Federal Finance Minister Ishaq Dar will present the budget statement and tax proposals to the National Assembly on June 5, 2015. Fears are being expressed that while his statement would be aimed at achieving higher growth the taxation proposals would be contradictory to the statement since his hands are tied. He has already committed towards acting for stabilisation sought by the International Monetary Fund at the last negotiations and certain prior actions would need to be announced in the Federal Budget prior to the IMF staff's recommendation to their Board of Directors for the release of next tranche to Pakistan.
Both manufacturing and agriculture sectors are crying for help. And, in case Pakistan needs to opt for higher growth, then much-needed help from the government would be required. These are: a) removal of GIDC and sales tax on the fertilizer sector to reduce the growers' cost of inputs; b) giving tax credit for BMR to existing industries instead of higher depreciation for fresh investment, in lieu of energy shortages and; doing away with tax on bonus shares; c) Allowing the industry to obtain wheeling charges from Discos for excess electricity generated by them which can be sold in the neighbourhood; d) a significant reduction in line losses of power distribution companies (Discos) and a drastic reduction in unaccounted for gas to one percent natural gas networks; lowering taxation for corporates to 25 percent - presently the industrial sector contributes 77 percent of revenue when it is only 30 percent of GDP; adjust the managed float of Pak currency to a level which compensates for a Euro decline against the US dollar instead of complaining about inefficiency since overcoming inefficiency (inclusive of lower productivity) cannot be achieved in a day and refund of outstandings of the industry (especially exporters) by the government agencies to enable textile exporters to avail the temporary advantage given by the EU in the shape of GSP Plus. Planning for floods needs to be done due to long winter and very hot summer in the country. It may require urgent desilting of canals and dams.
We do understand that the list is exhaustive and government's fiscal position has very little room to give more, but this can be done if a proper expenditure control mechanism is in place. We also understand that the government's ability is weakening by the day and the country is at war not only domestically but is faced with an enemy several times bigger in size. This enemy is raising the stakes for the country to implode from within just like the Soviet Union did soon after the fall of the Berlin Wall.
However, Pakistan needs to grow at a rate much faster than 5.5 percent envisaged for the next financial year. So, it cannot be business as usual. And, repeatedly trying the failed policies of the past would be nothing but sheer madness. If anyone has the potential (if past history is any guide) it can be PM Nawaz Sharif. It was the Nawaz Sharif government that liberalized the foreign exchange regime, created a green zone in customs for passengers, abolished the office of Controller of Imports & Exports and introduced host of other measures that significantly reduced the footprint of the government. The development budget needs to be separated from the current expenditure budget. Planning Commission needs to be abolished. Both the CDWP and ECNEC are no longer functional bodies as it is not unoften that projects approved by them are never vetted by Planning Commission. If the monitoring of projects is now housed in the PM secretariat why do we need to duplicate this? In addition to Planning Commission, there are hosts of ministries and divisions that can be merged or amalgamated. For example, Ministry of Water and Power with Ministry of Petroleum and Natural Resources, Railways and Aviation Division can be clubbed under Ministry of Communications. An exercise was indeed conducted under Prime Minister Nawaz Sharif in his first term. But it was scrapped because some of his ministers wanted to have an independent ministries under them. He was then in a coalition government with a razor-thin majority. The constitution should be suitably amended wherein the money bill would need to go to the upper house (Senate) for approval to do away with quasi-federalism. For too long we have been doing business as usual. Let us now try something different where the taxmen and the taxpayers live in harmony; having equity in taxation both vertically and horizontally.
If CPI is at less than 5 percent why should the government employees get a 10 percent hike in their salaries? A lower pay raise would suffice as a result of an arrangement through which inflation is shared between the employer and employee. We need to go for zero-based budgeting in the government departments. Our reliance on indirect taxes needs to be lowered and we need to create a system of private-public partnership for building infrastructure and housing finance by walking the talk and not just talking the talk.
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