The recent round of talks with the International Monetary Fund (IMF) team remained inconclusive. Differences could not be ironed out over the global lenders’ conditions pertaining to tightening of monetary management, elimination of flow of circular debt and upfront levying of taxes and substantially slashing government expenditure. On return from Washington after holding talks with top executives of the IMF at the sideline of the World Bank meeting early this month former Finance Minister AsadUmer had told that an agreement has been reached in principle with lender agency over the sticking issues and technical details would be finalised during the visit of the staff level team of global lender to the country. The talks with IMF team could not bridge differences over electricity subsidies and levying over Rs.600 billion taxes.
The Prime Minister in his public meetings loudly criticize the legacy of unsustainable public debt left by the previous government but at the same time his government has continued borrowing spree partly for retiring the loans of commercial banks and largely because of excessive government expenditure on non-productive heads. Government borrowing from the State Bank of Pakistan (SBP) has surged to Rs. 5.4 trillion by the end of September last year, an increase of Rs.1.8 trillion just in three months. On the one hand government has banned discretionary spending by the President, Prime Minister and ministers but on the other succumbed to the pressure of PTI law makers to divert Rs. 24 billion from CPEC related projects to parliamentarians’ development fund. Allocations which are made for the parliamentarians development schemes are not transparently utilised. Such like expenditure slippages cannot be justified in cash strapped country.
The Economic Advisory Council of the Prime Minister appears to be either dysfunctional or devoid of ideas and suggestions to advise the government on a workable tax vision for expanding the revenue base with greater reliance on direct taxes. There is lack of determination for documentation of economy, imposing and federalizing the agriculture income tax, authentic assessment of stock exchange brokers’ profit for tax collection and of specialist doctors and lawyers income for income tax and professional tax payments. The shortfall in tax collection has reached to Rs. 345 billion in the first 10 months of the current fiscal year. The government has slashed significantly the sales tax rate on petroleum products. The 10 months collection is equal to 68 percent of the downwardly revised target of Rs. 4.4 trillion. IMF was told that Federal Bureau of Revenue will succeed in tax collection of Rs.5.1 trillion which now seems extremely difficult as less than two months remain to the closing of fiscal year.
Withdrawal of electricity subsidies and periodic tariff hikes will not reduce the surging circular debt. Nor its ongoing audit will bring significant improvement. The shady power purchase agreements with Independent Power Producers, highly inflated power tariff allowed to them by NEPRA and 40 percent payments to them on account of idle plant capacity are the major factors of bulging circular debt. In future the power tariff will abnormally go up because of high construction cost hydel power stations by Chinese Companies and power tariff of 8 cents per unit. The Chinese thermal power producing companies have also been allowed unreasonably high electricity tariff. Moreover, the default of power sector receivables stands at Rs. 870 billion. The lists of defaulters include 1000000 influential people, commercial and industrial consumers. In the emerging scenario, the government will overburden the people with backbreaking indirect taxes and compliant taxpayers with direct taxes.
