EDITORIAL: Finance Minister Shaukat Tarin, in his latest interaction with the public, acknowledged that the international support and consequent leverage the country enjoyed while negotiating the Stand-By Arrangement with the International Monetary Fund in 2008 was not in evidence in 2021 — an acknowledgement patently evident as “prior” sixth review conditions have begun to be implemented.
Perhaps unwittingly this statement is at odds with the yet to be publicly released National Security Policy (NSP), seven years in the making, that was approved by the National Security Council on 27 December 2021 and the Cabinet on the following day hailed by the National Security Advisor to the Prime Minister Moeed Yousaf with a tweet claiming “economic security (was) placed at its core.”
So what precisely are these difficult or challenging conditions referred to by Tarin? The 343 billion rupee money bill is taking a predominant place these days as the general public comes to terms with the proposal to raise sales tax to its standard rate of 17 percent on 150 items, a tax that is regressive in nature with its incidence higher on the poor relative to the rich; or in the case of items defined as luxury items in use by the middle income earners, for example, baby formula, etc., its impact would be more on the lower middle to middle income earners — the bulk of Pakistan’s population.
However, in the context of the money bill the Federal Board of Revenue (FBR) has claimed that 251 billion rupees of the total amount will be refunded or adjusted (implying input-output tax adjustments which would generate revenue for the government in the identified sectors including pharmaceuticals, importers of capital machinery, raw materials and local suppliers) though when asked the FBR did not provide projections of how much under each of the two categories.
Only 92 billion rupees, such is the government’s claim, will be inflationary — a claim whose veracity will depend on (i) the exact amount of refunds and adjustments. The obvious question in this context is if the bulk of the 251 billion rupees is to be refunded then would not the IMF require the government to raise other taxes and/or generate revenue from other sources including privatisation; (ii) reliance on other taxes particularly the petroleum levy which as per Tarin has been agreed to be raised by 4 rupees per month to generate around 350 billion rupees till end of the current fiscal year on 30 June 2022.
In this context, it is relevant to note that the government had budgeted 610 billion rupees under this head for the current year and due to the escalation in the prices of petroleum and products in the international market it was unable to implement the levy for the first five months of the year; and (iii) reduce expenditure that may require (a) further slashing of Public Sector Development Programme from 700 billion rupees (900 billion rupees was budgeted for the year) and its impact on growth, a cornerstone of way forward for the economy; (b) focus on reducing current expenditure is not evident so far and disturbingly the PTI administration is responsible for raising it from 4.2 trillion rupees in 2017-18, the last year of the PML-N government, to 7.5 trillion rupees in the current year — a rise of 79 percent in just three years which is a highly inflationary policy; and (c) focus on reducing the budgeted outlay on state-owned entities.
The publication of the tax directory of parliamentarians has raised several questions especially for those who have not filed their returns as the law requires that even if an income is not liable to be taxed by the FBR, for example farm income, yet returns must be filed if urban real estate beyond an specified area is owned by the individual.
The government has also announced an ambitious plan which seeks to widen the income tax net that includes access to Nadra’s data with respect to utilities charges paid/travel and fixed and moveable assets (information identified more than a decade ago but remaining unimplemented due to a variety of legal and other challenges) and in case of any difference of opinion it will be assessed by third-party audit.
It is important to note that the release of all prior conditions as well as those agreed in the sixth review are dependent on what is shared by the government’s economic team leaders with the general public as the detailed agreement will be uploaded as and when the IMF board approves the sixth review and sanctions the tranche’s release.
The Finance Minister recently stated that delay in the submission of the sixth review from the 12 January IMF Board meeting by a few days is not going to change the situation. This newspaper fully supports this point of view as it is critical for the government to allow the money bill and the State Bank of Pakistan amendment bill to be debated in parliament and any changes, where appropriate, be inducted to evolve a broad-based political consensus — the objective of the IMF in insisting that these two bills be passed by parliament itself instead of through an ordinance.
Copyright Business Recorder, 2022
Comments
Comments are closed.