ISLAMABAD: The government has assured International Monetary Fund (IMF) it was gradually moving from the General Sales Tax (GST) to a full-fledged integrated modern indirect tax system and implementation of the new import tariff structure by end-June 2017.
Incorporating the costs of servicing the syndicated term credit finance facility into the power tariff petition, as new gas production comes on line, the cost of this gas will be fully reflected in the base tariff on a semiannual basis, beginning with the next adjustment in January 2014.
This has been assured in Memorandum of Economic and Financial Policies Recent Economic Developments and Outlook submitted to the IMF authorities made public on Tuesday by the Ministry of Finance.
It has been informed beyond the current fiscal year, further revenue and expenditure measures would be implemented to achieve a sustainable deficit of around 3½ percent of GDP by 2016-17.With improved collections and a broader tax base, we hope to avoid the need for further increases in GST or income tax rates while achieving our overall deficit targets. On the expenditure side, further reductions in untargeted subsidies will be undertaken in 2014-15 and 2015-16, along with steps to streamline wage and salary costs via civil service reforms.
Steps will facilitate gradually moving the GST to a full-fledged integrated modern indirect tax system with few exemptions along with an integrated income tax by 2016-17.
Power Price Adjustments: Government has already taken the first two steps identified in the three-year plan for phasing out the Tariff Differential Subsidies (TDS) to bring tariffs to cost recovery level. Government has already incorporated the costs of servicing the syndicated term credit finance facility into the tariff petition and it is expected to be reflected in the notified base tariff for FY 2013-14.
Power Arrears: Based on the findings of the audit, which will be prepared by end-April, we will design a roadmap to prevent the accumulation and recurrence of payables arrears.
Demand Side Management: Draft Pakistan Energy Efficiency and Conservation Act. We will place the revised draft before the CCI for approval by end-March 2014. The act will include equipment perform ance standards, and would cover key electrical and gas equipment and appliances which are not yet covered.
Energy public sector enterprise (PSE) reform: Strengthen qater and power development authority (WAPDA)’s financial capacity by allowing the tariff to incorporate capital investment plans and ensure timely payments by NTDC/CPPA for all power purchased from WAPDA.
In the medium term, we are committed to introduce competitive pricing and direct contracting between power producers and wholesale customers in the power sector.
Public Sector Enterprises: Government has hired one financial advisor and will hire two more by end-March 2014 (new structural benchmark) to offer minority shares in three companies in domestic or international markets by end-June 2014 subject to investor interest and global market conditions. Furthermore, government will hire financial advisors for at least two other companies by end-June 2014 to market minority shares within 6 months thereafter.
Supply Side Management: We have finalised regular efficiency testing of fuel based GENCOs, which are expected to generate savings by next fiscal year. The current round of three rehabilitations will be completed by end-March 2014, which are expected to recover 500 megawatts (MW) of capacity and increase efficiency by 1-2 percent. The expansions are expected to generate additional 2,000 MW by 2016.
Structural Reforms: We remain committed to safeguarding financial stability by strengthening the regulatory and supervisory frameworks. We are addressing several initiatives. These reforms include drafting the Securities Bill, which will be submitted to the Parliament by end-March 2014 and enacted by end-December 2014 (structural benchmark). Enhancing the regulatory power of the SECP through a revised SECP (Regulation and Enforcement) Bill, which will be submitted to the Parliament by end-March 2014.
Developing a comprehensive framework for the future markets, where a draft Futures Trading Bill will be placed before the Parliament for expected approval by end-December 2014. Revisiting the regulatory framework of the State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP) to effectively supervise financial conglomerates, where we will develop, in consultation with the IMF and the World Bank, a legal framework for consolidated supervision by end-December 2015 based on international good practices.
Debt Market: We will continue to develop the government domestic debt market. Going forward, we are exploring introducing additional Shariah complaint instruments, diaspora bonds, and indexed bonds. The SECP, along with SBP, is in the process of developing the operational framework for trading and settlement of government securities’ transactions through an additional platform, the Bond Automated Trading System at stock exchanges.
Trade Policy: Tariff simplification. We are working on simplifying the tariff structure to move to a simple, transparent framework, with 4 slabs between 0 and 25 percent rates with few exceptions. Design of the new system would be completed by end-December 2013; with phase-in of the revised tariff rates and phase-out of trade SROs beginning by end-June 2014. Implementation of the new tariff structure would be completed by end-June 2017.
Oil and Gas: As new production comes on line, the cost of this gas will be fully reflected in the base tariff on a semiannual basis, beginning with the next adjustment in January 2014. Government will gradually rationalize gas prices to encourage new investment, promote efficiency in gas use, and assure that there will continue to be no fiscal cost from the gas sector.
Public Sector Enterprises: Government is working towards reforming or privatising public sector enterprises (PSEs), focusing on limiting poor performance and improving public sector resource allocation. The Cabinet Committee on Privatisation (CCOP) approved a list of 31 PSEs for action, and we have developed a plan to sequence the capital market and pre-privatization restructuring for these firms.
Capital Market Transactions Roadmap: Government has identified eleven companies, which are listed in the TMU, in the oil and gas, banking and insurance, and power sectors for block sales, and primary or secondary public offerings. Government has hired one financial advisor and will hire two more by end-March 2014 (new structural benchmark) to offer minority shares in three companies in domestic or international markets by end-June 2014 subject to investor interest and global market conditions.
Furthermore, government will hire financial advisors for at least two other companies by end-June 2014 to market minority shares within 6 months thereafter.
Strategic partnerships will act as a catalyst in unlocking the potential of PSEs through their managerial and investment participation. They can also increase the value of Government’s residual shareholding Government has identified seventeen companies, which are listed in the TMU. For profitable PSEs, we will make efforts to balance the objectives of sale proceeds while adequately addressing labor market issues and social implications. Government has hired financial advisor for National Power Construction Company (NPCC) and will finalise the sale by end-June 2014. Government will also hire financial advisors for one electricity distribution company and one power generation company, and will hire financial advisors for the sale of Pakistan International Airline (PIA) Investment Limited’s non-strategic assets in New York and Paris by end-March 2014 (new structural benchmark). Government will initiate Islamabad convention center’s sale after finalising PIA Investment Limited.
Restructuring. In parallel government have plans to continue it’s restructuring plans and hire professional chief executives and board members for those enterprises with a corporate structure in line with the corporate governance rules. Government is developing medium-term action plans to restructure PIA, Pakistan Steel Mill (PSM) and Pakistan Railways (PR). Specifically PIA. Government will hire financial advisors by end-March 2014 to seek potential strategic private sector participation in the company. Government plan to privatise 26 percent of PIA’s shares to strategic investors by end-December 2014 (structural benchmark). In the meantime, PIA will continue leasing more efficient airplanes and rationalising routes.
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