The Scalar Budget

No one really expected a revolutionary budget from the incumbent government in view of its dismal economic performance over the last one year.

What can you expect from a government that removes its finance minister in the midst of final negotiations with the IMF, and budgetary preparations? Yet the people of Pakistan were hoping that Budget 2019-2020 might provide some respite to their economic woes. However, that hope soon faded away after the budget was presented on June 11, 2019.

First off, let us explain as to why this is a scalar budget. A scalar is said to be a quantity that has magnitude but no direction. Incidentally, so is the case with the government’s first budget that has nothing but a huge magnitude of indirect taxation without any sense of purpose. Neither is it a growth-oriented budget nor can it be termed a welfare budget. People are still trying to figure out what this budget is all about. What can be safely assumed is that the proposed budget measures are going to hit every segment of society except the elites.

Let’s begin with the poor. The incumbent government always claims to have maximum concern for the poor but the proposed increase in taxes on basic consumer food items does not substantiate this claim. For instance, the government has proposed an increase in sales tax on sugar from 8 percent to 17 percent; similarly, a 17 percent federal excise duty (FED) is being levied on edible oil/ghee which amounts to making the life of a common citizen miserable. Just imagine the impact of these taxes on the poor segment of society which is already under tremendous pressure due to continuous price hikes and unprecedented inflation over the past one year. A slight increase in the amount of social security programmes being directly disbursed to the poor may not do any good in view of the inflation and currency devaluation.

Next comes the salaried class, somehow the biggest victim of the new tax regime proposed in the current budget. The government has not only withdrawn the tax exemptions given to salaried persons by the previous regime but also reduced the taxable limit from Rs100,000 per month to Rs50,000 per month. There has been a meagre increase of 5-10 percent in the salaries of government employees.

Practically speaking, the income of the salaried class has gone into the negative amid a hefty increase in electricity and gas tariffs in the last ten months. One must not forget that the Pakistani currency devaluation has been close to 50 percent during the last one year. Resultantly, the new taxes coupled with a negligible pay increase will further add to the miseries of salaried class. The government has also announced a minimum wage of Rs17,500 which is nothing more than a political ritual. Every successive government in Pakistan has announced a minimum wage limit but none could implement it in letter and spirit. It is to be seen how this government implements this minimum wage policy.

Another harsh measure is the imposition of the Federal Excise Duty (FED) on smaller vehicles. Previously there was no FED on cars up to 1600 cc whereas 10 percent FED was imposed on vehicles over 1700 cc. Now, the government has imposed 2.5 percent FED on cars up to 1000 cc and five percent on cars up to 1600 cc. On the contrary, the government has reduced FED from 10 percent to five percent on cars ranging from1700 cc to 2000 cc and a 2.5 percent reduction in FED has been proposed for vehicles above 2000 cc. Automobile prices in Pakistan are already too high as compared to other countries in the region. These measures will not only further enhance car prices in Pakistan but will make it even more difficult for the middle classes to purchase or lease a new car. In the absence of a viable public transport system, four wheelers are no more a luxury but a compulsion.

Interestingly, a Rs5.5 trillion revenue target is being assigned to the Federal Board of Revenue (FBR) for the next fiscal year. As we know, the FBR failed to achieve the required target of Rs4 trillion revenue set for the current fiscal year. How do they expect the same FBR to get Rs5.5 trillion? These ambitious revenue targets won’t be achieved by just bringing in Shabbar Zaidi as the new FBR czar. For this to happen, the FBR needs to be reformed and restructured; however, no serious effort has been observed in this regard so far.

Now, it is being propagated that Pakistan has entered into an economic stability phase after having signed a $6 billion package over the next three years. Therefore, we need to be patient and wait for economic growth after three years. This mantra of ‘economic stability and subsequent growth’ is propagated every time an IMF programme is signed by Pakistan. Unfortunately, over the last three decades, Pakistan has hardly seen any worthwhile sustainable growth despite a number IMF programmes. This mantra of ‘economic stability and subsequent growth’ is totally flawed and it is primarily propagated by the same brand of economic wizards that Pakistan has continued to import from the West. Economic stability and economic growth have to go side by side.

It must be understood that the maximum chunk of Pakistan’s revenues is generated through the profits earned by the corporate sector. In case the growth rate sticks to around two percent, how will the desired revenue be generated? Therefore, the government needs to incentivize the exporters so as to enhance Pakistan’s exports, which have already been stagnant over the past five years. On the contrary, the government is withdrawing the ‘zero-rating regime’ on most of the export items which is likely to further decline our export goods.

The budget is a true reflection of a government’s economic policies and its financial roadmap. The first budget by the current regime is not only disappointing but has really broken the dreams of millions of Pakistanis who had pinned a lot of hopes in the concept of ‘Naya Pakistan’. The overall contours of the budget clearly suggest that the financial managers of Pakistan are more concerned about the IMF.

Ironically, it is a hard reality that the incumbent government neither made any serious attempt to reform the financial institutes nor showed any intent towards legislation in parliament. All said and done, if the PTI’s top leaderships really cares about the aspirations of a common Pakistani then it must withdraw the harsh indirect taxation proposed in the budget forthwith. It is about time the government turned towards the elites who are eating up everything without paying anything.

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