ISLAMABAD: The federal government will have to create fiscal space to meet its National Finance Commission commitments, according to Finance Minister Shaukat Tarin.
According to Mr Tarin, reducing ministries, good governance and transparency in government functioning were crucial for measures to reduce government expenditure.
Addressing a press conference here on Monday, he said that the government had increased the provinces’ share in the divisible pool by Rs174 billion and another Rs43 billion on net hydel profit, gas development surcharge and sales tax on services.
According to him, the government will need an additional Rs217 billion for the undertaking. A direction had been set and it needed to be implemented in letter and spirit, Mr Tarin said.
The foremost task, he said, was to increase tax-to-GDP ratio from 8.9 per cent to 13.9 per cent and in the long run between 15 and 20 per cent.
‘This is a major challenge and will have to be achieved.’ ‘We have … enlarged the size of the cake instead of envelope.’
The federal government, he said, should curb major expenses, including the fleet of luxury vehicles.
‘Health and education are provincial subjects and such ministries at the federation level should be shut down,’ he said.
Leakages in federal government institutions should be plugged, Mr Tarin said, adding that the cabinet would soon take up the austerity committee’s recommendations.
Similarly, the committee on good governance will firm up its recommendations in two weeks. ‘In view of its importance, we will have to take quick actions.’
The committee’s proposals are based on a Gallup survey carried out by the government to determine public expectations about government austerity.
Provinces, he said, should start building capacity to utilise enhanced funds. ‘It is now up to the provinces (to) focus on health, education, poverty and infrastructure.’ The federal government, he said, would have to increase sales tax and GST collection. According to figures presented by him, the government was losing between Rs2.25 billion and Rs2.5
billion in public sector organisations like Pakistan Railways, PIA and Steel Mills.
Mr Tarin said taxation system alone accounted for losses amounting to Rs350-Rs500 billion, adding that leakages in the Federal Board of Revenue (FBR) were as high as Rs500 billion.
The federal government, he said, was providing a subsidy of Rs55 billion to distribution companies. ‘Revenue losses can be plugged through good governance and transparency.’
He urged the provinces to enforce tax on agricultural income, sales tax on services and capital gains tax on real estate. ‘Tax on agricultural income will be in the range of 23 per cent of GDP.’
On the issue of VAT enforcement, Mr Tarin said that it would make sales tax system more efficient because collection of VAT on goods will be the responsibility of the federation while provinces would levy VAT on services.
‘Three provinces do not have the capacity to enforce VAT and … the federal government has offered to help them.’
In order to move towards providing financial autonomy of provinces, the finance minister said, the federation had reduced collection charges from 5 per cent to 1 per cent.
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