Cabinet approves SBP Amend 2021 related three bills: Hafeez

ISLAMABAD: Federal Minister for Finance Dr Abdul Hafeez Shaikh Tuesday said the federal cabinet had approved three important bills related to the SBP Amendment Bill 2021.

These bills were aimed at granting autonomy to the central bank, abolishing corporate income tax bill for fetching tax revenues up to Rs140 billion and fixing cash bleeding state-owned enterprises (SOEs) bill under the IMF programme.

He was addressing a joint news conference along with Minister for Industries Hammad Azhar, Minister of State for Institutional Reforms Dr Ishrat Hussain, Secretary Finance Kamran Afzal, and FBR Chairman Javed Ghani at the PID here on Tuesday. Reporters raised critical questions about the controversial SBP Amendments Bill 2021 related to lack of accountability of the SBP governor, targeting inflation, doing away with the Fiscal and Monetary Coordination Board and lack of definition of price stability in the proposed amendment bills under the dictates of the IMF.

To a question about tendering resignation on the demand of Pakistan Democratic Movement (PDM) proposed and elected Senator Yusuf Raza Gilani, Hafeez Shaikh said under the constitutional requirement, he should be elected from Parliament within six months limit, and he would abide by the Constitution.

Initially, the economic team devised a strategy to receive a number of questions in order to avoid replying to different crucial questions on autonomy to the SBP through the proposed amendment bill that was approved by the federal cabinet on Tuesday under the chairmanship of PM Imran Khan. When journalists insisted for the reply, Federal Secretary Finance Kamran Afzal mustered up the courage and replied that there was no accountability mechanism in the existing SBP Act, but inflation targeting would give a clear premise for holding the central bank governor accountable. He said the setting of inflation target would be the domain of the federal government under the National Economic Council (NEC) while achieving inflation targets would be a responsibility of the government. It was quite interesting to witness that the Ministry of Finance was defending the SBP amendment bill in front of the media on which the ministry itself possessed various objections. It is not yet known how a change of hearts and minds occurred.

To more questions, Dr Shaikh said that the Parliament would hold the accountability of SBP governor. When asked there was an instance when the Governor SBP did not appear before the PAC and parliamentary committee, it was replied that few instances could not be cited as the refusal of the SBP to appear before the sovereign parliament.

Dr Ishrat Hussain said the setting of inflation target was responsibility of the NEC and the federal government, but achieving the target would be domain of the SBP. He said that he had always argued in favour of autonomy for the central bank and cited example of the UK where the setting of inflation target was responsibility of the government, then their central bank had to give reasons in case of non-materialising of inflation target with solid reason in from of the parliament.

Dr Hafeez Shaikh said the Monetary and Fiscal Coordination Board was proposed to be abolished through SBP’s amendment bill, so the government could devise some other mechanism for coordination between monetary and fiscal policies. He said the tenure of SBP governor was proposed to extend from three to five years.

Dr Shaikh said Pakistan had to go back to the IMF because the current account deficit (CAD) stood at highest-ever level of $19 billion and foreign exchange reserves after taking into account swaps were standing at almost at zero, so PM Imran Khan had to seek loan from the IMF.

To another query about price-hike, he said the government reduced its expenditures massively and achieved primary surplus of Rs400 billion. The borrowing from SBP was kept at zero and now it was proposed to make it part of the amendment bill. He said that the government had to import different products such as POL [petrol, oils & lubricants], pulses, palm oil and other items because of which the prices remained on higher side in the domestic market.

Minister for Industries Hammad Azhar said the cabinet decided to keep cooking oil prices at existing level and Rs30 per kg would not be increased at the USC. He said that the price of flour, sugar and cooking oil had been subsidised at the USC. The ECC would approve Ramadan package on Wednesday (today) and prices of 15 more items would be reduced at the USC.

FBR Chairman Javed Ghani said the cabinet approved Income Tax Amendment Bill 2021 in order to fetch tax revenues up to Rs140 billion, but it would become effective from July 1, 2021. He said the FBR had provided tax relief of Rs40 billion before the last budget and then COVID-19 pandemic related incentives were provided with additional cost of Rs5-10 billion. He said the FBR published the tax expenditures report and shared its estimates that the tax brakes were costing Rs1,185 billion to national exchequer on per annum basis. Now the government decided to abolish around 80 corporate income tax exemptions with estimated revenues of Rs70 billion to Rs140 billion, as it would depend upon how the economy revived in the aftermath of COVID-19 pandemic. He said the cost of direct taxes exemption was estimated at Rs340 billion and almost half would be withdrawn with effect from next fiscal year starting from July 1, 2021.

Earlier, Minister for Information & Broadcasting Shibli Faraz, in his news conference, said that different concerns were raised and discussed related to SBP’s amendment bill 2021 during the cabinet meeting and it was decided that certain concerns would be addressed through framing of rules after enactment of the SBP amendment act with the approval of parliament.