The FRDL Act 2005 requires the federal government;(i) limiting federal fiscal deficit excluding foreign grants to four percent of gross domestic product during the three years, beginning from the financial year 2017-18 and maintaining it at a maximum of three-and-a-half-percent of the gross domestic product thereafter. However, the federal fiscal deficit (excluding grants) was recorded at Rs 2,243 billion or 6.5 percent of GDP during 2017-18, thus, remained higher than the threshold of 4 percent.
The FRDL also stipulates;(ii) ensuring that within a period of two financial years, beginning from the financial year 2016-17, the total public debt shall be reduced to 60 percent of the estimated gross domestic product but as percentage of GDP it was recorded at 72.5 percent and 67 percent respectively at end-June 2018, thus, remained higher than the 60 percent threshold.
The FRDL also requires the federal government to ensuring that within a period of five financial years, beginning from the financial year 2018-19, total public debt would be reduced by 0.5 percent every year and from 2023-24 and going up to financial year 2032-33, a reduction of 0.75 percent every year to reduce the total public debt to fifty percent of the estimated gross domestic product and thereafter maintaining it to 50 percent or less of the estimated gross domestic product; (ii)and not issue "new guarantees, including those for rupee lending, bonds, rates of return, output purchase agreements and all other claims and commitments that may be prescribed, from time to time, for any amount exceeding two percent of the estimated gross domestic product in any financial year, provided that the renewal of existing guarantees shall be considered as issuing a new guarantee.
The government during 2017-18, issued new guarantees including rollovers amounted to Rs 324 billion or 0.94 percent of GDP. The fiscal policy also highlighted the poor performance of Public Sector Enterprises (PSEs). Withholding tax (WHT) contributed a major chunk of around 69 percent in gross direct tax collection during 2017-18 with total collection of Rs 1,047 billion against Rs 944 billion in 2016-17, indicating a growth of around 11 percent.
Withholding taxes 27.1 percent share in total WHT collection was followed by imports, 20.9 percent, salary, 12.7 percent, dividends, 5.5 percent, telephone, 4.5 percent, Bank mark-up, 4.4 percent, cash withdrawal, 3.2 percent, electricity bill, 3.2 percent, exports, 2.7 percent, and technical fee, 2.5 percent.
This growth was observed due to increased collection from trade volumes, electricity bills, contracts, salaries and dividend income. On the other hand, withholding tax rate was reduced from 14 percent to 12.5 percent on mobile phone subscription. In addition, under Supreme Court order in June 2018, WHT on mobile phone recharge was suspended. This resulted in decline in revenue collection from mobile recharge and subscription.
The fiscal policy statement also stated that sales tax from imports is a significant component of sales tax receipts as the share of sales tax (imports) in total sales tax net collection was around 55 percent during 2017-18. The share of sales tax from imports is rising compared to domestic sales tax during the last couple of years. This growth is attributable to around 21 percent growth in the import value during 2017-18.
Apart from imports, customs duties are also a basis for determination of sales tax on imports. Ten commodities contributed major chunk of around 80 percent in sales tax (imports) collection. The detailed data indicates that 64 percent of sales tax imports was contributed by POL products, iron & steel, vehicles, mechanical and electrical machinery.