Finance Minister Shaukat Tarin said Tuesday that the government would try to exclude infant milk and bread sold in bakeries from the purview of the 17 percent sales tax under the Finance Supplementary Bill, 2021; and 100 per cent subsidy would be given on solar panels and laptops.

In a background briefing on the Finance Supplementary Bill, 2021 and the State Bank Amendment Bill, 2021, Tarin said that infant milk and bread are not luxury items. “We will give subsidy on laptops/ solar panels, but we will not stop documentation and do it at any cost,” he added.

The finance minister was accompanied by the State Bank of Pakistan (SBP) Governor, Reza Baqir, Minister for Energy Hammad Azhar, and Federal Minister of Information and Broadcasting Fawad Chaudhry.

To a question what he would do if the SBP governor does not consult the federal government in making decisions under the objectives of supporting economy and growth, the finance minister said he would fire him by getting changed the law from the parliament. “Pakistan is a State and the parliament is supreme.”

He said we are not living in an island and the SBP has to support the growth policy of the government and if the governor does not do that, he would face the consequence of being fired through changes in the law from the parliament. He said we will get the law passed from the parliament to undo the powers of the governor and explained that he would not need such an extreme step because he would have the leverage in the Board where eight out of 10 independent members would be appointed by the federal government.

He said that the SBP would be independent with respect of monetary and forex policy.

The finance minister said that the International Monetary Fund’s (IMF) demand was to withdraw Rs700 billion tax exemptions, but we have been able to convince them on Rs343 billion. Out of Rs343 billion withdrawal of exemption, Rs280 billion would be adjustable.

Tarin further said that the Finance Supplementary Bill, 2021 is not for collecting taxes. Out of Rs343 billion from withdrawal of exemptions, Rs160 billion would be refunded to the pharmaceutical sector, whereas, Rs110 billion to the importers of capital goods and plant/ machinery.

He said that Rs700 billion pharmaceutical sector, after documentation, is projected to yield Rs100- Rs130 billion income tax. “We do not need this tax under the money bill but only want documentation and removal of distortions,” he added.

The finance minister said that the government did not accept the Fund’s demand of taxing the provident fund, pesticides, tractors, fertilisers, and the agriculture sector, and protected them in the proposed money bill. He said that every item was negotiated with the IMF.

On the applicability of 17 percent sales tax on point of sale (POS) retailers, he said we only increased it from 10 to 12 percent instead of the IMF’s pressure of charging 17 percent.

Even after the past two IMF programmes, the tax-to-GDP ratio stood at around lower side of nine percent.

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.

About the SBP, he said in case, the SBP tries to be out of control, the law would be changed with a simple majority as the prime minister is very clear about it.

The reservations of the PM House have been addressed.

He said that during the previous government the country suffered a loss of $55 to 60 billion as the then finance minister Ishaq Dar artificially kept the dollar at Rs94-106 and consequently the country’s exports decreased and the imports increased significantly. He said that if we add both – the decline in export and the increase in import, it would come to around 55-60 billion dollars.

Additionally, he said that eight independent members of the Board of the Directors (BOD) would be nominated by the Finance Ministry and the 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 the central bank but did not retire and the government would be borrowing from the commercial banks.

Responding to various queries, the SBP Governor, Raza Baqir, said that the interest rate decision is taken by the monetary policy committee and all the members including governor, deputy governor, as well as, external members and the Board are appointed by the federal government.

He said these powers were delegated to the monetary policy committee in 2015 when there was a different government, which means, if it is another step for independence of the SBP, this has not happened for the first time.

About the control of the SBP, he said that if the government wanted to control an institution, there are two ways to do that with the first one of ownership and appointments.

He said that under the section 4 of the proposed SBP Bill 2021, entire ownership lies with the federal government and all the appointments under section 11-A, all the senior officials, Governor, Deputy Governor, external members of the MPC, Board members are being appointed by the federal government.

He said both the ways to control any organisation rests with the federal government.

He said that the measures now being taken would either reduce the fiscal deficit, would remain broadly unchanged, or would slightly improve in this ongoing fiscal year. Monetary policy has been tightened because supply side contributed to the inflation and the current account deficit was relatively higher compared to the government expectations.

Baqir said that another element was added during the last few months the inflation was becoming broad-based, which indicates that demand pressure is somewhat increasing and the monetary policy was tightened to deal with this.

He said that inflation was also a surprise for the government- like the US which is experiencing inflation at the highest level during the last 40 years – and growth is being moderated slightly in view of the inflation as the government had no control of committee prices.

The story was published in Business Recorder on January 12, 2022.