The PMLN government has given a season end mega sale in a budget which would be real if it is owned by next government. The speech and documents are full of relief measures on direct taxation be it individuals or corporate businesses. The tax is eased at numerous imports levels which would help the industrial linkages to develop in global value chains.
The salaried class is going to have bonanza by lower taxes and the government employees could not ask for more; they get salary increase and allowances. And for top officials, billions are earmarked as incentives - just like mouthwatering bonuses of top bank and corporate executives. Can we compare capability of top bureaucrats to top private sector executives?
The middle class is happy as up to Rs 100k per month salary is tax exempt, the upper class cannot complain, as tax liabilities are falling.
What about the lower class? The mother of indirect taxes (GST) is largely unchanged at 17 percent. Thus, the incidence is lower on those who were in taxable bracket; noting for the chap who is earning below Rs 30k. Shouldn't the government have announced GST reduction in staged manner?
There is relief for the marginalized. The good thing is for the first time any government has accepted that malnutrition is a cancer which has to be cured before it reaches at terminal stage. The target of ending stunting by 2020 is as realistic as export target of $150 billion by 2025. Anyways, allocating Rs 10 billion on the subject; and import tax reliefs for nutrients used in wheat fortification are commendable.
The thought process on reducing direct taxes to boost economic activities is in the right direction. The reduction of corporate tax rate in staged manner to 25 percent and elimination of super tax in 3-4 years is going to boost profitability and will bring life in stock market. The tax of big companies and banks would reduce by 2 percent each year till 2020-21.
The taxation reliefs are amounting to Rs 185 billion; but the FBR revenues are to be increased by Rs 500 billion. Apparently, there is no new FBR tax or any increase in rate. Form where the Rs 685 billion (17% growth) incremental FBR tax revenues would come from?
The nominal GDP is expected to increase 12 percent. How would the remaining 5 percent (Rs 196 billion) be fetched? The gap could be higher if the GST on petroleum is adjusted downward as government has increased the limit on PL to Rs 30/liter which is not part of divisible pool.
The very nature of tax adjustments is such that without bringing the tax evaders in the net, the taxation would become regressive ie burden on poor ought to increase. The point is that non-filers ought to file or should be penalized.
The good news is that WHT on cash transaction for non-filer is reduced to 0.4 percent; this may bring some money back to banking system. But at the same time, unintended consequences of steps like non-filer being unable to keep foreign currency account or buy real estate, is coming in the form of dollar buying in informal economy.
On expenditure, there is no effort to bring much needed fiscal austerity. The running government expenditure is slated to increase by 15 percent, thanks to salary and non-salary lavish increase. Mind you, these are apart from tax income tax reliefs.
Wasn't the government already fiscally strapped? The net federal revenues, after provincial share, are budgeted at Rs 3,070 billion. These are consumed by top three heads of current expenditure - markup on debt (Rs 1,620bn), pension (Rs 342bn) and defence expenditure (Rs 1,100).
The rest of everything has to be financed on additional debt. Still Miftah has the heart to give more to babus. The development budget is a casualty as Rs 800 billion is earmarked from the budget, and Rs 850 billion for provinces, on which federating units walked out from NEC meeting.
Consolidated fiscal deficit is targeted at 4.9 percent (Rs 1,890bn) with an expectation of Rs 286 billion provincial surplus. These simply cannot be achieved without extensively broadening the tax net ie bringing trader and retailer in the net.
Well, these are wishes; not a realistic scenario. Even if the same government comes in next term, a mini budget is in the offing. Clearance sale is not for long!