Budget 2010/11

ISLAMABAD: The Finance Ministry and the International Monetary Fund (IMF) officials will discuss key issues regarding the Budget 2010/11 (July-June) and progress towards the implementation of the Value-Added Tax (VAT) from July 1 in the fifth review (March-June 2010) in May.

This was revealed in the fourth Supplementary Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding between the government of Pakistan and the IMF review mission, which was made available to The News on Wednesday.

Earlier, officials of the Finance Ministry and the IMF had discussed the outstanding issues, including timing of the fifth review and potential combining of reviews, electricity and circular debt, commodity operations, wheat procurement and confirmation from the Federal Board of Revenue on the Value-Added Tax and tax administration reform in the recently concluded fourth review in Islamabad.

Under the memoranda, officials of the Finance Ministry and IMF deliberated at length on the recent economic developments, policies for the remaining part of 2009/10 including fiscal, monetary and exchange rate policies and financial sector.

The measures of submission of VAT Act to Parliament and consistent provincial VAT acts to provincial assemblies will be initiated in the first phase for consideration of the board of the fourth review, according to the Supplementary Memorandum.

It also agreed that the review of the VAT law, including zero-rating and exemptions is expected to be completed by the finance and revenue committees of parliament by the end of the current month.

The ceiling on the consolidated overall budget deficit, excluding grants will be adjusted downwards by up to Rs58.97 billion (equivalent to $0.71 billion valued at Rs83 per $1) for the shortfall in Tokyo-related disbursements, excluding multilateral sources in rupee terms in excess of Rs117.94 billion, it said.

The quasi-fiscal problems with the commodity operations and the stock of outstanding wheat commodity credits will be reduced by at least Rs95 billion between January 31 and April 1, the start of the 2010 procurement season, to avoid crowding out the private sector, said the document.

However, losses for government procurement agencies will be covered from the budget and would not be left to accumulate on the agencies’ books.

“For the 2010 procurement season, we will remain within our announced procurement target of 6.5 million tons,” it added.

About the fiscal policy, it said that the macroeconomic backdrop for the programme remains largely unchanged. Fiscal risks are a threat to macroeconomic stability, but the fiscal deficit target for 2009/10 will be adjusted to 5.1 per cent of the GDP.

Regarding revenue, it said, tax collection is being monitored and will be reviewed at the end of the third quarter for additional measures, if needed. For the expenditure measures, the Supplementary Memorandum hoped that the government has adequate provision for security and IDP outlays and, if needed, it will meet any additional fiscal shocks through additional restraint of non-priority development spending.

About the unmanageable issue of electricity subsidies, the document revealed that the government is making progress towards eliminating electricity tariff differential subsidies by August. It is also taking steps to clear the remaining stock of circular debt in the electricity sector, it added.

Source The News