'State is not as weak as it appears'

The National Assembly passed the Finance Supplementary (Amendment) Bill 2018 with a majority vote as expected with one significant change: a ban on non-filers from purchasing property valued at 5 million rupees or above and luxury vehicles was restored with three exemptions - non-resident Pakistanis, those inheriting property, for example, widows and others, who are not liable to file returns and those who purchase motorcycles up to 200cc. Business Recorder fully supports this measure as it reflects careful consideration to eliminate the lacunae of the proposed amendment Finance Bill.
The Finance Minister in his wind-up speech warned the non-filers that the 'state is not as weak as it appears and has the strength to retrieve money from them,' and promised that the campaign against non-filers has already been launched and will be expanded in the coming days. The Finance Minister would be well advised not to dismiss the previous two administrations' attempts to ferret out high net worth non-filers as not 'kosher'; and instead take a briefing from the relevant officials of the Federal Board of Revenue (FBR) as to why identification of millions of non-filers by Nadra during the tenure of the PPP-led coalition government did not lead to widening the tax net; he would quickly realize that the reason is embedded in the tax laws of the country. He would need to engage in the arduous but necessary exercise of changing the tax structure and laws of the country if he is to succeed in widening the tax net.
We would also like to bring it to Asad Umar's notice that 75 to almost 80 percent of all existing direct taxes, progressive taxes whose incidence on the rich is intended to be greater than on the poor, are from withholding taxes that are levied in the sales tax mode or in effect are indirect taxes whose incidence on the relatively poor is greater than on the rich. In this context, it is also necessary to point out that a salaried filer has his income tax cut at source, however, in the event that he purchases an item on which there is a withholding tax, albeit less than on the non-filer, he/she would be paying an additional tax on his income. In other words, Umar needs to revisit his support for withholding taxes in their present form as they have a component of unfairness on the filers.
Umar announced that the income tax amendments to those proposed in the April 2018 budget approved by the previous government by the previous parliament would be effective for the entire year or, in other words, with retrospective effect from 1 July. There is bound to be a legal challenge as stated by the Senate Standing Committee on Finance which may further compound the government's revenue constraints in months to come.
The imposition of regulatory duty on imported non-essentials including chips may generate some revenue though Umar, during the presentation of the budget in the assembly, mentioned that he had been warned that the duty on small items may lead to higher smuggling from our very porous borders. One would hope that his assessment is proved correct and higher revenue and lower imports as a consequence of these measures begin to contribute to reducing the current account and budget deficits. Be that as it may, we are deeply concerned that the 183 billion rupee revenue envisaged from measures contained in the supplementary budget, including with reference to the envisaged 92 billion rupees sourced to technology improvements, may not be realized.
The visit of the Saudi delegation had raised expectations of a bailout package that, unlike the International Monetary Fund (IMF) package, would not contain politically challenging conditionalities. However, those hopes were dashed with the Saudi visiting team members who do not have the mandate to take such major decisions. After the team returns to Saudi Arabia, a higher-powered team would return with offers of purchase of three RLNG power entities either through a government-to-government transaction, which may be carried out within the year, or through the Saudi private sector which may well be delayed by a year. But irrespective of the mode of sale, it is likely that the process would be resisted by not only the staff of these entities but also by the opposition or in other words, the PTI administration should not expect smooth sailing.
Imran Khan's scheduled visit to China is being dubbed by his media team as one where China will announce significant measures that would have a positive impact on our balance of payment position and dwindling foreign exchange reserves. Again one would hope that the Prime Minister is successful in getting assistance from China yet intense hype followed by, at best, a deferment of the decision to support Pakistan like in the case of Saudi Arabia may have a further adverse impact on our foreign exchange as well as the stock market.
To conclude, taking any opportunity to blame the previous administrations for the current state of the economy, though valid, does not begin to solve the problem. The PTI proactively sought to win the elections and the day it assumed reins of government, it became responsible for resolving the economic crisis. Sadly, none of the measures contained in the supplementary budget indicates that the process of dealing with the appalling state of the economy has begun and the markets' behaviour in recent weeks reflects precisely that. A clear precise vision for reforms and source of revenue needs to be shared with the public which one hopes would send the right signals to the markets.