Money Matters

Financial fire fighting

Money Matters
By Mehtab Haider.
Mon, 07, 19

The effects of Prime Minister Imran Khan’s visit to the United States of America would start surfacing on the political and economic fronts of Pakistan in the coming weeks and months.

The effects of Prime Minister Imran Khan’s visit to the United States of America would start surfacing on the political and economic fronts of Pakistan in the coming weeks and months.

The next real test for the incumbent Pakistan Tehreek-e-Insaf (PTI) led government would become evident in coming October 2019. That is when the International Monetary Fund (IMF) mission will be visiting Islamabad to hold the first review under the 39 month Extended Fund Facility (EFF), and the Financial Action Task Force (FATF) will take the final decision on compliance report on 27 action plan.

That will be the real litmus test of Washington, and we will learn whether it extends its all out support to Pakistan’s smooth sailing or it creates difficulties for Islamabad in steering the country out of the difficult patch on the IMF as well as FATF front.

At the same time, some crucial political development will also be taking place on the domestic front. Although, there is no dull moment on any front in this motherland, the coming weeks and months have significant importance, as these months will set the course of not only the first half of the current financial year, but also of the country for the next two-three years.

Meanwhile, the political temperature of the country is also on the rise constantly, which too has a negative impact on the economy.

In FATF and IMF reviews, help from Uncle Sam can mean a sigh of relief for Pakistan. But only time will tell the outcome of the recent positive meeting between US President Trump and Pakistan Prime Minister Imran Khan.

On the economic front, the success of the fresh IMF programme will be gauged on three accounts - raising Federal Board of Revenue (FBR) collections, increasing foreign currency reserves held by the State Bank of Pakistan (SBP), and fixing the cash bleeding energy sector.

The first and foremost condition of the IMF is on the front of taxation side. It has asked to do away with exemptions that are available to all powerful lobbies, and to broaden the narrow tax base with the purpose to jack up tax to GDP ratio by up to 15 percent under the programme period of 39 months.

The FBR’s team is flexing its muscles to face this gigantic and challenging task lying ahead for the current fiscal year. Under the conditions, it is supposed to achieve over 44 percent growth in 2019-20 despite the fact that the FBR achieved almost stagnant growth in the last financial year.

When it comes to the question as to what can be fundamentally changed in the system that will result in netting over 44 percent growth in tax collection, the answer evades many. Pakistan has never been a highly tax compliant country.

However, for now, the first and foremost need is perhaps to put a really good team together, which is capable of performing the task of devising a foolproof plan to achieve the FBR’s major goal. This team should enable the FBR to achieve its highest ever revenue collection in the current fiscal year.

The pressure on revenue collection will start mounting in the aftermath of mid August 2019 as the IMF envisaged Rs1,071 billion target for the first quarter (July-September) period of the current fiscal year.

It is worth noting that the FBR has not yet finalised revenue collection figures of last financial year 2018-19 because the reconciliation with Accountant General Pakistan Revenues (AGPR) is still underway. It usually finalises revenue collection figure of FBR in the first 15 to 20 days, but this time so far reconciliation has not yet been done. However, the provisional revenue collection figure stands at Rs3,832 billion in 2018-19 compared to Rs3842 billion in the fiscal year 2017-18. So far the provisional collection is showing a decline of Rs10 billion. It is still the wish of the FBR to display a collection of Rs3,842 billion, but if that does happen, even then the growth in revenue collection will remain flat.

The FBR has collected Rs57 billion through the amnesty out of which Rs43 billion were collected through amnesty till June 30, 2019. It is also relevant to mention here that the FBR had collected Rs34 billion with the help of the last amnesty introduced during the previous government, led by the Pakistan Muslim League-Nawaz, in July 2018. That was made part of collection of last financial year 2018-19.

It shows that the FBR collection stood at Rs3,755 billion through normal ways, which means that only after the addition of the Rs43 billion and Rs34 billion amnesty amount did the revenue board’s collection stand at Rs3,832 billion.

There is also need to compare the two amnesty schemes. The only introduced last year by the PML-N government and the latest one that was introduced by the PTI-led regime.

For amnesty in 2018 under PML-N dispensation, the total collected tax amount stood at Rs124 billion including Rs77 billion on domestic and Rs47 billion through foreign amnesty. Of total Rs124 billion in amnesty 2018, the FBR had collected Rs90 billion in June 2018 while the remaining Rs34 billion were collected in July 2018.

Total number of declarations stood at 82,889 for whitening of Rs2,500 billion worth of assets/income, out of which Rs1,040 billion were whitened on foreign amnesty and Rs1,460 billion on domestic amnesty. Out of the total received declarations of 82,889, the FBR received 76,960 declarations on domestic and 5,929 through foreign amnesty. The FBR had also fetched $436 million through amnesty in 2018 under the PML-N led regime.

Now, the FBR under the amnesty given by PTI has received a total of 125,000 declarations. So far the FBR has collected Rs57 billion through domestic and foreign fronts. Only 2,181 persons availed the foreign amnesty and paid up Rs7.8 billion taxes. However, Rs3 billion were deferred payment committed. The FBR expects that total collection of latest amnesty scheme might touch Rs70 billion.

Now the FBR has been assigned to achieve Rs5,550 billion tax collection target against collection of Rs3,832 billion, requiring a growth of over 44 percent.

FBR Chairman Shahbar Zaidi, a thorough professional, is trying to do many things in one go. He must move ahead with clear objectives and set his priorities and goals. If he continues doing many things without proper sequencing he will be bound to fail.

A clear cut road map with defined implementation strategy is need of the hour. If a haphazard approach was continued, then the suspension of IMF programme will be written on the wall without the blessings of the US.

The writer is a staff member