Federal Finance Minister Muhammad Ishaq Dar went to great lengths to explain that the Finance Bill 2015, ie, the proposed budget for next financial year, is pro-poor and it has a number of proposals that are clearly aimed at helping the weaker class of society.
However, what he fails to understand is the fact that poverty is so vastly pervasive in this country that the attempted help constitutes nothing but a drop in the ocean.
Furthermore, our taxation system is largely dependent on presumptive and withholding tax deduction for collection of direct taxes and has a larger share of indirect taxes mainly from the industrial or manufacturing sector plus our growing dependence on ease of collection mainly from imported petroleum products. This conventional approach only breeds complacency.
PML (N) government, indeed, inherited a woefully weak economy and therefore had to run to the International Monetary Fund (IMF). The Fund has helped the government stabilise economy to successfully avoid default. It was erroneously expected that growth would be government’s prime objective.
Unfortunately, however, the budget for next year is found to be skewed towards fiscal consolidation. This is so because Pakistan’s economic system has yet to undergo reforms and we are afraid that without structural reforms the objective of higher sustainable growth – over 7 percent – would remain elusive.
Finance Minister Dar in his winding up speech did give relief of around Rs 5 billion or so – but his hands remain tied because of country’s weak fiscal position. Most of the reduction in taxes was in the agricultural sector. And, the way his colleagues in the parliament showed interest is a clear indication that the agricultural lobby continues to remain a dominant force in our electoral process. And, the maxim that rulers do not pay but collect taxes still holds true. The hold of the agricultural lobby in provinces is even more dominating.
Growing reliance on banking sector to collect taxes persists; even though the National Financial Inclusion Strategy devised by the World Bank and paid for by Pakistan is at a cross purpose. This show a clear disconnect between policy and tactics adopted by the government.
A major lacunae – as a threshold for distribution of profit for the year – has been attended to. Whether the strategy to have a higher withholding tax rate for non-filers is sound remains to be seen as it may adversely impact the banking sector and give a further boost to cash economy. Merging regulatory duty with customs duty or with federal excise duty and reducing the sales tax rate and making it non-adjustable is mere tinkering which is not the answer to our revenue weaknesses.
Our policymakers must not lose sight of the fact that fiscal consolidation – reducing deficits by cutting spending and raising revenues – does stifle growth. No country, therefore, can achieve fiscal consolidation and higher growth simultaneously.
Source: Business Recorder