Senate and the budget

The Senate had proposed around 130 amendments to the budget for 2014-15 presented in the National Assembly on June 3. These proposals fall mainly into three major categories: one that violates the constitution, others that can be supported, and still others that are project-specific not related to the money bill. The recommendation to the government to impose income tax on all sources of income and sectors is violative of the Constitution that bars the federal government from imposing a tax on agriculture income. The Senate representing the strength of the various parties after 2008 elections is heavily represented by parties which lost the 2013 elections including the PPP, the ANP, and the PML (Q). What is significant, however, is that apart from the MQM all other parties had opposed a constitutional amendment that would have allowed the federal government to impose a tax on farm income during the year-long debate on the 18th Constitutional Amendment with Senator Ishaq Dar - the Federal Finance Minister - a member of this Rabbani-led parliamentary committee. One would assume that this particular proposal came from the MQM members though the party has been in the forefront opposing documentation of the small traders/wholesalers given that this group represents MQM's major political support base. However, some of the proposals can be fully supported and include: (i) inter-sectoral distortions in the tax regime should be addressed by the Tax Reform Commission and a report submitted to parliament within six months; (ii) granting full autonomy to the Federal Bureau of Statistics and its control by the Finance Minister be curtailed - a measure that would eliminate the routine charge of data manipulation hurled at the government; (iii) annual budget be tabled in March to allow for three-month debate in parliament - though debate on the budget has been lacklustre for the past seven years; (iv) all financial institutions be made to spend 5 percent of their net profit for promotion of education and poverty reduction, however, given Dar's past predilections there is a danger that the Finance Minister may take the dedicated amount for budget support, (v) there should be no increase in electricity charges and targeted subsidies should be provided until generation improves, however, electricity charges is not a component of the budget, (vi) advance tax on immovable property be increased from 1 to 2 percent and for non-compliant from 2 to 3 percent. It is yet to be determined whether the non-compliant would be identified through this advance tax regimen; and (vii) the amount allocated for crop insurance be increased - again a good proposal, however, paucity of funds makes it unimplementable and one doubts if private lending institutions would be interested as our agriculture sector, by and large, remains hostage to weather conditions. But the majority of recommendations by the Senate are project specific, and not part of the money bill, and raises questions about the focus of the senators on politics rather than the tax measures proposed in the budget, which include deferring documentation of the parallel illegal economy for another year and raise reliance on indirect tax collections whose incidence on the poor is greater than on the rich. While not commenting on the merits or demerits of the proposed project funding some examples are as follows: (i) Chashma right bank canal in Khyber Pakhtunkhwa (KP) and Kachi canal projects in Balochistan be funded on priority basis, (ii) allocation be made for Gwadar drinking water programme, (iii) repair of NSS Indus Highway and its upgradation to an expressway, (iv) Zhob to D I Khan highway link be included in public sector development programme, (v) rebuilding Chakdar to Kalam N95 road, (vi) allocation for Greater Water Supply Quetta be raised, (vii) allocation for N85 be raised, (viii) increase allocation for teachers training institutions and training for elementary school teachers Balochistan, (ix) complete road from Sui to Dera Bugti, and (x) the Lowari tunnel, the reason for Musharraf's popularity in Chitral, be allocated a budget for its completion. And then some of the proposals are downright laughable and include (i) money received from friendly countries should be utilised by all provinces according to the divisible pool formula. This is unlikely as lenders (bilateral and multilateral) select where and how much to invest in specific projects that they determine and they are influenced by law and order problems in an area as well as capacity to implement the policy reform conditions agreed; (ii) employees of the Senate Secretariat like their counterparts in the lower house be granted honorarium as a reward for their work during the budget session, however, one would challenge the honorarium extended to even the Ministry of Finance officials engaged in formulating the budget as they perform the duties for which they have been hired and the job is not over and above their terms of reference; (iii) 100 villages in north, central and south Balochistan be electrified with solar energy - a recommendation that one hopes is taken on by the Balochistan government in its budget; and (iv) last but certainly not least, the Senate recommended that amounts allocated to provinces in the budget be guaranteed and not reduced in the case of failure of FBR to meet revenue targets. Perhaps the Senators need to be informed that tax revenues are indicative at best as they can vary not only based on local conditions that include law and order issues but also prevailing international economic conditions. Besides overstating revenue significantly is almost routine in this country and realism has not been a component of our budgets for decades.