ISLAMABAD   -   Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh has said that wealthy people will have to pay taxes to increase the country’s tax-to-GDP ratio of 11-12 percent, which is lowest in the world.

“If we have to offend some people for this (paying taxes), we are ready to do it (in the larger interest of the country),” the adviser said in a post budget press conference on Wednesday.

He admitted that the tax collection target of Rs5.55 trillion was challenging. If there were people who think this target was not achievable, they won't be entirely wrong, given FBR's performance in the past, he added.

But, making it clear they would break from such traditions, Hafeez said this (PTI’s) was a new regime where business as usual could not run. “Pakistan's people, especially the rich, will have to be sincere with the country and will have to pay taxes,” he added.

On the occasion, the adviser was flanked by Federal Minister for Planning Development and Reforms Khusro Bakhtiyar, Minister for Petroleum Omar Ayub Khan and Minister of State for Revenue Hammad Azhar, Finance Secretary Naveed Kamran Baloch and Federal Board of Revenue (FBR) Chairman Shabbar Zaidi.

Hafeez Shaikh justified his government’s taking loans by saying that government was borrowing to pay the interest payment on the huge loans taken by the previous governments, besides spending on civil and military state machinery and development projects.

“We inherited a total of Rs31,000 billion in debt. The total collection of revenue is Rs4,000 billion – half of which was spent on repaying debts in outgoing fiscal year.” Therefore, it would be unfair to blame the incumbent government for taking loans, he explained.

He said that Pakistan and International Monetary Fund (IMF) had reached on staff level agreement, which would be presented in their executive board for approval in next two to four weeks period.

The adviser said they have reduced the expenditures under austerity plan to control the increasing budget deficit. For the first time in country’s history the armed forces had decided to freeze their expenditures. The defence budget would remain static at Rs1,152 billion for the next fiscal year, he said.

Similarly, the civil government has also reduced its expenditures by 5 percent to Rs437 billion from Rs460 billion. “This will give positive message to the world and Pakistanis people that how the government is controlling its expenditures,” he informed.

He said that a major chunk of budget, Rs2.9 trillion, has been allocated for debt servicing for next fiscal year to avert default on previous loans. However, the government has not compromised on protection of vulnerable segments of the society and development projects in the next year's fiscal budget, he claimed.

The government has almost doubled the budget for social safety net, from Rs100 billion to Rs191 billion, Hafeez said. Also, Rs216 billion have been allocated for subsidy on power to protect the poor who were using up to 300 units of electricity every month.

He added that the government has enhanced the development budget to Rs950 billion from Rs550 billion, which would help create jobs and build infrastructure.

The adviser said the new budget also aims to develop backward districts in Balochistan and erstwhile Federally Administered Tribal Areas (Fata). “We have allocated Rs152 billion for the development of our tribal districts and we intend to develop them at an unprecedented pace.”

He added, “We are also giving subsidies to the private sector on the gas and electricity tariff. Moreover, they will be given loans as part of efforts to promote economic activity in the country,” he added.

Hafeez Shaikh clarified that there would be no tax on exports by the five export-oriented sectors – textile leather, carpets, surgical and sports goods; however, the government would collect 17 percent sales tax on their sale in domestic market.

He informed that tax collection on textile sector was only Rs6 to 8 billion per year out of their annual sales valuing around Rs1,200 billion, “which is not acceptable”. He vowed to improve the tax refunds system by adopting Chinese and Bangladeshi models.

The adviser to PM revealed that the distinction between tax filers and non-filers would be eliminated. “If a person, who has been a non-filer in the past, buys a car or property, he will automatically have to become a filer. If he fails to become a filer within 45 days, he will receive a tax liability within half an hour after the 45-day limit has lapsed," he warned.

Shaikh added that government has reduced the duties on the import of raw materials to reduce the cost of doing business. However, the government has enhanced the duties on imports of finished goods, which are used by elite class to generate additional revenues.

The adviser informed that government has also reversed tax concessions extended by the PML-N government to the salaried class, which was “not rational”. Minimum taxable income for salaried class has been reduced to Rs0.6 million per annum from Rs1.2 million per annum.

Asked about the high-powered inquiry commission announced by the PM for investigating alleged misappropriation of Rs24 trillion by the former rulers during their 10-year rule, Shaikh said that it would be premature to say how the commission would work.

Speaking on the occasion, FBR Chairman Shabbar Zaidi said that the government has moved from traditional system to sectoral analysis, which highlights such industries or sectors as are paying less tax than they should.