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Budget Fiscal Year 2019: Where to go?

The main fault-line of budget 2018-19 is its failure to provide a roadmap for self-reliance – collecting taxes as per real tax potential and achieving growth rate of over 7% for a decade. In the absence of adequate resources and burgeoning debt burden, we cannot become what the now absconding ex-Finance Minister desired to be ‘member of G20 by 2030’ and by Minister Planning: ‘Asian Tiger by 2020’. It is strange that not a single measure is included in the Finance Bill to confiscate untaxed assets stashed abroad and illegal flight of capital – on the contrary unprecedented amnesties offered through Presidential Ordinances usurping the legislative powers of both the Senate and National Assembly.

In taxation, a much-delayed relief is given to the salaried class by extending taxable threshold to Rs 1,200,000 and lowering of rates. This relief is also made available to non-salaried individuals. Strangely, the tax rates of corporate sector are still high and gradual reduction to 25% in the next five years is not justifiable. For rapid industrialisation and to attract investments, we need to lower corporate income tax rate to 20%. Much needed rationalization of indirect taxation purporting to bring down the rate of sales tax to 10% after abolishing all exemptions is again ignored. The maximum income tax of 15% for individuals earning over Rs 4,800,000 is generous but why is higher burden of sales tax still on people having income below Rs 1,200,000? The benefit given in income taxation to them is not that meaningful as higher burden of indirect taxes will take larger portion of their earnings as compared to those who enjoy income beyond Rs 4.8 million.

The taxation proposals show further increase in indirect taxes (regulatory duty on a number of items) and absence of pragmatic measures for tapping the real tax potential. The Finance Bill 2018 confirms that the rich and mighty would continue to retain their colossal incomes and wealth-rather amass more without paying due taxes. They will be happy to remain non-filers by paying meagre withholding taxes and happily avoiding due tax on real incomes.

Sadly, the corporate sector is still being penalised through 5% taxation on undistributed profits and turnover tax of 1.25%. There is still no taxation for money invested in unproductive sectors eg vacant plots in lucrative societies. The taxation offered by Miftah is going to benefit only the rich. By keeping higher sales tax rate, the bias against the middle class and the poor is shown as the increase in POL prices by enhanced rate of Petroleum Levy would affect the overwhelming majority of the population with annual incomes less than Rs 1,200,000. Not a single measure is proposed to incentivize industrialisation, corporatization and documentation of economy. Less investment in industry means less job opportunities. The Finance Bill 2018 has not addressed these areas. Tax breaks for industries and businesses creating new jobs and giving employment to women should have been the top priority but it is completely missing in this taxation policy.

The gigantic government apparatus-the epitome of bad governance-has received raises in pay and pension. Not a single step has been taken to curtail enormous perks and benefits of public office holders, judges, high-ranking civil-military officials-these could have been monetized to save billions.

All independent economists are unanimous that in the sixth budget of PML-N, the Finance Minister (who took oath of this office just a few hours before announcing the budget) has failed to address the main economic challenges faced by the country-fiscal, trade, current account deficits, stagnation in industrial growth, etc. The 71st bureaucrat-designed budget only contains the same old clichés about economic revival! In the last five years, the government has not been able to initiate long-overdue fundamental reforms to overcome issues like social mobility, resource mobilisation, shortage of skilled manpower, non-availability of affordable power supply and rapid industrial and infrastructure development.

The budget has failed to provide steps to bridge the huge tax gap. Tax potential of Pakistan is not less than Rs 8 trillion – see details in ‘Budget and taxes’, Business Recorder, April 20, 2018. The mighty sections of society do not pay due taxes, enjoy tax-free benefits and also get State lands at throwaway prices or as free awards. The Government is least bothered to tax undocumented economy and benami transactions since, the mighty sections of society are engaged in these transactions,

State of economy is not at all satisfactory. Imports are increasing, debts are on the rise, fiscal and current account deficits are worrisome, poverty is a reality for millions, tax compliance is extremely poor and unemployment is a source of disillusionment for the overwhelming young population. We need a sustainable growth of 8% for a decade to provide two million jobs every year to our youth alone.

One of the main tools of tax policy is to increase the level of savings and capital formation in the private sector partly for borrowing by the government and partly for enhancing investment resources within the private sector for economic development. On the contrary, Pakistani economic managers have not only failed to achieve this goal, they are ruthlessly taxing capital gains arising out of immovable property and shares to destroy creation of capital and incentives for investment that can boost growth. Tax is a byproduct of growth. With more growth we would have more taxes. The prevalent anti-growth taxes are the real cause of retarded economic growth, burgeoning fiscal deficit and insurmountable debt burden.

There is a consensus that existing tax policies have been stifling economic growth and widening the rich-poor divide. It needs to be reformulated to provide an equitable, pragmatic and investment-oriented environment, integrating efficient tax administration with simplified tax laws that are easily comprehensible and hassle-free from implementation perspectives which perspective is completely missing in the budget 2018-19.

Huzaima Bukhari and Dr. Ikramul Haq, "Budget Fiscal Year 2019: Where to go?," Business Recorder. 2018-05-04.
Keywords: Public office holders , Growth rate , Legislative powers , Investment resources , Tax policy , Economic growth , PML-N , 2018-19