EDITORIAL: Additional taxation measures of 170 billion rupees tabled in parliament on 15 February by Finance Minister Ishaq Dar, as per the government’s pledge to the International Monetary Fund (IMF) during the 10-day ninth review negotiations that ended on 9 February, prompted Chairman Federal Board of Revenue (FBR) Asim Ahmed to claim during a meeting of the Senate Standing Committee on Finance later that FBR’s annual target has been raised from 7.47 trillion rupees to 7.64 trillion rupees.
The FBR target was budgeted at 6.75 trillion rupees after amendments to the Finance Act dated 24 June, followed by a raise of 38 billion rupees in the tax laws second amendment dated August 22 and the imposition of regulatory duty to net 8 to 10 billion rupees (August 23) with total FBR target raised to 723 billion rupees. In sum, it is the third time insofar as the raise in the tax collection target is concerned.
In July-January 2022-23 provisional collection stood at 3,965 billion rupees against the target of 4,206 billion rupees or a shortfall of 5.73 percent. In the event that the economy slows down further, as indicated by the revision of the growth rate into the negative realm by independent economists backed by data released by the Pakistan Bureau of Statistics - notably that large scale manufacturing sector declined by 3.68 percent during July-December 2022 against the comparable period of the year before - the capacity of FBR to realize the rise in revenue attributable to the economy’s growth rate will be severely compromised.
It is important to note that the ‘mini-budget’ announced by Ishaq Dar has come under considerable criticism especially from the general public angered as the revenue measures in the mini-budget rely to the tune of almost 85 to 90 percent on raising indirect taxes (one percent across the board standard sales tax rise – from 17 to 18 percent, tax on sugary drinks and cigarettes) whose incidence on the poor is greater than on the rich.
The concomitant rise in fuel, due to the rupee erosion after 26 January after the disastrous policy of controlling the interbank rate was finally abandoned, and electricity/gas tariffs have further reduced the capacity to meet the rise in living costs of the lower income to middle income earners.
The defence by the economic team leaders notably that without these harsh mini-budget measures the country could have defaulted, a prospect that would not only have tripled the rate of inflation but also led to severe shortfall of necessities within the country, has little merit as economists and the general public clamour for economic justice amidst the pervasive elite capture of the country’s resources and expenditure allocation.
And they cite the lack of any innovative or income tax measures premised on the ability to pay principle that were evident in the budget presented by Miftah Ismail in June last year.
These included: (i) a tax on deemed income estimated to yield one percent of the value (as notified by FBR) of non-productive immoveable property with a projected revenue of 30 billion rupees; (ii) increase in effective tax rate of capital gains tax on immoveable property by increasing the threshold of exemptions from 4 years to 6 years and rates substantially increased to generate 40 billion rupees; (iii) increase in rate of advance tax on purchase of immoveable property by non-ATL (Active Taxpayer List) persons from existing 2 to 5 percent to generate 20 billion rupees; (iv) increase in rate of advance tax on purchase and sale of immoveable property by ATL persons from existing 1 to 2 percent to generate 45 billion rupees; (v) capital value tax at 1 percent on foreign immoveable properties of Pakistani residents projected to generate 8 billion rupees; and (vi) capital value tax at 1 percent on all foreign assets of resident Pakistanis to generate 10 billion rupees.
The retailers were also budgeted to pay fixed tax at the rate of 3,000 rupees monthly if their monthly electricity bill was 30,000 rupees (5000 rupees if the bill was 50,000 rupees and 10,000 rupees per month if the bill was one lakh rupees) and 50,000 rupees was payable for special class (car dealers, precious watches) as final tax liability on income and sales tax to generate 30 billion rupees.
This long-standing demand of donor agencies and the general public was sadly dropped by Ismail upon reported opposition by Maryam Nawaz in a tweet on purely political grounds.
However, one would have hoped that Ishaq Dar, with reportedly much greater persuasive powers than Ismail within the PML-N hierarchy, should have overridden concerns by the party’s Senior Vice-President and implemented this tax.
While we support the need to raise tax revenue as part of the IMF prior conditions yet the ‘mini-budget’s’ focus on enhancing existing taxes rather than widening the tax net and bringing untaxed or under taxed sectors of the economy into the tax net is highly worrisome and needs to be undertaken in right earnest.
Copyright Business Recorder, 2023