Friday 10 June the budget for 2022-23 is scheduled to be laid before parliament by the unelected though a PML-N stalwart finance minister, Miftah Ismail, who will have the honour of presenting the second federal budget in his lifetime — the first presented on 27 April 2018, about five weeks before the usual time, and a little over a month before the end of PML-N tenure on 30 May necessitating an obvious statement, “the next elected government will be free to make changes in the budget priorities.”
To strengthen his political credentials with Nawaz Sharif, disqualified on 27 July 2017, Ismail added: “the budget being presented today reflects the vision of Mian Nawaz Sharif and aspirations and hopes of the people of Pakistan who voted for him as their Prime Minister in 2013. His absence today in the House is dearly missed.” Such statements are the norm by finance ministers — be they party stalwarts or (imported) technocrats.
Ismail’s eulogy did not end there and he claimed that “PML(N) came into power in 2013 and immediately embarked upon a home-grown agenda” – three home grown policies associated with his predecessor Ishaq Dar (disqualified from holding public office on the same day as Nawaz Sharif) that independent economists lament are: (i) the flawed policy to deliberately allow the rupee to be overvalued which led to the historic current account deficit of 20 billion dollars inherited by the Khan administration; (ii) wiping out the circular debt on the second last day of 2012-2013 that was later declared illegal; and (iii) by distinguishing between filers and non-filers in the levy of sales tax on consumer items/services (and crediting it under direct taxes though these were essentially levied in the sales tax mode whose incidence on the poor is greater than on the rich) the government legitimized non-filers (that the International Monetary Fund is at great pains to insist be included as income tax payees).
During Ismail’s tenure as the de facto finance minister after Dar left the country the rupee was allowed to depreciate, subsequent to an IMF mission visit, though the filers and non-filers distinction continued (which has since been abandoned though taxing high net worth individuals in spite of data sharing between Nadra and FBR remains a challenge to this day). And during Ismail’s watch there were massive releases to loyalists late 2017 under the head of development funds, a normal though economically unviable practice in common with all previous governments before elections.
Ismail then went on to claim in his budget speech that “economy, energy and good governance were the core elements of that agenda. Under the leadership of Mian Nawaz Sharif we took on the challenges head on. For five years we worked long and hard, took painful decisions and never allowed our personal interests to be our preference. There has been only one motivation and that is serving the people who are the real masters in a democratic dispensation.”
The energy policies during the party’s 2013-18 tenure were ill informed (coal preferred in a plant constructed away from its source/port leading to high transport costs and health issues), contracts signed for projects under the umbrella of the China Pakistan Economic Corridor (CPEC) were on the same pattern as Independent Power Producers established in the 1990s (take and pay instead of take or pay and in dollars that accounts for rising tariffs for end-consumers) and failure to focus on upgrading the obsolete transmission network which had a vacation capacity much less than the considerably enhanced generation capacity. Claims of good governance and never allowing personal interests to prevail are difficult to swallow after the weak defense presented by the then Prime Minister Nawaz Sharif in the Panama papers inquiry/case. No politically painful economic decisions were taken during the party’s tenure, including deferring privatization decisions due to workers’ opposition and keeping gas and electricity rates low that necessitated extending unsustainable subsidies.
Ismail stated in the 2018 budget speech that “increase in productive imports has led to a widening of current account deficit to $12 billion in the first nine months of the current fiscal year. Government has made adequate efforts to finance this deficit.” The claim that the government has adequate resources to finance this deficit was as hollow as Shaukat Tarin’s statement that the 28 February 2022 subsidies announced by the then Prime Minister Imran Khan were funded and not unfunded as claimed by the Fund.
The budget 2017-18 also reflected pre-poll rigging envisaging an entire range of tax relief measures including lower individual and corporate tax rates (with the philosophy that the lower the rate the higher the collection – a strategy effective in countries where there is an almost non-existent parallel economy), reducing tax on undistributed profits, reducing withholding tax on bank transactions. Reports indicate that taxes may have to be raised under some of these heads in 2022-23 with FRB suggesting to the Fund not to insist on raising personal income tax (a direct tax) to meet the projected revenue target of 7.2 trillion rupees and instead agree to a levy on profitable sectors that include banking, steel etc. – sectors that are likely to pass on the taxes to end consumers leading to higher inflation.
One hopes that Ismail is savvy enough not to repeat the accounting discrepancy that he made in the 2018-19 budget (he projected a revenue rise of 13.4 percent rise not matched by FBR’s fact sheet in which budgeted incentives were cited as negative 184.4 billion rupees, additional tax measures positive 93.3 billion rupees giving a negative 91 billion rupees revenue) for that would almost certainly be challenged by the Fund staff — a road that would not lead to the success of the seventh IMF review.
However, what is interesting is that twenty one days before the budget, on 6 April 2018 the then prime minister Shahid Khaqan Abbasi flanked by Ismail and Information Minister Marriyum Aurangzeb announced three major economic decisions: (i) tax amnesty scheme euphemistically titled Foreign Assets Declaration and Repatriation Ordinance, applicable to all Pakistani citizens except holders of public office provided for foreign exchange repatriation at two percent, with two options – bonds for five years at the rate of three percent per annum (6 month payment not encashable in year one) and all encashment in rupees at prevailing interbank dollar rate. This, Ismail stated at the time, would stop dollarization and enable dollar account holders who had purchased through undeclared money to regularise their accounts. Declaration of foreign fixed assets was to be on payment of 3 percent of the market price and foreign liquid assets including cash/securities/bonds at 5 percent payment. Imran Khan stated at the time that if elected he would seek the source of the funds though he abandoned this pledge and extended the scheme after taking oath as prime minister; however its success as those of previous amnesty schemes was very limited and generated 76,952 declarations, and whitened a total of 1505.7 billion rupees yielding 75.7 billion rupees only – an outcome that did not come close to meeting projections in common with all previous and subsequent amnesties; a tax amnesty is unlikely for next year given that Pakistan is focused on the success of the seventh review from the Fund which is opposed to amnesty schemes on the grounds that they act as a disincentive for the honest tax payers; (ii) all dollar remittances greater than 100,000/year/person to enjoy tax exemptions with only FBR able to question the source. And regularisation of all undeclared incomes earned before June 30, 2017 on all local assets (gold, bonds, property) on payment of five percent; and (iii) The FBR rate on property would be abolished and provinces will be requested to abolish the DC rate with no purchase possible for non-filers of tax returns of property over 4 million rupees with CNIC merged as National Tax Number (NTN). Federal government to have the power to buy individual properties anywhere in Pakistan within six months of registration for 100 percent more for properties registered in 2018-19, 75 percent more for properties registered in 2019-20 and 50 percent more for properties registered in FY 2020-21 and thereafter. This policy was adopted in India but abandoned due to enhanced corruption associated with the office responsible. One would of course hope that appropriate property tax reforms are implemented subsequent to all stakeholder inputs, particularly the provinces who have so far resisted all moves for reforms backed by powerful lobbies.
True to form this time around Ismail withdrew the subsidies announced by former Prime Minister Imran Khan before the budget and in two phases with only a six-day lag - effectivity on 28 May and 3 June — a gap not sufficient to allow householders to make the necessary adjustments in their budgets.
To conclude, the economic situation is a lot worse today than in 2018 and the constraints much more pervasive. What would make it a home grown good budget is to ensure that a minimal price is payable by the common man, and a lot more by the elite and by the government itself.
Copyright Business Recorder, 2022
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