Arguably, the Finance Bill (the Bill) recently introduced in the parliament perhaps might not qualify as a Finance Bill under a stricter interpretation of the term; and accordingly may not require much analysis or debate. However that apparently did not stop all and sundry to move in for the kill. Most amusing was the opposition's rhetoric about how the Bill was harmful for the health of the masses; irrespective that the Bill in itself hardly has any provision which may be deemed to directly alleviate the hardship or reduce the disposable income of that poor segment of the society which deserves to be protected.
The advantage of writing with a few days lag on a pressing subject is that everybody already has had a go at it, against or for. Curiously, the Bill could not get a lot of mileage from the usual suspects on the electronic media all of whom were generally seen to struggle with their analysis of the Bill; so there was not much to gain from the lag this time. On a separate note, certain participants on talk shows on the idiot box, promoted as economic experts were anything but that. Nonetheless, a particular comment on the social media which classified the inherited economy as fractured, disoriented import and consumption driven, was an eye catcher. One may not be as colorful in describing something as bland as an economy, albeit the trade deficit and consumption do require immediate attention. Curiously there were no apparent nudges in the Bill which could be deemed as an attempt to curtail either; if anything duty reduction, presumably in industry related imported raw materials, will probably increase consumption. Contrarily, my view is that irrespective of the decrease in international oil prices we even need to increase petrol, not diesel, prices significantly to curtail consumption. Diesel essentially is the poor man's transportation fuel.
On the issue of increasing taxes on phones, there is a view that cheap access to telephony is unproductive and is an unnecessary burden on the disposable income of the middle and poor classes and requires government action since the populace is generally seen to be irresponsible in this case at a personal level. The argument is that telephony in Pakistan should be at least as expensive as is in the developed world where subscribers still get charged for incoming calls. Notwithstanding the differing views, in any case telephony cannot be categorized as a necessity, and hence one does remain indifferent to increasing taxes on telephone sets, if not supportive of increasing them even more.
On a macro level, most of the proposed amendments in tax legislation are effective from the next tax year or even later; the reasons for including them in the Bill being a curiosity might not therefore be misconstrued. Presumably, and as a strategy perhaps even appreciable, the bill primarily is intended to give the overall policy direction of the Government towards economic growth. Undoubtedly, the focus appears to be towards protectionism.
Personally, I am all for protectionism and have made no qualms about my views publicly. I hold the view that our industry, and service sectors such as the national airline, cannot compete with MNCs purely because of economics of scale and because most MNCs by and large directly or indirectly enjoy protection from their own respective governments; Emirates Airline being a case in point, and China being the biggest example of protectionism. However there is a difference between protectionism and not taxing wealth; with the latter being rather inclined towards the theory of trickledown economics.
Trickledown economics is all about reducing taxes on the rich which therefore presumably spurs them into investing thereby stimulating business which essentially is beneficial for the society through creation of job opportunities. There is however no guarantee that this is the only outcome when you reduce taxes on the rich; they may simply buy more villas in Europe. And while the argument that the stock market is a barometer of the economy is debatable if not entirely fictional, increased buying and selling in the stock market, spurred by less taxes, necessarily may do nothing for the real economy. Even reducing taxes on banks on certain sectoral loans might not be sufficient to induce them to support those particular sectors considering the banking sector's current perception of related risks; unfortunately the cliché, "Do More" might be very relevant in this case.
A better strategy perhaps is identifying the sectors which need to be protected, which primarily should include export oriented and import substitution industry and services, and thereafter devising specific policies and government direct intervention to bring about the desired objective. Empirical results indicate that tax policy alone has not been sufficient to promote investment. Admittedly, this is a long term exercise and given the policy direction identified one can hope that such policies and intervention are in the offing.
On an overall basis, the indication that the government is prepared to support domestic business is an optimistic step in the right direction; especially considering our obsession with foreign direct investment. Albeit the Bill needs to be followed up with more specific actions rather than waiting to see whether or not the economy trickles!
(The writer is a Chartered Accountant based in Islamabad Email: syed.bakhtiyarkazmi@gmail.com)