ISLAMABAD: Minister for Finance and Economic Affairs, Dr. Abdul Hafeez Shaikh here on Tuesday expressed the resolve of the government for taking strict action against those who are evading the taxes and bringing them in the tax net besides controlling the government expenditures for stabilization of national economy and securing public finance in the country.“Through series of economic stabilization measures government wanted to enhance its revenues to enhance economic growth to create employment opportunities for the people, reduce fiscal deficit and inflation for the welfare of people in the country,” he said while briefing the newsmen about the economic stabilization measures of the government here on Wednesday evening.He was flanked by the Minister for Information and Broadcasting Dr. Firdous Ashiq Awan and other senior government officials.
“We want to reduce inflation through these measure which is hurting the people in the country,” he remarked.He said that government had increased the threshold of tax from Rs.100000 to Rs.300,000 to benefit the low income people and only those people are liable to pay their due taxes whose annual income is more than Rs.300,000 per annum.The minister said that the government had inherited a difficult economic situation in the backdrop of global oil and commodity price shocks and subsequent financial melt-down at an unprecedented scale.The IMF Stand-by Programme negotiated in October, 2008 was key response of the government and economic situation had begun to stabilize, he said.However, he said the continued challenges on the security front, extraordinary floods and resurgence in international oil prices jolted the recovery process.He said that the inflation had started rearing its head largely due to reliance on State Bank borrowing whereas slippage on fiscal targets was continuing.The IMF programme was under suspension since May, 2010 and funding from other development partners was also on hold, he added.
The Finance Minister said that in budget 2010-11 had taken certain measures aimed at arresting the deteriorating conditions but many of the taxation measures most notably RGST were not implemented.He said that under the circumstances economy was facing serious threat of disruption as security of public finances came under stress.He added that with determination and resolve, the government has adopted a series of measures that will stabilize the economy and secure public finance.“Needless to say that these measures were difficult and will burden our people, but the burden of adjustment, to the extent possible, has been placed equitably on all stakeholders”, he remarked.The Finance Minister said that more effort has been placed on controlling expenditures than on raising revenues.
The expenditures incurred on floods have been given priority even though no such expenditure was envisaged at the time of the budget, he remarked.He said that the revenue effort has been further streamlined to ensure that low income groups remain insulated from their impact.He assured that the incidence of surcharge on income tax burden will be borne by those who have a taxable income and at the margin they will bear a small extra liability, which will be a one-off expense.These measures, he said will enable government to contain its fiscal deficit to under 5.5 per cent well below the level of 8% some observers had speculated.
“Every one percent decrease in deficit contributes to lessening the inflation in the range of 1.5-2.0 per cent,” he remarked.The inflation, he said is an indiscriminate negative tax on income as it reduces the purchasing power of all groups, and the low income groups are hit hardest.Thus by containing the deficit through these measures government has laid a solid foundation of arresting the inflation in the country, he remarked.“The recent reprieve in inflation is also a welcome development and these measures will further strengthen this trend”, he said.Minister for Finance Dr.Hafeez Shaikh said that when the present government came into power in 2008, the CPI based inflation was at 25 percent which has now been brought down to 12.9 percent.He said government is committed to stabilizing the economy and pursuing its reforms agenda despite the shocks of unprecedented floods and rising oil prices.Dr.Shaikh said that recourse to SBP borrowing has aggressively managed.He informed that the SBP borrowing stood at Rs.68 billion at End-February 2011 from a high of Rs.321 billion reached during the first half of current financial year.
He said that Foreign Exchange Reserves has also crossed $ 17.5 billion highest in the history of the country.He said that Inflation rates have begun to decline for the last two months.During February 2011 the CPI was 12.9% significantly down from 15.7% recorded in December, 2010;He added that the external sector has shown extraordinary performance.Exports, he said have increased 26% in the last eight months. For February 2011, growth in exports was at historic 46%.He expressed the hope if this trend continues, the Exports are likely to cross $25 billion.The Finance Minister said that the remittances will surpass the $11 billion mark, which will also be historic.He added that more works remains to be done to ensure that these gains are consolidated and a solid foundation is laid for stability, growth in the economy and the prosperity of the citizens.The government, he said has decided to further control expenditures and to raise revenues to secure the public finances.He said that the following expenditure control measures for remaining part of the budget year will be effective immediately:• POL Entitlement, Purchase of Stationary and Travelling Allowance: The expenditures on these heads are cut by half.
Purchase of Durable Goods: There will complete ban on purchase of durable goods.
• Ban on Fresh Recruitment: There will be ban on fresh recruitment unless process already initiated through proper advertisements.
• Surrender of budgetary allocations beyond last year’s level: An exercise was undertaken successfully to secure surrender of excessive budgetary allocations over and above the last year.
• Other savings: Numerous other small heads of account relating to grants to entities and bodies outside the government have been closely examined and savings effected.
• Rationalization of PSDP:The PSDP has been rationalized while protecting projects in social sectors, less-developed areas and of strategic significance.
The Finance Minister said that the combined impact of these measures will be Rs. 120 billion.
He said that only obligatory foreign tours would be allowed and there would be no ban on foreign tours which involves no public exchequer of the country and all the expanses would be born by the inviting country or the organization.
Regarding Revenue Measures, he said that the following additional revenue measures have been adopted to partially offset the increase in expenditure demands on account of floods, foregone revenues due to postponement of RGST and to remove inequities in the tax system:
• One-time surcharge of 15% on income tax payable for the remaining period of tax year 2010-11.
• Additional special excise duty (SED) of 1.5% on items already subjected to SED for the remaining period of tax year 2010-11.
• Withdrawal of exemption of sales tax on fertilizer, pesticides and tractors. The facility of zero-rating on plant, machinery and equipment including parts thereof has also been withdrawn.
• Zero-rating on five major export oriented sectors (textiles, carpets, leather, sporting goods and surgical goods) has been restricted to registered exporters and manufacturers-cum-exporters for export purpose only.
• A clear distortion visible in the assessable value of sugar by artificially limiting it to Rs. 28.88 per kg has been removed. The ex-factory price shall hitherto be the prescribed price for levy of sales tax on sugar. However, to protect the consumers, special rate of 8% for levy of sales tax on sugar has been retained.
These measures would assist in achieving the revenue target of Rs. 1600 billion revenues during 2010-11, he added.Under the NFC award the provinces have transferred additional Rs.300 billion to Rs.400 billion.The he said would help provinces to provide basic facilities and amenities including better health, education and clean drinking water to the people in their respective provinces