EDITORIAL: The Finance Supplementary Bill 2021 and the State Bank of Pakistan (amendment) bill 2021 were passed along with 14 others in a marathon session of the National Assembly on Thursday. However, while the finance bill will become an act of parliament and be effective as soon as it is signed by the President, the other pieces of legislation including the SBP amendment bill still have to pass muster through the Senate where the government does not have a majority.
Irrespective of the existing politically charged atmosphere in the country and reported realignment of institutional backing it is unlikely that the SBP amendment bill will not be passed in the Senate because there is a consensus amongst all stakeholders — those in government and those outside including the Opposition — that given the state of the economy, it is critical to meet all the prior conditions of the International Monetary Fund (IMF) sixth review to ensure the release of the one billion dollars after the Fund Board’s approval.
Finance Minister Shaukat Tarin withdrew the imposition of 17 percent sales tax on several essential items, including infant milk and bread clearly inserted in the bill as bargaining chips; however, he vigorously defended the bill on three counts. First, that out of the 343 billion rupee money bill, refunds would amount to 280 billion rupees. The objective of the bill he argued was to document the economy, which in turn would enable the government to tax the income of those entities which purportedly receive the refund.
Critics may well ask why he did not opt to widen the tax net directly instead of raising sales tax that is a regressive tax whose incidence on the poor is greater than on the rich. In addition, sceptics lament the delays in refunds that have been the norm, delays that show a healthier national balance sheet then is in fact the case, but only time will tell whether the government will delay or pay refunds promptly.
The government must also bear in mind that those who have successfully resisted documentation in spite of efforts by previous administrations as well as this government to widen the tax net may have some measures up their sleeve apart from launching protests and using their considerable political clout that may include: (i) smuggling across our porous borders, (ii) passing on any subsequent rise in their income tax onto the consumers, and/or (iii) operating on cash basis only.
Secondly, Tarin projected a growth rate of 5 percent in the current year, against 4 percent last year, a projection backed by three other projections notably a rise in farm output (irrespective of the massive urea shortage and the import of wheat and sugar), a decline in the international commodity prices that Pakistan imports (particularly petroleum and products, cooking oil) though he conveniently did not mention that the rise in commodity prices has also raised our total exports (as exports have risen in value with the quantum not rising appreciably) and a rise in sales of cars and building materials not all backed by a rise in large-scale manufacturing output as pent-up demand during the lockdown was met largely by inventories. Projections sadly have a way of not meeting expectations in Pakistan.
And finally, inclusive growth, a cornerstone of the government’s strategy is slated to be met by an entire range of products on offer to the poor, including cash disbursements under the Benazir Income Support Programme, free and/or cheap credit to poor farmers and small and medium enterprises (credit subsidised by the government though time will tell whether this initiative would be as successful as Bangladesh’s Grameen Bank as previous attempts in this country led to hijacking by the rich and influential and widespread default) and Kamyaab Pakistan Programme, which has reportedly been scaled down for the current year which may have prompted the minister to cite an allocation for years well beyond the government’s tenure.
There has been much criticism of the February 2021 staff-level agreement reached with the Fund, specifically with respect to prior harsh conditions, but the economic team remains focused on increasing revenue and not giving due attention to containment of expenditure in general and current expenditure in particular which rose from 4.3 trillion rupees in 2017-18, to 6.3 trillion rupees in 2020-21 and a whopping 7.56 trillion rupees in the current year (a 19 percent rise from last year).
It is pertinent to mention here that Tarin tried his best but did succeed (due to the changed regional scenario post-Taliban victory in Afghanistan) to renegotiate the harsh terms agreed by his predecessor that account for inflationary policies envisaged in February that includes the money bill, the rise in the petroleum levy by 4 rupees per month till the end of the year (Tarin had budgeted 610 billion rupees for the year) and a rise in administered prices – those relating to a rise in the international prices of our major import items and failure to improve sector performance, including the energy sector in general and the power sector in particular.
Copyright Business Recorder, 2022
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