EDITORIAL: The budget 2022-23 envisages higher revenue by about a trillion rupees compared to the year before, with an additional 300 to 500 billion rupees envisaged in the amended finance bill, however, disturbingly, none of the taxation measures reflect any out of the box thinking.
It is fairly evident that the 665 billion rupees budgeted for the year in the finance bill linked to a growth rate of 4.9 percent is unlikely to be realised given the ongoing contractionary policies with a projection of no more than 300 to 350 billion rupees from this source.
The amended finance bill envisages massive revisions to the personal income tax regimen, a decision sourced to the pledge made by the Pakistan Tehreek-e-Insaf (PTI) government to the International Monetary Fund in February 2022 that the incumbent economic managers were unable to renegotiate, which removes the exemption from those earning from 50,000 to 100,000 rupees per month, now liable to be taxed at the rate of 2.5 percent, and those earning from one to 2 lakh rupees per month will now pay tax at the rate of 12.5 percent.
While the levy of this tax would automatically reduce their take home pay yet significantly income earners of between 50,000 to 2 lakh rupees, comprising the majority of the income taxpayers in this country, are the most susceptible to a rise in utility rates (electricity and gas) as well as the general price level and are ineligible for any of the subsidy schemes, excepting some subsidy on a few food items at Utility Stores, that have been launched by the government, including cash handouts under Benazir Income Support Programme schemes.
The supertax on those earning an income of 300 million rupees or above at the rate of 10 percent on 15 sectors is projected to generate 200 billion rupees for the treasury, though some independent economists estimate the projected revenue at double the amount; however, the actual cost of this tax on employment, employee incomes and possibly sales/exports has yet to be quantified.
And finally, the budgeted 750 billion rupees from petroleum levy, an indirect tax, has already compelled the government to raise the per litre levy from 30 to 50 rupees, a rate that may well price out our products from the international market (especially as it would be accompanied by other steep rises in input costs) as well as domestic marketplace, given Pakistan’s thousands of miles of porous borders.
The Monetary Policy Committee meeting to be held today is expected to raise the discount rate by around 100 basis points to 14.75 percent, more than double that of other regional competing countries — a projection based on the back of the State Bank of Pakistan’s Open Market Operations on Tuesday to supply 1.18 trillion rupees to banks for 73 days at the rate of 13.97 percent — 0.22 percent higher than the current policy rate.
Since the start of the ongoing IMF programme in July 2019 (though after the staff-level agreement was reached on 12 May that year, severely debilitating, prior monetary and fiscal policy decisions began to be implemented to contract the economy) the SBP has been engaged in an extremely tight monetary policy with obvious negative fallout on productivity barring the time when the country was severely afflicted by the pandemic.
The Finance Minister Miftah Ismail’s claim that there was no other solution to the economic impasse facing the country then one would have to disagree. First, of course, was the need to bring down the budgeted expenditure instead of raising it by a trillion rupees through the relatively politically easy-to-take measures that include discontinuing federal ministries pertaining to all those subjects (education, health, etc) that were devolved to provinces through the Eighteenth Amendment, reforming the pension system by allowing for employee contributions, reducing losses in state-owned entities and thereby annual injections of over a trillion rupees and last but not least, improving governance in persistently poor performing sectors particularly energy and tax collection sectors.
To blame past flawed contracts, as rightly pointed out by the Khan administration, or failure to import fuel on time due to high fuel costs as claimed by the incumbent government, but all governments passing inefficiencies onto the consumers is a situation that is untenable today given the high cost of living.
To blame the IMF for the 2022-23 taxation measures as well as the MPC’s decisions is simply shirking responsibility by the economic managers and if they are not able to think out of the box to address the direly needed structural reforms and course correction, then criticism of the government’s economic team and in particular, the finance minister and acting governor of SBP would persist.
Copyright Business Recorder, 2022
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