Tag: financial reforms

  • Federal cabinet to approve FBR restructuring in upcoming meeting

    Federal cabinet to approve FBR restructuring in upcoming meeting

    In a significant development, the caretaker government has concluded the comprehensive restructuring plan for the Federal Board of Revenue (FBR).

    The approval for this pivotal reform comes from the Apex Committee of the Special Investment Facilitation Council (SIFC), highlighting a crucial step towards enhancing efficiency and transparency in Pakistan’s tax administration.

    According to reliable sources, the Apex Committee granted its approval for the FBR’s reforms and restructuring plan during its recent meeting. The caretaker government is now poised to move a summary for the approval of the FBR’s restructuring plan in the upcoming federal cabinet meeting.

    The decision to move the summary will follow the meticulous review of the minutes of the last SIFC committee meeting, ensuring a thorough examination of the proposed reforms. The anticipated summary aims at facilitating the implementation of a robust action plan geared towards restructuring Pakistan’s tax administration, thereby fortifying the internal governance mechanisms of the FBR.

    As part of the ongoing reform initiative, the caretaker government is contemplating the establishment of a dedicated Customs Board to oversee the operations of Pakistan Customs. This strategic move aims to streamline and enhance the efficiency of customs affairs while ensuring a clear demarcation from the revenue collection mechanism.

    It is expected that the revenue collection mandate will continue to be under the purview of the FBR. In line with this reform trajectory, the creation of a separate Inland Revenue Board is also under consideration, which will operate under the vigilant supervision of the Revenue Division.

    This bifurcation is designed to address concerns related to smuggling and other illicit activities, providing a specialised focus on each aspect of tax administration.

    Furthermore, as part of the tax reform programme, five federal secretaries, namely Finance, Industries and Production, National Food Security, Commerce, and Interior, are slated to become ex-officio members of the proposed Customs Board. This inclusion is envisioned to bring multidimensional expertise to the board, fostering collaboration among various sectors crucial for effective customs management.

    The restructuring plan marks a pivotal moment in Pakistan’s efforts to modernise and fortify its tax administration system. The caretaker government’s commitment to transparency and efficiency is evident in these strategic reforms, setting the stage for a more resilient and responsive revenue collection framework.

    The anticipated approval of the summary at the federal cabinet meeting will further propel the implementation of these transformative changes.

  • FBR restructuring: Govt plans to separate Customs and revenue collection system

    FBR restructuring: Govt plans to separate Customs and revenue collection system

    Caretaker Finance Minister Dr Shamshad Akhtar has announced that the government is implementing significant restructuring measures within the Federal Board of Revenue (FBR) to eliminate apparent conflicts of interest in tax collection and enhance overall performance. 

    Speaking at the Future Summit organised by the Nutshell Group, she outlined the action plan for restructuring Pakistan’s tax administration, emphasising the crucial aspect of strengthening the internal governance of the FBR. 

    One notable decision involves separating customs from the revenue collection mechanism. Customs will focus on tracking smuggling and related activities, while revenue collection will remain the exclusive mandate of the FBR. 

    Akhtar noted that a formal notification for this change will be issued next week, with additional notifications expected for further FBR restructuring initiatives. 

    Discussing FBR reforms, Akhtar highlighted the adoption of innovative digital technologies to broaden the tax base, minimise the tax policy and compliance gap, and increase tax collection. 

    The government aims to reduce the share of the shadow economy by more effectively identifying non-filers and those under-reporting incomes or business activities. 

    Furthermore, Akhtar revealed plans to separate the tax policy and revenue division, making it an independent entity reporting directly to the Minister of Finance. 

    According to Brecorder, this move aims to eliminate perceived conflicts of interest in tax collection, emphasising the need for fair, equitable, and productive tax policy design. 

    Collaboration with the National Database and Registration Authority (NADRA) is also underway to upgrade data systems, with a technical committee chaired by NADRA and FBR chairpersons established for this purpose. 

    The overall objective is comprehensive tax administrative reforms and increased efficiency in revenue collection. 

  • Pakistani rupee claims top spot as best-performing currency worldwide 

    Pakistani rupee claims top spot as best-performing currency worldwide 

    Amidst a determined crackdown on smuggling and illegal financial activities, the Pakistani rupee has emerged as the world’s top-performing currency for September. During this remarkable month, the rupee’s value surged from Rs305.54 against the US dollar on August 31st to Rs287.74 on September 28th, a notable increase of Rs17.8 or 6.2 per cent.

    Impressively, this positive trend persisted for 17 consecutive trading sessions, resulting in an overall gain of nearly 7 per cent since hitting its lowest point at 307.1 on September 5th. 

