LAHORE
The government may take interim tax measures to meet the ambitious tax collection target of 4.1 per cent of GDP as the risk of fiscal slippages have increased further, it was learnt.
Sources pointing out the risk to fiscal deficit target told Pakistan Today that government had set the target of 4.1 per cent of GDP, which the government is unlikely to meet. It simply cannot be strict in curtailing it expenditures over development in the run-up to elections. They mention that last year’s fiscal deficit also exceeded the revised target of 4.2 per cent mainly due to a revenue shortfall.
The growing imbalance in federal and provincial government’s authority and responsibility under 18th amendment has been turning out to be a cause of concern for fiscal discipline. The sources said that the IMF has initiated dialogue with provincial authorities to explore options to remove the anomalies in the 18th amendment.
They said that political consensus on the issue is difficult ahead of elections and National Finance Commission Award (NFC Award), a five-year revenue sharing arrangement among provinces and the federal government, can be used to partially fix the imbalance.
They highlighted that the increase in the fiscal deficit in the 3rd quarter of fiscal 2017 to 1.3 per cent from 1.1 per cent of GDP in the 2nd quarter, was mainly due to jump in interest payments to Rs 447bn from Rs 233bn in the second quarter with a low in terms of interest charges.
The revenues, however, remained flat, whereby a 5 per cent decline in tax collection was completely offset by the increase in non-tax revenues by 60 per cent, courtesy coalition support fund receipts.
The government had revised its fiscal deficit target up to 4.1 per cent of GDP from earlier 3.8 per cent of GDP mainly due to a shortfall in tax collection of Rs 168bn in 9th month of fiscal2017.
Additionally, past 10-year history suggests fiscal deficit to be higher in second half than first half due to increased activity, the higher fiscal deficit in 2017 compared to 2.4 per cent of GDP recorded in first half of fiscal 2017, though few one-off inflows of coalition support fund receipts in the second half could provide some respite.
The analysts expect limited slippage on expenditure front, though it was dependent on allocations of announced incentives for export oriented sectors in fiscal 2017. Given the federal government’s increased pace of PSDP allocation; the full year target could not be comfortably met.
