KARACHI: The government is not going to introduce any new taxes for the upcoming fiscal year 2020-21, despite the country’s economic fallout, Dr. Abdul Hafeez Shaikh, the prime minister’s special adviser on finance, told Arab News in an exclusive interview on Monday.
“No new taxes are being introduced in the upcoming budget given the concerns on growth and unemployment. Taxes are being rationalized to encourage new investments, with focus on reviving labor-intensive sectors of the economy, including construction, housing and agriculture-related industries,” the de facto finance minister said.
The decision comes as the coronavirus pandemic is dealing a blow to the country’s financial state.
“The economy is projected to have contracted by 0.4 percent in the current fiscal year with a rise in unemployment and poverty,” Shaikh said, adding that the focus of the upcoming budget will be on stimulating growth and creating jobs.
Pakistan in March launched an unprecedented $8 billion stimulus package and the country’s central bank has cut rates by over 5 percent to support growth and the reeling economy.
“The focus of the stimulus is toward providing support to business, in particular SMEs through payroll loans at subsidized rates, deferral of principal and interest payments for one year and quick disbursement of all as refunds to business. Government has also increased subsidy on utility bills for SMEs and increased subsidy on fertilizer for the agriculture sector,” Shaikh said.
Responding to a question about creating a balance between income and expenditure in the absence of new taxes, Dr. Shaikh said, “The budget deficit is targeted to be reduced to 7.5 percent of GDP in the upcoming budget, from estimated 9.5 percent in the current fiscal year.”
He said it would be achieved through rationalization in untargeted subsidies and large infrastructure projects. “Similarly, the government is targeting an increase in non-tax revenues to bridge the gap.”
Shaikh expressed hope that tax revenues would normalize once the COVID-19 crisis has ended and all anti-virus restrictions would be lifted.
“Tax reforms implemented in the current year are comprehensive and aimed at removing large tax exemptions. These measures lead to a significant rise in taxes in the current fiscal year prior to COVID-19 crisis. Domestic revenues increased 27 percent and that helped the government to post a surplus in the primary account in the first nine months of the current fiscal year,” he added.
Responding to a question whether the International Monetary Fund (IMF) would influence the country’s budget drafting process, Shaikh said that inputs are being taken from various stakeholders.
“Budget making is a consultative process and inputs are taken by the government from various domestic and international stakeholders. The budget is approved by the National Assembly through majority,” he said.
With regard the country’s external financial situation, Shaikh observed that the current account deficit (CAD) is projected to decline to $4 billion (1.7 percent of GDP) in the current fiscal year 2019-20 — compared with $20 billion when the government took office in 2018.
“Looking ahead, recession in the global economy will lead to a decline in export earnings and remittances from workers abroad. However, with the decline in international oil prices, CAD is projected to remain manageable at 2 percent of GDP,” he said.
Dr. Shaikh said Pakistan’s forex reserves have increased to $12.3 billion as of May 2020, from $7.2 billion last year. “We are targeting to increase SBP (State Bank of Pakistan) reserves to $15 billion by the end of the next fiscal year.”
