End of the road!

“Our hand has now been forced because we have reached a level that if we don’t expand the net and bring the under-taxed, untaxed sectors into the economy, we are at the end of the road.”

Addressing members of the Karachi Chambers of Commerce & Industry, Federal Minister for Finance and Revenue Muhammad Aurangzeb expressed surprise as to why the industry and International Monetary Fund (IMF) are not willing to accept the government’s intentions to tax the agriculture sector, which is largely untaxed so far.

“Our hand has now been forced because we have reached a level that if we don’t expand the net and bring the under-taxed, untaxed sectors into the economy, we are at the end of the road,” he said.

The Federal Minister warned the country can’t continue to raise taxes for business community and salaried class and emphasized to bring the untaxed sectors into the economy and ensure effective enforcement of taxation laws. He reiterated the resolve to tax the agriculture sector after all chief ministers agreed to carry out legislation for it.

He noted that enhanced taxes, particularly for salaried class, were a short-term measure but definitely not something easy. “We raised taxes for business community and salaried class this year but we cannot do it again and again as they all are excessively overburdened, therefore, all other untaxed sectors including retailers, agriculture, real estate sectors, etc., have to be brought into the tax net to reduce the burden on existing taxpayers,” he added while appreciating all the chief ministers for agreeing to bring in the required legislation for taxing the agricultural sector, which is currently a provincial subject.

Aurangzeb said that efforts were being made to attain macroeconomic stability for sustainable growth because if the government, without attaining macroeconomic stability, takes growth-oriented steps which was done in the past, it would face a balance of payment issue, so there was no choice but to take difficult decisions for macroeconomic stability, which, when achieved, would reduce the burden on business community as well as the salaried class.

He said the economy faces structural issues as whenever attempts were made to accelerate growth, it caused a balance of payment problem. “It is a fundamental issue and we have to get out of it. We can only go for growth when we have enough fiscal space, which should be export-led. In this regard, the business community, exporters and the value-added sector have to play a role.

The minister’s apprehensions that if compelling conditions spelled out by him are not implemented it could be the end of the road are meaningful and could turn out to be for real. The minister apparently has raised the red flag.

The finance minister’s and players’/performers’ divergent understanding of ground realities to make things happen on ground indicates the widening gap between the two understandings, which threaten the prospects for solutions to ease the concerns or fears of the finance minister. While the finance minister has a wish list but the deliverers have their own story to tell. The two do not meet on a common ground.

Talking to Wealth PK, former commerce minister, Gohar Ejaz, said the textile and clothing exports remained static over the past two years despite the sector’s $25 billion installed capacity. The government needs to provide competitive energy rates, tax drawbacks, and sales tax refunds to boost exports, he suggested.

“With the new taxation measures, including higher tax rates on the exporters’ income, the sector’s performance in FY24-25 is expected to face further challenges. These impacts will likely become evident in the coming months,” he pointed out. This means exports are under threat and may not meet the expectations of the finance minister.

Same goes for the make or break power sector of the country. Here too there exist divergent views, immensely hurting the prospects of efforts aimed at reaching a solution.

Acknowledging difference of opinion within the authority on IPPs contracts, power regulator Nepra on Wednesday blamed the Power Division for the agreements while asserting that sovereign contracts cannot be opened unilaterally though a request can be made to the sponsors.

Nepra expressed its concerns over a negative campaign against investment contracts in the power sector and warned that distribution companies might face an existential threat if they do not adopt new emerging technologies.

“You cannot forcefully revisit contracts. It has repercussions and costs in the future,” Nepra’s Member Law Amina Ahmed said at a public hearing. She argued the situation was different when contracts were signed with independent power producers (IPPs). “That is a closed transaction,” she said, adding that if someone considered it a mistake, then it should be settled in the first place that it was a mistake, and then a request could be made, but legally, you cannot open these transactions“. With such internal diversity within the power sector the prospects of relief from capacity payments to IPPs appear remote. This means no solution on IPPs and capacity payments is likely to be reached anytime soon.

At a time when revenue generation through taxation is so critical the Federal Board of Revenue (FBR) Chairman Amjad Zubair Tiwana is reported to have sought early retirement and served a two-week notice to be relieved of his charge.

Exports, capacity payments to IPPs and enhanced revenues and taxation base are some key factors having a significant impact on the economic and fiscal sustainability of the system.

There are bundle of statements, press conferences and wish lists but one does not hear anything about solutions, which could address the issues in an effective and meaningful manner.

Insofar as issues are concerned, the nation is fully aware of them. What it now needs are solutions. To start with, it is imperative that relevant government and non-government functionaries operating in the system are on one page with consensus to deliver in meaningful manner.

Copyright Business Recorder, 2024