore High Court had struck down. However, the government managed to get an interim relief from the apex court that suspended the LHC decision.
The IMF report reveals that in the new notified tariff, which has been enforced from June 10 of this year, the government has incorporated late payment surcharges and higher system losses into the tariff.
While laying emphasis on governance reforms, Finger underscored that there have to be continued efforts to improve the efficiency of distribution companies. He said the government has taken some measures but the progress has been much more gradual than hoped for.
Finger said that the power sector was still not operating at cost recovery and accumulation of payables gives birth to the situation where not all the capacity in the system is utilised. He said the stock of power sector payables has reached Rs615 billion at end-March 2015 including Rs335 billion stock of the power sector arrears that has been parked in the Power Sector Holding Company Limited.
“Karachi situation underscores the urgency of addressing the situation in the power sector. Loss of lives in Karachi was deplorable,” said Finger.
Published in The Express Tribune, July 3rd, 2015.
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