ISLAMABAD: Finance Minister Ishaq Dar said on Monday that the rate of general sales tax (GST), which was deemed to be inflationary, could be reverted to 16 per cent from 17pc if the defence authorities agreed to scale down their non-development and non-salary budget by Rs50 billion.

Facing opposition criticism at the first meeting of the Senate Standing Committee on Finance and Revenue on budgetary proposals, Mr Dar asked the members to keep in mind the difficult economic situation and the need to rebuild economy and come up with suggestions for meeting the Rs2.475 trillion revenue target for the next financial year. Otherwise, the Public Sector Development Programme would have to be scaled down, he said.

On an ANP motion of Haji Adeel, supported by other senators, calling for reduction in non-development and non-salary budget of the defence forces by 50pc, Senator Dar asked the committee to call the defence secretary and persuade him to accept the proposed reduction.

If the secretary agreed to the proposal, the GST would be reduced to 16pc from the 17pc proposed in the June 12 budget, he said.

But, he added that he was satisfied with the defence budget and in his opinion it should not be reduced.

He said the government had proposed in the budget reduction in fiscal deficit by 2.5pc of the GDP to 6.3pc, and further to 5pc in the following year and 4pc in 2015-16.

The committee unanimously opposed a decision to empower the Federal Board of Revenue to have access to taxpayers’ bank accounts. The members said such a move would create a culture of blackmailing and trigger a flight of capital from the country.

It recommended increasing the income tax rate on banks from 35pc to 38.5pc, but FBR Chairman Ansar Javed said most of the banks, except a few big ones, were facing losses and the increase would affect their operation.

Mr Dar said he had clarified in his post-budget news conference that salaries of government employees would be increased by 10pc next year. A committee on salaries had recommended a 7.5pc raise but the government had announced a 10pc increase that would cost about Rs20bn.

He said parliamentarians would have to decide whether the country should be run as before, by increasing borrowing which was not a prudent option.

When the government was criticised for increasing the GST with immediate effect after the announcement of the budget and withdrawing tax exemptions for the Federally Administered Tribal Areas and 13 districts of Khyber Pakhtunkhwa through statutory regulatory orders (SROs) without the approval of the budgetary proposals by parliament, Senator Dar said there was nothing illegal about the move because it had been an annual practice.

He said the Provisional Collection of Taxes Act of 1931 empowered the finance minister or the FBR to declare provisional imposition of taxes upon introduction of budget in parliament. If the committee wants to get rid of the provision, it should amend the act to avoid its application from next year. He said the increase in GST would yield Rs60bn and the Supreme Court had taken notice of the issue but had not stayed the application of the increased rate with effect from June 12.

The minister said stockists would have started charging higher sales tax anyway on their stocks, hence the government had decided to impose it with immediate effect to earn some revenue.

He said the government had curtailed the non-development expenditure by 30pc and decisions would have to be taken to enhance the tax base and plug tax theft of Rs200bn to revive what he termed a broken infrastructure, construct the Diamer-Bhasha dam and a metro transport system in Karachi. He said the parliamentarians should think beyond party politics.

The finance minister said the imposition of 0.5pc income support levy on movable assets would yield Rs15bn.

The committee’s chairperson Senator Nasrin Jalil criticised the government for not taking steps to expand the tax net or end electricity theft and for offering tax exemptions on hybrid cars of less than 1,200cc which did not exist. Senator Dar said the facility would enable the manufacturers to roll out such vehicles within six months.

The minister agreed to consider the committee’s recommendation about an income and sales tax-free package for Fata and 13 districts of Khyber Pakhtunkhwa.

According to an official announcement, Mr Dar later met Prime Minister Nawaz Sharif and apprised him of discussions on the budgetary proposals in the two houses of the parliament and the house committees concerned.