State Bank of Pakistan to achieve 6.5% inflation target for next Year
Pakistan Times Business & Commerce Desk

KARACHI: The State Bank of Pakistan would strive to achieve the next year's inflation target of 6.5%, which is considered to be the threshold point beyond which it has negative impact on the national economy, Economic Advisor SBP, Riaz Riazuddin said here Wednesday.

He was addressing the budget breakfast forum of the Institute of Bankers of Pakistan which was also addressed by Muhammad Saleem Umer, Chief Executive of IBP, Aftab Ahmad Khan, former finance secretary and Vice President of IBP, Ayaz Ahmed, Senior Executive Vice President and Chief Financial Officer of HBL and S. Masoud Ali Naqvi, Senior Partner KPMG Taseer Hadi & Co.

Masoud Ali Naqvi speaking about the federal budget termed it a step in the right direction and admitted that the economy has covered adequate distance as compared to the previous regimes but feared that the political compromise may adversely affect this course.

There is still political uncertainty and the speech of the Finance Minister reflected it well due to which, he added, there might be some monetary changes made during the year for the purpose of pleasing the masses for political reasons.

He said the country has to generate additional Rs 100 billion to meet the increased revenue target through direct or indirect taxes otherwise the deficit would increase.

He also pointed out that the deficit financing would leave negative impact and warned the government of dire consequences of borrowing money from the central bank beyond the allowed limits. Such action would fuel the inflation to higher level, he added.

He said the government should focus on capacity building and strengthening of the institutions as whatever has been done in these sectors was far below what we need.

He said the economy despite all negative things like earthquake and extra ordinary hike in petrol prices internationally and other local and international issues, the growth rate was encouraging.

However, he said the gap between the poor and the rich could not be bridged. With economy growing at higher rate in the coming years, he maintained, the concern about this gap would decrease as the masses would be comfortable with the trickle down effect of the development and growth.

He elaborated various tax measures including the 5% tax on rental value and termed it creation of another opportunity which can be manoeuvred. He said it would leave room for the evaluation and the real amount would not be disclosed, leaving the high earning out of tax net.

Similarly, he said while buying a house, one is made to arrange a part of money from non-official sources and the amount shown on the transaction is less than the actual price of the property, therefore the parties pay less on stamp duty.

He was of the view that the proper legislation like that of India can help check this evasion.

He also raised the question of the agricultural tax issue and said it is not taxing the poor farmer but to check the tax evasion. He said the withholding tax is aimed at bringing the people into the tax net but this spirit is not maintained in the country as it has been made a collectible tax due to which it has its own demerits.

Naqvi speaking about the advance tax warned the corporate sector that the advance tax is applicable where the taxpayer expect decrease in income. He has to revise his estimate before paying the third installment/quarter tax if the earnings were going higher.

He added the certain level of difference between the actual income and estimated income invokes plenty provisions.

Aftab Ahmed Khan said that Pakistan is still a low income economy. " Though we have done better than the previous regimes, still we are quite below in regard to per capita income of other compatible countries. He also appreciated the fact that the earthquake, petrol prices and other crisis could not impact upon the economy very badly and the achieved growth rate was satisfactory.

He said the high inflation was caused by the fast growth of the monetary assets, compared to the real growth in the economy. He also expressed concern over the low savings and partially held the wide spread in deposit rate and mark up rate for this.

He said the trade imbalance should be given due attention which has reached 4% of the GDP and Pakistan is not in a position to sustain this for long.●