The 'bill' lacks clarity

Fool me once, shame on you, fool me twice shame on me. Asad Umer, in his second innings of the first Test of the Pakistan Tehrik-i-Insaaf government, presented a supplementary finance bill 2019 that envisages a marked reduction in taxes, maintaining that the government would prefer to take a cut in revenue hoping to achieve increased productivity and exports while denigrating the previous administration's April budget that aimed to do precisely that as an attempt to win votes; however with no mention of a commensurate reduction in expenditure undoubtedly the budget deficit would rise with major negative implications on growth.
A rise in the budget deficit would fuel inflation that would hit hard those that the PTI government has consistently proclaimed it aims to protect.
But perhaps the most glaring aspect of the second supplementary budget 2019 presented by Asad Umer is that some of its measures are eerily reminiscent of Nawaz Sharif's policy thrust that proved disastrous: the Sharif administration reduced interest rates for specific sectors while the PTI government has reduced tax rates on banks' income from loans to specific sectors (including micro, small and medium enterprises, agriculture and low cost housing) from 35 to 20 percent as well as abolishment of the super tax designed to encourage banks to increase lending to these sectors. Without collateral, banks hesitate to extend loans however with respect to the PTI proposal the tax payer would more directly foot the bill as total revenue would decline with negative implications on growth. The Sharif administration attempted to rectify the lacuna in its policy by announcing that the government would meet the differential between the market rate with that to be applied to a specific sector however the banking sector remained reluctant to extend loans without collateral. Umer claimed a raise in farm credit by 22 percent during the five months of the PTI government however he failed to mention that credit to rich landlords (as well as the large manufacturing sector) accounts for the lion's share of total credit.
The average taxpayer would in effect be subsidizing exporters and industry through reduced revenue collection, as per PTI's tickle down theory, not much different from previous administrations, comes into effect - a theory that through out the world has rarely if ever led to wealth trickling down to the poor. Elizabeth Warren, a US Senator, aptly stated that "since the 1980s, too many of the people running this country have followed one form or another of supply side - or trickle-down - economic theory. Many in Washington still support it. When all the varnish is removed, trickle-down just means helping the biggest corporations and the richest people in this country, and claiming that those big corporations and rich people could be counted to create an economy that would work for everyone else." The carrot for the poor is the low cost housing, a pet project of the Prime Minister though it is unclear how much subsidy, if any, would be extended for building the 50 lakh houses for the poor.
Umer dwelt at length on: (i) abolition of specific taxes (including advance tax on cash withdrawals and cash transactions for filers - a good policy as it was double taxation on filers - abolition of super tax on non-banking sector, on undistributed profits, withholding tax on members of stock exchanges and (ii) a reduction in taxes including exemption of plant and machinery to greenfield industries, reducing rate of advance tax on small marriage halls. The revenue from stock markets compared to other countries including India is appallingly low - no more than 4 to 5 billion rupees compared to over 100 billion rupees in India - and the PTI government should have been better advised to look at this sector as a source of revenue. Unless Umer can offset this loss of revenue with either a reduction in expenditure and/or a raise in revenue from other sources the merits of these measures especially in the short-term would not be positive.
Asad Umer also announced reducing the number of withholding statements to 2 instead of 12 as a means to ease the cost of doing business without giving credit to the previous administration for improving Pakistan's ranking by 11 during the past two years through a comprehensive policy formulated after consultation with all domestic and international stakeholders, enabling purchase of immoveable property and vehicles by non-resident Pakistanis and allowing non filers to buy cars though at a higher rate of tax. It is unclear whether a non filer would be able to use or abuse the benefits allowed to non-resident Pakistanis in purchase of cars and property.
Cancer patients would be extended relief relating to ostomy procedures which may be on the specific instructions of the Prime Minister but which can and must be appreciated.
The increase in revenue clearly noted in Umer's speech would be from federal excise duty on imported luxury cars though the rate of rise is from 20 to 25 percent only for cars with a capacity of 3000 cc and to 30 percent for cars exceeding 3000 cc though local manufactured cars would pay a 10 percent tax on 1800 cc cars and above. But exactly how much would the revenue loss be from each of these measures and how much the gain from raising taxes on luxury imported cars was not dealt with.
The government would issue promissory notes in lieu of refunds, a major concern of exporters and productive sectors, claiming that they would be able to get credit on that basis but that, unfortunately, remains to be seen.
The bill lacked clarity, did not specify how much revenue loss and/or gain from each proposed measure and ignored the expenditure side completely reflecting Umer's lack of understanding of the subject - an understanding that the original three members of the Economic Advisory Council possessed in abundance notably Mian Atif, Dr Imran Rasul and Harvard University's Evidence for Policy Design unit co-director Asim Ijaz Khwaja.