On May 10, 2016, this column informed how and why the government is expected to present a populist budget; the spate of news since then only confirms that thesis (See Budget Oracles; May 10, 2016), though admittedly it is a cause of worry.
Media reports suggest that two major decisions have been taken to both increase existing WHT rates for non-filers and the higher WHT rates for non-filers will be expanded to maximum number of sectors. These and many others developments like these had already been forecast earlier this month in this space.
Based on our recent interaction in the power corridors, however, a host of new things seem to appear on the horizon. The first of these is a likely increase in tax on cash withdrawal from 0.3 percent to 0.6 percent; and this time Ishaq Dar may not be in any mood to compromise. With currency-in-circulation already at dizzying heights, the move can result in higher real estate prices as smart money channels itself to that sector. But BR Genie tells that the government is expected to put a transactional tax on land in an attempt to curb real estate bubbles.
Some circles also believe that so heated is this sense of populism that the party may not even give two hoots about the $500 million due under IMF's last tranche, and therefore go for deficit financing, funded by money printing, and by desperate tax measures such as the increase in tax on cash withdrawals and further WHT-isation of economy. The deficit financing will be aimed not only to pay for higher than expected PSDP, but also higher defence, and other current expenditure including salary hikes etc. Risking such a move at the fag end of the programme could be risked - will be known soon. While the likelihood of a mini-budget once the programme ends is higher, but then, stranger things have happened.
The picture so seems that Dar will finally address the long pending refunds issue and is willing to give all the possible privileges to PML-N vote bank in textile and Punjab's golden triangle circles - all but the dollar. The dollar, Dar says, is no-go subject to talk about.
While these are of course forecasts based on our interaction, and there may be many a slip between the cup and lip, the combined outcome of these policies (higher tax on cash withdrawal & money printing) might be akin to sending a hand-written invitation card to inflation.
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