EDITORIAL: Finance Minister Miftah Ismail acknowledged during the traditional post-budget press briefing two extremely disturbing imminent policies: one concerning the general public and the other the International Monetary Fund (IMF).
The general public is to face a massive rise in utility bills through withdrawal of subsidies of 400 billion rupees to the gas sector, a withdrawal that would no doubt raise the Unaccounted for Gas (UfG) (read gas theft) that has led to the emergence of 1.4 trillion rupee circular debt in the gas sector during the last three and three quarter years which, in turn, would require placing an even higher burden on those who honestly pay their bills.
In addition, Ismail pointed out the over one trillion rupee subsidy to the power sector last year alone — 989 billion rupees to Wapda/Pepco and 83 billion rupees to K-Electric as per the budget documents it would be slashed to 490 billion rupees to Wapda/Pepco and only a 3 billion rupee subsidy reduction to K-Electric (80 billion rupees) next fiscal year perhaps reflecting some political compulsions with the bulk of the contraction — from 22 to 13 billion rupees — to be realised from withdrawal of the K-Electric industrial support package. The exorbitant rise in electricity rates, too, would provide an impetus to electricity theft and other unscrupulous tactics.
Withdrawal of unfunded subsidies to the petroleum sector announced on 28 February, which accounted for 377 billion rupees this year (budgeted to be slashed to 71 billion rupees next fiscal year), and upped the rate of the sensitive price index by over 6 percent already, will not be the end of the burden on the general public as: (i) in the best case scenario even if the Russia-Ukraine war ends soon and the international prices of oil and products decline it is unlikely to be passed onto the general public as the government has budgeted 750 billion rupees as petroleum levy.
In other words, it is to be expected that petroleum prices are not going to be on a downward trajectory at least next fiscal year that, in turn, would impact on transport costs of people and goods; and (ii) in the worst case scenario if the international prices continue to rise for the major part of next year then while the general public would continue to bear the cost yet the impact on the current account deficit and the rupee-dollar parity can be minimised if the Shehbaz Sharif-led government, reportedly in negotiations for a deferred oil payment facility with Saudi Arabia and a deferred gas payment facility by Qatar, succeeds. This would provide the much-needed economic reprieve for the incumbent government.
Ismail admitted that the IMF was not happy with the measures to tax the rich through a deemed tax and reduce personal income tax, as there are serious concerns over the government’s capacity to collect the proposed tax on deemed income on non-productive immoveable property, projected to generate 30 billion rupees, as it is likely to be challenged in court, given land is a provincial subject as per the constitution, as well as the widening differential in the tax payable between the filers and non-filers which, in effect, gives legitimacy to the non-filers, that is universally seen as a policy against the honest taxpayers.
In addition, the FBR fact-sheet notes that the net effect of tax measures is going to be plus 355 billion rupees next fiscal year if all the budgeted proposals are accepted by parliament and the remaining 549 billion rupees additional envisaged FBR revenue would be contingent on the 5 percent growth rate which is simply not tenable in view of the ongoing monetary policy contraction (13.75 percent discount rate and a rupee-dollar parity that is over 202 rupees at present), the expected revisit of the taxation proposals as well as a downward revision in the too ambitious Public Sector Development Programme from 727 billion rupees to around 500 billion rupees as per reported IMF recommendation.
One would assume that it was precisely these factors that compelled Ismail to admit in the post-budget press briefing that there could be changes over the next few days as the government defends the budgetary proposals in parliament. There is every likelihood that it would withdraw some proposals that are opposed by coalition partners and a few parliamentarians from the Pakistan Tehreek-e-Insaf and Grand Democratic Alliance (GDA) sitting on the opposition benches; however, it would certainly more easily overcome opposition in parliament than during negotiations with the Fund on the seventh review which is where the test of the implementation ability of this budget lies.
Copyright Business Recorder, 2022