    It’s essential to note that the currency market was closed on Friday, September 29th. In terms of global currency performance, the Mauritian rupee secured the second position with a modest appreciation of 0.7 per cent, while the Hong Kong dollar claimed third place, showing a slight improvement of 0.2 per cent throughout September. These figures are based on data from the brokerage house Arif Habib Limited (AHL), reported on a recent Friday. 

    Financial experts attribute this remarkable rupee surge to a series of government measures aimed at curbing dollar smuggling and currency hoarding. Additionally, during the same month, the State Bank of Pakistan (SBP) introduced structural reforms targeting the Exchange Companies (ECs) sector. These reforms included a directive for commercial banks to establish their own ECs as wholly-owned subsidiaries and an increase in the minimum capital requirement for ECs from Rs200 million to Rs500 million. 

    Notably, the Pakistani rupee recorded substantial gains in the inter-bank market, appreciating by 6-9 per cent against three major currencies – the US dollar, UK Pound, and Euro – over the past few weeks. Even in the open market, the rupee showed a significant upswing of 11-13 per cent, effectively eliminating the premium associated with the open-market rate. This is particularly impressive given that the US Dollar index reached a 10-month high. 

    This strengthening of the rupee aligns with the commitment made by Pakistani authorities in July when they entered into a vital $3 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). This agreement was pivotal in averting a potential sovereign default and required the adoption of a market-based exchange rate, which has now proven to be a pivotal factor in the rupee’s impressive resurgence. 

  • Pakistan commits to boost foreign exchange reserves to $11.7 billion by 2024

    Pakistan commits to boost foreign exchange reserves to $11.7 billion by 2024

    Pakistan has made a commitment to the International Monetary Fund (IMF) to significantly increase its gross foreign exchange reserves by $7.65 billion. The goal is to raise the reserves to $11.7 billion by the end of the financial year 2024, up from the current level of $4.056 billion in the financial year 2023. This move is aimed at building a buffer of foreign exchange reserves to protect the national economy from external shocks.

    The assurance was given through a Letter of Intent (LoI) signed by Finance Minister Ishaq Dar and State Bank of Pakistan (SBP) Governor Jameel Ahmed. Under a $3 billion stand-by arrangement (SBA) for nine months, Pakistan assured the IMF and its executive board of its commitment to bolster its foreign exchange reserves.

    If the gross foreign exchange reserves reach $11.7 billion by the end of June 2024, they will be sufficient to meet the country’s import requirements for goods and services for approximately 1.8 months.

    The balance of payment (BoP) chart, agreed upon by the IMF and Pakistan, indicates that projected disbursements of foreign loans during the current financial year 2023-24 are expected to amount to $15.01 billion from multilateral and bilateral creditors. This financial year started on July 1, 2023, and will end on June 30, 2024.

    The analysis of the BoP data suggests that Pakistan needs to secure external financing from multilateral and bilateral creditors during the current fiscal year. Additionally, Pakistan is seeking an additional deposit of $2 billion from the Kingdom of Saudi Arabia and $1 billion from the United Arab Emirates (UAE). The Islamic Development Bank (IsDB) has agreed to provide a $1 billion loan program.

    Furthermore, Pakistan is actively working on program loans and project financing from the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank (AIIB) to secure a total disbursement of $15 billion from all multilateral and bilateral sources.

    To further strengthen its reserves, Pakistan intends to engage with bilateral partners, especially China, Saudi Arabia, and the UAE, to extend the maturity of their existing deposits, which amount to $2 billion, $3 billion, and approximately $2 billion, respectively, in the current financial year.

    The IMF executive board is scheduled to convene on July 12, 2023, in Washington DC, to review and consider Pakistan’s request for approval of a $3 billion short-term bailout package, including a $1 billion tranche release. Upon approval by the executive board, the $1 billion tranche will be disbursed within a few days.

    The IMF staff has already circulated copies of the Letter of Intent among the executive board members. In this document, Finance Minister Ishaq Dar and the SBP governor have provided assurances regarding the implementation of crucial fiscal and energy reforms to address fiscal challenges. Islamabad has also committed to tackling issues in the energy sector, including measures to control the circular debt problem.

    To address energy sector concerns, the government plans to raise power and gas tariffs in line with the determinations made by the regulators. The National Electric Power Regulatory Authority (NEPRA) will finalise the power tariff, while the facts regarding gas tariffs are being ascertained by relevant officials.

    The Oil and Gas Regulatory Authority (OGRA) has already recommended increasing gas tariffs by 45 per cent and 50 per cent for two major gas utilities. The government has a 40-day timeframe to make a decision on this matter, after which the recommendations will be notified in the second week of July 2023.

    Under the nine-month SBA program, it is anticipated that there will be two reviews conducted by the IMF mission in September and December 2023. Each review is expected to lead to the disbursement of a $1 billion installment.

    Overall, Pakistan is taking significant measures to strengthen its foreign exchange reserves, seek external financing, and implement necessary reforms in order to address its economic challenges and ensure stability.