EDITORIAL: The revenue measures as revealed in the ‘mini-budget’ were expected as Finance Minister Ishaq Dar had already announced on 10 February that 170 billion rupees of additional taxes were agreed with the International Monetary Fund (IMF) mission - the day after the Fund mission’s departure followed by uploading a statement on its website and release of the Memorandum of Economic and Financial Policies (MEFP) to Pakistan authorities detailing time-bound conditions and structural adjustments - prior to consideration of the next tranche release by the Fund Board as well as subsequently till the next review becomes due.
However, as feared, these measures neither reflected any attempt to reform the unfair, inequitable and anomalous taxation system nor the desperately required out of the box thinking and instead envision continued reliance on the low-hanging fruit, defined as indirect taxes whose incidence on the poor is relatively greater than on the rich.
These include (i) an across-the-board increase in the standard sales tax rate from 17 to 18 percent through an SRO issued a day earlier than the presentation of the bill in parliament that is projected to generate 65 billion rupees, (ii) 60 billion rupees from a rise in federal excise duty on cigarettes (a measure echoed in the contingency plan in the event of failure to meet the budgeted revenue target in the seventh/eighth IMF review), (iii) 15 billion rupees on sugary drinks, (iv) 10 percent withholding tax on sale of shares (5 billion rupees), (v) 10 percent on functions in marriage halls/hotels estimated to generate 2 billion rupee; (vi) 25 percent on high-end mobile phones exceeding 500 dollars in value and other luxury items to generate 10 to 15 billion rupees; (vii) increase in federal excise duty on cement by 50 paisa per kg. to bring in 5 billion rupees, and (viii) 50,000 rupees or 20 percent on the business class and first class air fare, whichever is higher, that would net the government 5 billion rupees.
What needs to be emphasized at this point is that these measures have not only been pledged to be permanent by the government as clearly and unambiguously stated in the IMF press release notably that the fiscal position must be strengthened “with permanent revenue measures and reduction in untargeted subsidies” but also continue to heavily rely on withholding agents rather than the Federal Board of Revenue officials for collection.
The same day, perhaps coincidentally as petroleum and products rates are routinely revised every fortnight, the price of petrol was raised by 22.20 rupees per litre (with petroleum levy already maxed out at 50 rupees per litre as per legislation since November last year), high speed diesel’s by 17.20 rupees per litre (there was room to raise the levy by 10 rupees per litre), and the two products with little potential for contributing to a revenue rise – the price of kerosene was raised by 12.9 rupees per litre and light diesel oil’s by 9.25 rupees per litre.
The reason the public was told was the rupee depreciation – from the economically disastrous policy of controlling the interbank rate which registered 230.49 a day before this policy was finally abandoned to 266.25 rupees on 15 February.
The impact of the raise in petroleum products on prices in general is widespread as it impacts not only on the domestic transport budget but also raises the prices of food items, including perishable items grown in the country and whose price fluctuates depending on the season.
These measures come over and above the recent hike in gas prices and electricity rates designed to achieve full cost recovery but sadly, as in the past, these tariff raises indicate that the solution as in previous decades, is on passing the buck on to the poor rather than taxing sectors with a high nuisance value such as ‘traders’ and in reforming these extremely poorly- run entities, which is indicated by a 2.5 trillion rupees circular debt today.
It is a sad reflection of the capacity of our economic team leaders to propose measures that seek to burden the already heavily taxed payers as well as the relatively poor rather than make an effort towards reforms.
It is worth noting that since October 2022 all the three well known rating agencies, Moody’s, Fitch and Standard and Poor, have downgraded Pakistan’s ratings which, one hopes, will finally ring alarm bells in the corridors of power to begin implementing not only all time-bound conditions but also structural reforms and to spread the onus of taxes on the elite rather than on the relatively poor whose capacity to withstand a raise in taxes and tariffs is severely compromised with an inflation of 27 percent today and a food price inflation in the mid 30 percent range.
And, of course, government expenditures must be slashed, current as opposed to development, and perks and privileges of government officials and cabinet members (including cars, petrol, electricity, telephone, household and security staff) must end forthwith.
Copyright Business Recorder, 2023
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