ISLAMABAD: Pakistan is targeting a near 16 percent rise in tax revenues in the fiscal year ending June 2017, Finance Minister Ishaq Dar said on Friday as he unveiled a budget aimed at shoring up the country’s finances.
Dar said Pakistan would cut its fiscal deficit to 3.8 percent of gross domestic product for the coming financial year, down from the 4.3 percent envisaged for this year, and helped by a planned rise in tax collection to 3.95 trillion rupees.
Pakistan’s economy is growing at its quickest rate in eight years after a slide in oil prices and expansion in industry and services boosted demand.
Investor confidence has slowly returned to a country that was battered by the global financial crisis.
“The dangers to the economy are now far behind us. Economic growth has hit an eight year high. This would have been even better if it had not been for a 28 percent fall in the cotton crop,” Dar told parliament.
Still, the economy remains structurally weak, hamstrung by poor infrastructure, struggling exports, the threat of militant violence and a very narrow tax base.
The GDP growth rate of 4.7 percent in the year to June 2016 was less than the government’s 5.5 percent target, and a contraction in the agricultural sector this year meant many Pakistanis do not feel much better off.
Pakistan’s economy needs to grow at more than 6-percent per annum to absorb new entrants coming into the workforce, experts say.
Dar said Prime Minister Nawaz Sharif’s government’s priority in the year ahead was to push Pakistan’s persistently low tax-to-GDP ratio to above 10 percent and raise taxation revenues.
Pakistan’s financial year runs from July to June.
Khurram Husain, a Karachi-based analyst, said the government was proposing to raise taxes on turnover and financial transactions, which could hurt economic activity. It had largely left income and consumption taxes alone, he said.
“I see it more as a fire-fighting budget. The government is having a very hard time transiting out of fire-fighting mode into producing a growth-inducing budget. And this budget speech appears to confirm that,” Husain said.
Successive governments have promised to rein in tax evaders and boost revenues but face fierce resistance to change, including from the many politicians and businessmen believed to be among those dodging their taxes.
‘On path to progress’
Dar told a specially convened budget session that the country is moving ahead towards progress and prosperity.
“Economic indicators reflect our performance,” Dar said. “I am thankful to Allah that we are given an opportunity to present budget for fourth time. Our each budget was better than the previous ones.”
“We have successfully managed to put Pakistan on the right track.”
Dar unveiled Rs4.39 trillion budget for the next fiscal year. In his speech in the parliament, he presented a review of government’s performance over the last three years during which he said the country achieved economic stability.
“While on the path to economic prosperity, the government has managed to put inflation in check,” he said.
Revealing his government’s performance on the economic front, Dar said tax collection stood at record high. However, exports showed a major decline, but for the finance minister, it was mainly due to a global downward trend for commodity prices that should be blamed.
“Inflation at 2.82pc is lowest in last 10 years,” Dar told the House, adding that the fiscal deficit was brought down to 4.3pc. “By the end of June, we expect to meet our tax revenue targets…tax collection grew by 60pc in last three years,” he said.
The government’s tax revenue target is Rs3104 billions.
The finance minister termed investment in the energy sector as one of the top priorities of his government. He said to meet the country’s power requirements the government undertook several power-generating projects.
“Load-shedding is now taking place under a proper system,” he said.
Moreover, Dar said pension of federal government employees would be increased by 10 percent while employees over 85 years of age would get 25 percent raise in pensions.
The finance minister also announced 50 percent increase in conveyance allowance for grade 1-5 employees. He expressed hope to bring down bring down fiscal deficit to 3.8pc by next year.
Defence budget increased by 11pc
Finance Minister Dar informed parliament that the country would provide 860 billion rupees to the armed forces during the 2016-17 financial year.
“The defence budget has been increased to 860 billion rupees which is 11 per cent more than the last year,” he said.
Pakistan also increased its defence budget by 11 percent in 2015-16.
The country has been fighting a homegrown insurgency for over a decade, with heavy deployments of troops in the border area near Afghanistan where militants have previously operated with impunity.
However security was significantly improved in 2015, which saw the least number of attacks since the Tehreek-e-Taliban were formed in 2007.
The government will also maintain a 100 billion rupee grant for the rehabilitation of thousands of families who have been forced from their homes by the insurgency and military operations to uproot the militants from the country’s northern areas.
Pakistan estimates it has lost more than 50,000 people and billions of dollars in revenue due to the ongoing war against extremism, while thousands of its families have been rendered homeless.
— Additional reporting by AFP/Reuters
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