Five months may be a long time in politics, but a short time in economics. Especially when the general elections are around the corner and as a ruling party, you want to do everything but risk losing the elections. Yet congratulatory advertisements for Miftah Ismail, Rana Afzal (and now likely for Haroon Akhtar) abound, as if they can do all the long pending reforms in the short time that they have.
Soon after Miftah was made the advisor, he told Reuters that he plans to roll out tax reforms to focus on widening the tax base, simplifying tax structures, and slashing personal tax rates to encourage more people to file returns. Sources say a new amnesty scheme was also a part of the tax reform plan. Reform hopefuls are also talking about improving regulatory environment, completion of privatization process, decentralising and creating a wholesale market for electricity, among other items on the wish list.
This column contends that the only ‘reform’ that the PML-N can do before the elections is timely and full disbursements of the pending tax refunds with the aim to avoid any voter backlash. Sources add that the cabinet has already snubbed the idea of tax reforms in the months leading up to the elections. Plus, item like privatization with its potential negative political fallout is also not a last mile item.
These updates chime well with what Minister of State Rana Afzal told BR Research in an interview published last week. Commenting on tax reforms, he said that it “doesn’t make political sense; nor is it administratively feasible. Structural and policy are best taken in the first 1-3 years; the last two years you just push through the earlier decisions.”
Which is why this column thinks that the 10,000 notices that the FBR is supposedly sending out with evidence of tax evasion is going to reap precious little fruits? Can you imagine the kind of bad press the FBR would get regardless of whether it is doing its job the right way or the wrong? “FBR’s antics” and “arm twisting tactics” - are not the kind of headlines the PML-N would want before the elections.
Instead, the PML-N wants a decrease in tax rates because the wounded lion has been sloganeering about it in its campaign. But which taxes, and when? Remember that Ishaq Dar had slashed corporate tax rates and yet imposed floods surcharge, advance tax and what not. So which taxes and when?
Perhaps, a cut in corporate tax rates may be announced in the budget in May before the PML-N hands over power. In fact, expect a great budget with lofty tax collection projections to meet big development spending plans despite slashing of tax rates for SMEs, individuals and corporations.
The stock market might rise – since punters are mostly blind. And that will look good in the election campaign. Miftah of course knows the market; he also knows how to wrap a candy well no matter how terrible it might taste. If the cubs win, then they can always find an excuse for mini-budget; if they don’t, they will at least be able to boast about it, that our budget FY19 could have delivered the moon.
Meanwhile, a spaghetti bowl of ministers is being cooked in the Q-block. Technically, Miftah Ismail is an advisor with the status of the Federal Minister. The parliamentary duties lie with Minister of State Rana Afzal who looks at the EAD and finance. The FBR reports to Haroon Akhtar who has also now been given the status of a federal minister. But ultimately, PM Abbasi is the Finance Minister. The finance ministry is the most important ministry after the Prime Minister, and here the PML-N has made a mockery out of it. Political science students should take note; this is how you win elections: by handing out ministries.
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