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Tarin: There would be’some’ inflation under the proposed Finance Bill

ISLAMABAD: Finance Minister Shaukat Tarin did not rule out the possibility that the measures proposed in the proposed Finance Supplementary Bill, 2021, would have an inflationary impact, explaining that “we are doing this because the International Monetary Fund (IMF) requirement for the sixth review was to remove distortion in the tax system.”

He told the Senate Standing Committee on Finance, led by Senator Talha Mahmood, that the IMF demanded Rs700 billion in tax exemptions be withdrawn, but he was able to persuade them to accept Rs343 billion.

Also read: SBP law will help pave route for low inflation

Of course, there would be some inflation; however, it would not be too much. He said that the inflation would not recede immediately but would take some time because it is due to international commodity prices.

These structural reforms in the tax system have been pending for quite a long time and he wanted to bring about reforms during his last tenure as the finance minister. He said that there was Rs18 to Rs20 trillion sale of retail sector but only Rs 4 trillion was being captured and remaining around Rs16 trillion was out of the tax net.

Tarin said that the tax-to-GDP would further decline when rebasing would take place, adding that broadening of tax net was critical for the country because 11.5 percent tax-to-GDP is inadequate even for the current expenditure of 13 percent, HE deplored that some rent seekers continue to benefit from the existing system.

The finance minister said that the government did not accept the Fund’s demand of taxing the provident fund, fertilisers, and the agriculture sector, and protected them in the proposed money bill. He said that Rs 700 billion pharmaceutical sector, after documentation, is projected to yield Rs100- Rs130billion income tax.

He said that every income should be taxed and agreed with MQM’s Faisal Subzwari that agriculture income should also be taxed.

The finance minister said that Punjab, Khyber-Pakhtunkhwa, GB, and AJK are willing to taxing the agriculture sector and the government wanted to start with them first and will also try to convince Sindh and Balochistan.

He said that rupee was under pressure because of trade deficit on account of increase in the prices of commodities in the international market, as well as, because of Afghanistan and he decided to trade with Afghanistan in rupee instead of dollars. Out of Rs343 billion withdrawal of exemption, Rs280 billion would adjustable. He said that the government has expedited the refunds and paid Rs150 billion during the last six months.

Replying to the senators’ questions, he said that the IMF board meeting has been deferred for three weeks on his request and now it would take place either on 28th or 31st January of this month.

“I requested them that I need some space contending that parliament is not a rubber stamp and wanted to deliberate in detail on the proposed laws, the Finance Supplementary Bill, 2021 and the SBP Amendment Bill, 2021. When deadline is not met, the review mission negotiates again but I requested them that we don’t want renegotiation of sixth review and they accepted it,” he maintained.

The finance minister also suggested that the committee should deliberate the proposed Finance Supplementary Bill, 2021, threadbare and point out the measures that it believes would not be good for the economy and the common man and he would consider their recommendations. He said he would be updating the committee on quarterly basis about the economic situation.

Also read: Inflation in Pakistan is expected to be 12.9 percent year on year in December

About the State Bank of Pakistan (SBP), he said in case SBP tries to be out of control, the law would be changed with simple majority as the prime minister is very clear about it. Additionally, he said that eight independent members of the Board of the Directors (BOD’s) would be nominated by the Finance Ministry and government would appoint the Governor, SBP.

He said that the Fund is against government borrowing from the SBP because successive governments had borrowed Rs7 trillion from central bank but did not retire. We will be borrowing from the commercial banks, he acknowledged.

He also briefed the committee about Kamyab Pakistan Programme designed to benefit the low-income group and employment generation and POS system to bring the retail sector in the tax net.

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