The PTI leadership made tall claims of overhauling the economy and to end the dependence on loans before coming to power. We were repeatedly told that PTI government will bring the much needed reforms in the economy. PTI chairman and now PM Imran khan give the impression through his speeches that he will rather commit suicide then to take loans to run the economy.
But in the first 4 months of its government, the PTI is continuing with the same old policies of imposing the indirect taxes and obtaining the foreign and domestic commercial loans and getting support from friendly countries. The PTI was use to criticize these measures and policies of previous governments when it was in opposition. But since coming to power, The PTI is implementing the same old economic policies of previous governments.
The PTI government is planning to introduce yet another money bill in parliament for adjustment in taxes, non-taxes and trade tariffs to create additional fiscal space of up to 1.5 per cent of GDP (close to Rs550 billion). Additional taxes and duties worth Rs150-160bn are being contemplated during the current financial year.
These measures are part of a three year fiscal adjustment program proposed by IMF to obtain the new loan. The total size of these measures would go beyond RS 1000 billion rupees or 2.5 percent of GDP in next three years.
The government is giving the impression that it is opposing the measures suggested by IMF that will directly affect poor people. The matter of fact is that the differences between the PTI government and IMF are not on the size of measures but on the pace of its implementation. The PTI government wants to implement these measures at a slow pace in different phases but IMF wants to implement it at fast pace in short period of time. The government wants ‘landing but not a crash landing’, in the words of Finance Minister Asad Umar.
This comes even though the current year requirement for external account financing has largely been met with deposits, commercial loans and an import bill cushion in the shape of deferred oil payments from Saudi Arabia, China, and the UAE.
Both Saudi Arabia and the UAE promised to deposit in $3billion each with state bank to boost the foreign exchange reserves. The Saudi Arabia has already deposited two billion dollars with state bank. Saudi Arabia has also started to provide oil on deferred payments to cut the import bill by $3bn in the remaining six months of the financial year. This will provide a total cushion of about $9bn during the current financial year. The remaining will be available from China in commercial loans.
But this is not a free lunch. Pakistan will pay 3.2 percent interest on these loans. This is stop gap arrangement and a temporary measure to boost the fast depleting foreign reserves. It will provide the temporary relief to the government. But the fundamental problems and weaknesses of the economy will remain there.
The government is taking the same old traditional temporary measures to deal with balance of payment crisis. These measures will solve the crisis temporarily. That is what the previous governments did. They failed to introduce the much needed reforms in the tax system and economic structures.
The real challenge is to bring the feudal lords, big traders, and non taxpaying rich people in the tax net. That is where the PTI government is failing likes the previous governments. The real task is to increase the revenue collection with widening the tax net. The other real challenge is to increase the productive and manufacturing activities and capacity to create new jobs and to generate more revenue.
Additional taxes and duties worth Rs150-160bn are being contemplated during the current year and the government will be returning to petroleum products as a key source of revenue generation. This will mean a partial revival of higher petroleum levy envisaged by the previous government in its last budget, and perhaps adjustments in general sales tax (GST) on petroleum products.
PTI government is going back to the old and traditional methods of tax collection. PPP and PML-N governments used taxes on petrol products and mobile phone top ups to increase the tax collection. The PTI government is following the same. It is considering to revive the tax on mobile phone top ups that Supreme Court stop the mobile phone companies to collect.
The previous government of PML-N had set a target of Rs300bn from the petroleum levy for the current year against last year’s collection of about Rs189bn. The supplementary finance bill presented in September this year reduced the petroleum levy target back to Rs189bn.
The government is now targeting inflation and exchange rate hike as a revenue tool and expects generating up to Rs200bn after setting aside the impact of loss in revenue on imports.
Now that electricity rates have been jacked up in the first round, the revenue authorities are anticipating at least Rs50bn additional revenue from energy prices a year, about Rs30bn during this year owing to the loss of a few months.
There will be an increase in GST on domestic sale of export oriented industries as the government believes enough support has been extended on exports and the overall cost of production. Most of the products from the five major export sectors — textile, carpets, sports, surgical and leather products are charged a lower than normal GST rate.
While custom tariffs are expected to be relaxed on job intensive industries to facilitate fresh investment in new manufacturing sectors while slightly increasing custom duties on a series of import items.
On top of that, imposition of fresh and increase in existing federal excise duties are planned on beverages and automobile items, both in terms of imports and local production. In addition, withholding tax on non-filers and import of finished goods will be increased.
The economic problems of Pakistani economy are much more serious and deep rooted than to solve through artificial measures and cosmetic changes. It needs serious reforms in the economy.
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17 November, 2019