ISLAMABAD: The Budget Strategy Paper (BSP) for 2021-22 to 2023-24 approved by the federal cabinet on Tuesday envisages fiscal adjustments of 1.4 percent of GDP, equivalent to Rs734.44 billion for the upcoming budget through a combination of revenue mobilization and rationalized expenditures.
The federal cabinet outlined its priorities to increase the FBR revenues through direct taxes stating that “all-out efforts are being made to increase the share of direct taxes in revenues. Documentation of economy to increase the taxation in services, real estate and wholesale and retail is top priority”.
Under the IMF condition, the government has envisaged to bring down primary balance from Rs544 billion in outgoing fiscal to Rs44 billion for coming budget.
While envisaging the GDP growth rate at 4.2 percent for the next budget against revised estimates of 2.9 percent of GDP for outgoing fiscal, on expenditures side the interest payment would continue to remain on the top, clinched to stand at Rs3,105 billion allocated funds for coming budget against revised estimates of Rs2,920 billion in outgoing fiscal, then defense services allocation of Rs1,330 billion for FY 2022 against Rs1,295 billion for FY2021, running of civil government Rs510 billion for coming budget against Rs488 billion, Pension Rs480 billion for upcoming budget against Rs470 billion in outgoing fiscal, subsidies Rs501 billion for coming budget against revised estimates of Rs459 billion, grants Rs994 billion for FY2022 against Rs937 billion, Public Sector Development Program (PSDP) Rs800 billion for FY2022 against Rs660 billion for outgoing fiscal and provision of Rs291 billion for FY2022 against Rs 65 billion.
The gross federal revenues are estimated to generate at Rs7,989 billion for upcoming budget and after transfer to provinces, the net federal revenues would be projected at Rs4,462 billion. The total federal expenditures booked at Rs8,056 billion, so the federal deficit was projected at Rs3,154 billion. The provincial revenue surplus is projected at Rs440 billion equivalent to 0.9 percent of GDP for the coming fiscal year. So the budget deficit has been envisaged to bring it down from 7.4 percent of GDP in the outgoing fiscal year 2020-21 to 6 percent of GDP for 2021-22.
Economy is projected to recover from the pandemic to sustainable and inclusive growth in the medium-term. “The government continued to adhere to its institutional reform agenda in key areas, despite the challenges created by the pandemic.
These reforms include reforming the corporate tax structure, improving the management of state-owned enterprises, and improving cost recovery and regulation in the power sector,” it added.
Besides implementing the immediate measures to mitigate the severe impact of Covid-19 on the economy, the government is also focusing on improving the real sector growth through inclusive growth in agriculture, industrial and services sectors. The government's current economic strategy is a strong catalyst for resilient, sustainable, and inclusive growth. It aims to balance between supporting the economy, fiscal sustainability, and protection of social spending.
To overcome the unprecedented challenges emerging in the wake of the Covid pandemic, the government had to strike a difficult and delicate balance between management of the nation's health and supporting the economy, while at the same time ensuring fiscal sustainability, protection of social spending to support the vulnerable segments of the society, continuation of the IMF program, keeping development budget at an optimal level and maintaining the momentum in revenue mobilization.
Under Medium Term Fiscal Framework, the government highlighted its focus on sustainable growth, protection of vulnerable segments, curtailing inflation, development spending, job creation, etc.
As already noted, the fiscal framework will focus on ensuring sustainable, inclusive and equitable growth, increasing social safety spending, controlling inflation, enhancing development spending with a view to increasing employment opportunities.
Optimal mobilization of revenue, broadening of tax base, reduction in exemptions, efficiency in revenue administration: In the fiscal framework, the strategic priorities of the government include optimal revenue mobilization, broadening of tax base and increase of tax net, reduction in tax expenditure, efficiency in revenue administration, increase in ratio of direct taxes and simplification of procedures for facilitation of taxpayers. In view thereof, challenging revenue projections have been worked out for the medium term.
The gradual reduction of overall fiscal deficit: The fiscal framework envisages gradual reduction of overall fiscal deficit from -7.4% of the GDP during FY 2020-21 to -4.4% in FY 2023-24. However, this reduction will require revenue mobilization with a higher growth trajectory, rationalization of current expenditures and better financial management as per the Public Finance Management Act, 2019.
Dwelling upon government priorities for revenue mobilization, the BSP for 2021-22 to 2023-24 stated that presently, Pakistan’s tax system is plagued with the twin issues of a narrow tax base and huge tax gap in various sectors. A two-pronged approach to address these issues, enhanced enforcement and appropriate policy intervention will be pursued.
Expeditious disposal of refund claims: The FBR has already achieved expeditious disposal of refund claims through the “FASTER” system, which has been acclaimed by all stakeholders. Automation and expeditious disposal of refunds is being actively pursued. The initiative will be fully operational in the medium term. 23. Increase in the ratio of direct taxes. All out efforts are being made to increase the share of direct taxes in revenues. Documentation of economy to increase the taxation in services, real estate and wholesale and retail is top priority.
Using technology for revenue mobilization. Use of information technology is the corner stone of FBR s strategy for mobilization of revenues. It aims at automation of all business processes starting from registration to assessment and issuance of refunds. Installation of the „Track and Trace system, point of sale integration of retailers with FBR s computerized system, e-audit and e-appeals are at various stages of implementation and would be fully operational in the medium term.
Efficient management of tax litigation. Large sums of potential revenue are held up in litigation before appellate forums from Commissioners (Appeals) to Supreme Court of Pakistan. In order to reduce litigation, FBR is encouraging alternate dispute resolution mechanisms, agreed assessment in appropriate cases, and out of turn hearing by appellate forums in cases involving large amount of revenues.
Tax policy measures: The FBR aims at re-designing the tax system on ideal principles of taxation, which, inter alia, includes moving towards taxation of net profits under income tax and subjecting all taxable supplies to a standard sales tax regime. The initiative involves removal of tax distortions, unnecessary exemptions, tax reductions, zero rating etc.
The federal government will continue the existing policy of imposition of levy, cess, surcharges etc. over the medium-term. However, in order to introduce new streams of non-tax revenue, a comprehensive revision of existing legal frameworks will be undertaken in consultation with Ministries/Divisions concerned and necessary amendments in the relevant enabling laws, rules, regulations etc. will be introduced. The newly introduced provisions contained in the Public Finance Management Act, 2019 will also be enforced to ensure optimal collection of non-tax revenue and to improve its reporting and reconciliation.