LAHORE: State Minister for Revenue Hammad Azhar on Saturday admitted that the government was facing serious fiscal challenges in spite of several corrective measures taken in the last six months, saying he could not say if the revised fiscal deficit target of 5.1 per cent of GDP would be met.
“We are implementing measures to recover Gas Infrastructure Development Cess arrears (from the industry) and increase tax collection by broadening the net without putting additional burden of indirect taxes on the common people. We are also taking to the apex court alternate proposals (when it hears the review petition against abolition of hefty tax on prepaid mobile recharge) this month and hope tax collection will pick up in the second half (and help fill the hole),” the minister responded to a question, after a meeting with All Pakistan Textile Mill Association leaders.
Tax collection in the first half of this fiscal year fell short of the target by Rs172 billion. Many analysts say the difference between actual collection and the revised tax target of Rs4.398 trillion will further widen by the close of the year.
Moody’s forecast on Thursday that the country’s fiscal deficit is likely to reach 6pc as the government has failed to introduce measures curbing expenditure and increasing revenues in the supplementary finance bill announced last week. It added the mini-budget will foster exports and support the manufacturing sector but ignored spending cuts to ensure budgetary discipline.
In its monetary policy statement, the State Bank of Pakistan also said the fiscal deficit for 1HFY19 is likely to be higher than same period last year, showing that consolidation remains a challenge despite a sharp cut in the Public Sector Development Programme and rationalisation of tariffs and duties.
Deficit during 1QFY19 increased to 1.4pc following a marked slowdown in revenue growth as overall expenditure increases remained unchanged against same period last year despite significant cuts in federal and provincial development spending.
Azhar blamed the previous government for financial crisis facing the country. “They didn’t have a right to give sixth budget and give tax concessions of Rs100bn without proposing alternate measures to cover the gap… they left us a fiscal deficit of 6.6pc last year. If we had not taken corrective measures, the experts say it could have shot up to 7.1-7.5pc in 2018-19,” he claimed, adding the suspension of tax on mobile recharge had created a further hole of Rs100bn in revenues.
He said the external sector was improving and current account deficit reduced by 4.4pc 1HFY19 from a year ago. The previous government had used $25-30bn of borrowed money to keep exchange rate artificially low that had brought pressure on exports and drastically increased debt burden on the country.
He defended increase in property valuation rates, saying the purpose was to regulate the real estate market, plug flow of money into speculative investment and divert it towards the industry.