The post-budget blues

From the perspective of the tax/utility bill payer, a shortage of resources requires the levy of additional taxes and as the easiest tax to collect is general sales tax (GST) this accounts for the heaviest reliance being placed on an increase of one percent in GST as a means of raising revenue. And gas prices have been raised for the same reason - to meet the need for additional revenue.
There is little doubt that the general public views these demands for increased revenue with severe skepticism especially as they come in the wake of most meetings between coalition partners being held abroad, with no clear indication as to who is footing the bill, as well as that of the recent mini Cabinet meeting held in Dubai. And with continued load shedding amid an inadequate social and physical infrastructure with few development projects visible on the ground, the public remains unconvinced that its tax money is actually going into development programmes.
An ever louder clamour against tax proposals as well as the recent rise in oil and gas prices in the domestic market, has beset the country in the post-budget period - a period that is just about one month in duration. The lack of effectivity of the consumers groups' associations in Pakistan has led to mere grumblings within an increasingly disenchanted citizenry with government policies targeted to arrest mounting inflationary pressures; however, the affected industry is more organised and has employed a carrot and stick strategy: constant pleadings in the media, electronic as well as print, are being employed side by side with threats of strikes.
The government response to-date has been to back down in the face of organised resistance. Critics argue that this maybe because the government is unable to justify its own budgetary policies and has chorused a line that does not make economic sense.
Industry's grievances are more specific and easier to accept for the government. For example, textile mill owners, as a consequence of power shortages, were urged to set up their own power generation plants for use exclusively by the plant itself with no element of profit making. The government supplied gas to these captive power plants at a price higher than that made available to the Independent Power Producers (IPPs), which have to make profits. In the recent gas price hike, the government raised the price of gas by 30 percent for the IPPs and by a whopping 68 percent for the captive power plants.
The resultant hue and cry by those members of the industry that set up the captive power plants, with large investment blocked in this asset, is to some extent understandable. It has been announced that Naveed Qamar, the Finance Minister, has reduced the rise from 68 percent to 21 percent, a decision that has been approved by the Prime Minister and only requires the stamp of Economic Coordination Committee approval for it to be implemented. The impact of this decision, however justified, on the budget deficit is obvious - an impact that may strengthen the inflationary pressures in the country.
Resistance to budgetary tax measures is nothing new. It has happened in the past and is likely to happen in the future. However what is imperative is for the government to economically rationalise its tax policies - a rationalisation that can then be used to counter the arguments of the industry. As matters stand today, Pakistani governments, past and present, are notorious for succumbing to pressure as they are unable to provide justification for taxing/charging one industrial unit differently from another or of one sector over another. Anomalies must be removed and a tax system evolved that is acceptable as well as implementable.
The Chairman of Federal Bureau of Revenue, recently stated that even though he was happy to cross the psychological barrier of one trillion rupees, in his judgement a gap of 400 to 500 billion rupees existed, which is the difference between what is actually collected and what can be collected. Without speculating on which groups are responsible for this gap, it is imperative for the government to undertake measures transforming our tax system into an 'equitable' one and mete out strict punishment to those who evade taxes.