Caught between a rock (IMF) and a hard place (popularity), the commodity super cycle and devaluation came to the government’s rescue to help bridge the tax revenue target through higher import values. This allowed the FM to limit the impact of additional taxes and find the space to retain some element of growth. However, a 5% GDP growth target for FY23 is neither advisable nor likely.
The IMF programme will be secured, allowing friendly countries to retain support and the government to refinance debt. The dilemma is that inflation, which undermines government’s popularity, will help it meet the tax revenue target and secure the IMF programme. However, reliance on the commodity super cycle to meet revenue targets is not a sustainable solution and mini-budgets can be expected if it subsides.
Devoid of political will to broaden the tax base, the budget uses the traditional formulae of taxing the taxed through windfall tax on companies and individuals earning over Rs. 300 million, 3% higher tax on banks and compression of salary tax slabs. However, it could have been worse for the formal sector. At least some direction is visible in taxing immoveable property, import levies are to be rationalized on 400 lines to promote manufacturing, initial allowance on capital expenditure has been doubled and non-filers will have to pay advance tax at twice the rate hitherto applicable on purchase of 1600 cc and larger cars.
To its credit the government has reversed the retrogressive sales tax on solar equipment and seeds. Also, agricultural equipment will be exempt from import duty. An industrial policy is being developed and SEZs are to be accelerated to promote investment. Promises of prompt refund of taxes and payment of rebates have been made in the past. There is a need to walk the talk. Imports are forecast to decline and exports to rise. However, there are no visible measures in the budget to facilitate this.
Notwithstanding a 20-year-old crisis of funding a bloated government, losses of state-owned enterprises and mounting debt service charges, the government found space to increase government wages and pensions.
The FM had an unenviable task of making a budget under tough conditions. Whilst business expected reversal of double taxation of intercorporate dividends and restoration of incentive to list companies on the PSX, this will need to wait. Resources need to be deployed on more focused and targeted subsidies to the poor.
Copyright Business Recorder, 2022
The writer is a former CEO of Unilever Pakistan and of the Pakistan Business Council
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