EDITORIAL: The declared election outcome notwithstanding recounting of votes since, appears to be veering towards a two-thirds majority for the ruling coalition (inclusive of the Pakistan People’s Party (PPP) that so far has opted to go for constitutional offices as opposed to cabinet positions for its support) – a majority that enables the coalition to pass constitutional amendments in parliament.
There are a number of constitutional amendments considered critical to reversing the prevailing economic impasse. First and foremost, the Pakistan Muslim League-Nawaz (PML-N) has frequently expressed reservations at the 2010 National Finance Commission (NFC) award which envisaged a higher share of the provinces over the federation from the divisible pool (which subsequently accounts for heavier reliance on other taxes that are not part of the divisible pool; for example, the petroleum levy which has become the major source of angst amongst the general public today – a prime contributor to inflation) with Article 160 of the constitution explicitly stating that “the share of the provinces in each award of National Finance Commission shall not be less than the share given to the provinces in the previous award.”
This amendment was supported by all parties in parliament at the time, including the PML-N and the then Chief Minister Punjab Shehbaz Sharif and Ishaq Dar who reportedly negotiated on behalf of Punjab for the 2010 NFC award. Ironically, Dar as finance minister did oppose this amendment, which was probably the reason behind this view finding its way into the International Monetary Fund documents on Pakistan.
However, the PPP whose support is critical to the passage of any amendment rightly insists that those ministries that were devolved as per the Eighteenth Constitutional Amendment 2010 and which remain within the purview of the federal government 14 years after must be devolved which will save around one trillion rupees – a much more appropriate suggestion as it would defer a further worsening of the disharmony that exists between the federation and the three smaller federating units.
Secondly, the constitution gives exclusive power to provincial assemblies to levy taxes on immoveable property and farm income. Provinces entirely for political considerations have shied away from imposing a farm tax on the rich landlords at the same rate as is being levied on a significantly lower earning salaried class by the Federal Board of Revenue (FBR), which has prompted periodic recommendations by members of the executive and FBR officials that a constitutional amendment be passed that would enable the FBR to levy and collect farm income tax but to no avail.
While fully supportive of such amendment in principle the fact remains that there are leakages within the Board that various former finance ministers have identified at between half a trillion and a trillion rupees per annum.
Perhaps a better option would be to provide all provincial assemblies the opportunity to levy a tax on the rich farmers that is at the same rate as that payable by the salaried class. In the event of failure, Business Recorder would suggest that the constitutional amendment be brought to the House for approval.
While recognising the need to raise revenue one would hope that instead of focusing on raising the tax-to-GDP ratio by raising existing taxes as has been the practice till-date, with more than 75 percent of all tax collections in the indirect tax mode whose incidence on the poor is greater than on the rich, the focus maybe to not only end all existing exemptions on influential groups - notably the construction industry, the retailers, the aarthis and the wholesale traders, a vast majority of them continue to remain outside the net, but also engage in removing all anomalies in taxes – be they operated in the private or public sectors or by a foreign investor lured to invest in Pakistan.
Reforms are also required in the sector that has been a major source of borrowing for past administrations notably the power sector.
The favoured policy today appears to be to privatise distribution companies so as to contain the flow of circular debt or require any subsidies. However, unless the policy of tariff equalization is revisited, a policy that accounted for the release of more than half a trillion rupees to distribution companies, the situation is unlikely to improve.
To emerge from the existing economic impasse requires painful reforms, however, it must be acknowledged that the capacity of even the middle income earners, besides the 40 percent living below the poverty line today, is fast eroding due to high inflation and unemployment as factory closures continue due to a rise in inputs costs.
In this scenario the short-term measures must start off with a meaningful reduction in expenditures, inclusive of capping reliance on domestic borrowing to contain the markup and voluntary sacrifices by the recipients of current expenditure, a measure that would increase the leverage of our economic managers to negotiate a more phased out longer term IMF package.
Copyright Business Recorder, 2024
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