Addressing a post-budget press conference, Finance Minister Muhammad Aurangzeb on Wednesday warned that the government will have no choice but to impose additional taxes if Parliament does not pass enabling amendments and legislation aimed at tax collection.
Maintaining that the taxes imposed last year were a result of global lenders not trusting the Government of Pakistan’s enforcement ability, he said this situation had now improved, allowing for the marginal relief announced in the proposed budget for the upcoming fiscal year. He said the government hoped to achieve a tax-to-GDP ratio of 10.9% by next year, a Rs. 2.2 trillion target that includes around Rs. 312 million in additional taxes.
“We have two ways [to achieve this]—either we ensure enforcement or we introduce additional measures of up to Rs. 400 to 500 billion,” he said. “This is why we will go to Parliament to help us out with the enabling amendments and legislation,” he said, warning that if this did not happen, the only option was to impose additional taxes.
During the presser, Aurangzeb defended the tariff reforms proposed in the budget—criticized for potentially boosting the country’s import bill—emphasizing this was the first such amendment in 30 years. He said the new reforms had reduced to zero tariffs on 4,000 lines out of 7,000. Stressing this was necessary for economic development, he claimed it would also boost exports.
“This is an East Asia moment for Pakistan,” he said. “Whatever was available in the fiscal space is the direction of travel. We have tried to reduce tariffs. This is not the eventual end state,” he added.
To a question, he admitted that pensions and salaries should be linked to inflation. “Whether it is the public or private sector, it must be aligned with some benchmark,” he said. He further said the Centre would work with the provinces for the development of agriculture and livestock, maintaining the sector would not be ignored. He said small farmers would be provided loans on easy terms, assuring the government is striving to offer as much relief as possible.
Noting no additional taxes have been imposed on the agricultural sector in the new budget, he regretted that relief could only be provided in accordance with the country’s financial capacity.
Budgetary deficits
The minister said it was the government’s responsibility to reduce federal expenditures. “This time, we have limited federal expenditures to 2%,” he said, noting the budget starts with a deficit and historically debts have mounted annually. However, he stressed, the country must move forward within its means. “Whatever the government is providing [right now], it is doing so by taking loans,” he said, while defending the salary increases for lawmakers as long overdue.
“We have reduced subsidies and debt-servicing costs, and increased some expenditures because this country needed those,” he said. “But this is our response to those people who are paying taxes in this country that ‘why are you not bringing the government expenditures under control’,” he said.
Detailing measures aimed at facilitating the real estate sector, he said the selling side would still get capital gains but the buying side should get some relief.
To a question on his earlier assertion of delinking population from the National Finance Commission award to disincentivize population growth, Aurangzeb said this decision would only be taken after consultation with provinces. “Nothing will be done [without them], including the national fiscal pact which we signed with the provinces,” he said.
Aurangzeb also sought to defend the minimal relief offered in tax rates to salaried individuals, stressing it was a “signal” and “acknowledgement” of the undue burden placed on various sectors over the past year. “This is just signaling in my perspective from the right direction,” he said.
The minister also maintained that the government had taken two “very concrete measures” to bring the cash-based economy of Rs. 9.4 trillion or more towards documentation.
The press conference came under some controversy as several journalists staged a walkout over not receiving any technical briefing on the proposed budget from the FBR despite tradition. However, the situation was resolved by Information Minister Attaullah Tarar and all journalists returned to the press conference.