Federal Finance Minister Ishaq Dar has explained in his post-budget press conference that Budget FY13 is all about initiating good measures of both austerity and growth. Dar has much to show in the context of a cut in current expenditure and also the rise in Public Sector Development Programme (PSDP). However, in an environment of an economic slowdown a highly significant rise in tax collection is believed to be an over ambitious measure, despite the fact most of FBR's budget proposals appear to have been accepted by the Finance Minister. In doing so, Dar has had to lay aside the commitment of no rise in tax rates as well as promise of no new taxes. He has rightly said that the budget has merely raised the GST rate by one percent to 17 percent - which was cut a year ago. But then a one percent increase is indeed a significant a raise so is the new 'levy' of 0.5 percent on moveable assets.
In economics, one has to make trade-offs and pay opportunity costs while exercising choices. Allowing FBR unbridled and unfettered access to the banking system could hurt deposit mobilisation and turn the country into a higher cash-based society; it could also hurt objectives of documentation. It is the rich individuals who have to be enticed to step forward to invest and increase jobs. Will it happen when business capital is being taxed instead of income? We feel it is an anti-investment step which could also damage the privatisation process since foreigners will remain exempt under double taxation treaties while Pakistani businesspeople will be required to pay a 0.5 percent levy on their shareholdings. Rules for this tax are yet to be framed. However, the possible adoption of past rules governing Wealth Tax once more will cause a setback to the economy. Creating wealth is a laudable objective. One needs to tax income. Doing away of gift tax and death duty or inheritance tax was wrong then and is now. FBR estimates a mere Rs 6 billion collection under this head of account while finance minister's estimation is a little more. Is this meagre amount worth placing at grave risk a business-savvy prime minister's tax philosophy.
It greatly appears that the Finance Minister having only five days at his desk has not grasped fully the implications of FBR's proposals and the consequence of giving them more power to hound the taxpayers. Creating an output-input coefficient for various categories of business is a right step. Similarly, the audit process is strengthened, especially under a self-assessment mechanism or procedure. Completing the full circle of automation in tax payment system is a step forward. But is the human resource trained in FBR to massage the data already available?
We fear people will pay two percent higher further tax and five percent more on their utility bills and remain outside the net; just like the agriculturists who do not want an additional tax hound besides the revenue official already lording over them. Has there been any thought given on how the officialdom will not get greater opportunity to fill their pockets instead of the exchequer? Certainly not. Time was short.
We also wish Dar good luck in his negotiations with the private sector power producers. They know he has his back to the wall. They can play hard ball as the 7.7 percent fiscal deficit for the current year given in the Economic Survey issued day earlier has been revised to 8.8 percent in 24 hours. If this figure is to be achieved and 6.3 percent deficit committed for next year (2014-15) is sacrosanct then they would just hold out and not give any major concession.
While we agree that clearing the circular debt would ease the loadshedding and also give confidence to the investors, it would only solve half of the problem. Correcting the energy mix to lower the cost of production of electricity would need more time and effort.
While we do not doubt either the integrity or competence of the Finance Minister or the confidence he enjoys of his leader Prime Minister Nawaz Sharif; we do however, feel that the PM has to bring more national cohesion into the economic framework. He was, for example, required to listen to other contrarian views before finalisation of the Finance Bill 2013. Sadly, this did not appear on the horizon. All the low hanging fruits are within the domain of provinces. CM Shahbaz Sharif has to show the way for other three provinces to emulate. If they do not, the voters will show their displeasure at the next polls or even earlier.