Perhaps the last chance

Prime Minister Imran Khan this week again said that the appointment of Shaukat Tarin as finance minister is aimed at containing inflation and fuelling economic growth rate. Both metrics are essential for Pakistan Tehreek-e-Insaf (PTI) to move into the next election in 2023 with some tangible achievements in hand. This gives the government two years to achieve results – a pretty challenging task or undertaking. It is a race against time and perhaps the last chance to do so.

Finance Minister Shaukat Tarin in his first testimony before the Standing Committee of the National Assembly on May 3, 2021 unveiled his strategy that comprises four core points.

1. Fiscal consolidation should be as growth-friendly as possible where tax base-broadening reforms are identified as growth-oriented reforms that should increase output and improve social welfare with a broad base low rate approach to taxation. The minister emphasized that he does not believe in tax hikes to increase revenue collection but those outside the tax net should be tapped. 2. The harassment by FBR officials will be eliminated. This will necessitate a change in audit procedures, which will be worked out. 3. The 17 percent General Sales Tax (GST) rate is considered too high and a mechanism is being prepared to reduce it. The government is working on a sales tax system for small businesses. 4. The International Monetary Fund (IMF) is being convinced to have a sympathetic view of Pakistan, which is now battling the third wave of coronavirus pandemic. There is now increased public awareness that things will never improve unless the country moves to higher economic growth and with the continuity of stabilisation process, which has been in place for over two years, neither revenue collection will increase, nor will job opportunities be available to people. In other words, the economy will not improve per se.

The approach espoused by Tarin is a significant departure from that of his predecessor Dr Hafeez Sheikh whose tenure did achieve fiscal discipline and promising fiscal results but all at the expense of economic growth. This may sound promising to finance managers and the lenders (IMF) but not to business managers and political leadership which need increased economic growth, employment opportunities, revenue generation and business transactions for their survival. Tarin appears more of a business manager - which is the need of the hour. FBR’s core mandate is to maximize revenue collection.

In the last two years, the large business movers and shakers, notably, the real estate investors and industrialists, faced higher taxes and harassment by the taxmen. They withdrew and pulled out their cash from the economy and decided to sit on the fence to wait for better times. This approach, which was adopted by the incumbent political leadership, forced FBR to launch a campaign to bring the grey economy into the tax net. FBR was only too happy to go after it, much driven by vested interest and in the process committed excesses, harming economic growth and business transactions.

The government, after much damage had been done, realised its mistake and rolled out a liberal tax and harassment-free incentive package for real estate builders and investors. This had an impact and it is reported that around 1,083 projects worth Rs340 billion have been registered with the Federal Board of Revenue (FBR) along with another 292 tentative projects with an indicative investment of Rs43 billion under the prime minister’s package for the construction industry. About 3,851 buyers have shown interest in properties by availing tax incentives for the construction sector till May 6.

But the real estate industry is still not there as it should be and far below the level of 2017-18. There is still widespread fear and uncertainty in this market which need to be removed to get them back into the market.

A well thought out strategy aimed at increasing revenue generation and business transactions in the next two years presents a good chance to be where we want to be. In the process, tax base would inevitably increase, growth trajectory will follow an upward trend, employment opportunities shall be enhanced. The challenge is to keep at bay the many negative forces which crop up in the process.

(The writer is a former President of Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2021