EDITORIAL: Finance bill 2022 moved by Minister of State for Finance Dr Ayesha Ghous Pasha, with tax amendments projected to generate an additional close to one trillion rupees (after the Senate finance committee had completed deliberations on the bill presented on 10 June, the day the budget speech was delivered by the finance minister) was, as expected, approved by parliament easily.
The reason: the party with the largest number of seats in the House, Pakistan Tehreek-e-Insaf, did not perform its due role as an opposition by opting to continue to agitate outside parliament. Finance Minister Miftah Ismail has defended these additional taxes on two counts.
First, the International Monetary Fund (IMF) was not willing to phase out or stagger the harsh conditionalities that the previous administration had agreed on — a claim that would have been credible if the budget 2022-23 had attempted to slash expenditure instead of increasing it by a trillion rupees.
It is therefore important to note that the focus appears to be on total collections, as in the past, as opposed to any structural reforms that would shift the reliance away from indirect taxes whose incidence on the poor is greater than on the rich and towards direct taxes including (a) the raise in the petroleum levy limit from the earlier 30 rupees per litre to 50 rupees per litre — a levy that if past precedence is anything to go by, would raise the cost of living index dramatically; (b) the raise in monthly fixed tax for non-filers from 50,000 to 2 lakh rupees except retailers in Tier 1 would continue to pay the same amount of fixed tax.
This appears to be an unfair concession to shopkeepers as they should be liable to pay the tax on their income; (c) those earning a salary of up to 50,000 rupees a month would remain exempt while those who earn from 50,000 rupees to 2 lakh rupees, hitherto paying 100 rupees, would pay tax at the rate of 2.5 percent; (d) deemed income on immoveable property, expected to be challenged in the court of law, has been replaced with deemed income on rent from capital assets to ensure the levy only applies to immovable property and not to other capital assets to bring, prima facie, measure in conformity with constitutional provisions.
However, Ismail insists that the bulk of additional taxes envisage taxing the rich and not the poor. The revenue envisaged under the 10 percent supertax on 13 sectors of the economy with income of 300 million rupees or above is projected to generate over 200 billion rupees as per FBR (though the market claims a little over 450 billion rupees) to be applicable only for the outgoing year 2021-22 with the specific objective of reducing the budget deficit 2021-22 that, as per the finance minister on a private channel, is as high as 8.6 percent. Budget documents for 2022-23, contrary to the usual practice, fail to give the actual revised estimates for the outgoing year.
However, at least 150 to 180 billion rupees, if not a little more, is the responsibility of the incumbent government for continuing the fuel and electricity subsidies for nearly seven weeks after the then Prime Minister Imran Khan left office.
What is baffling are the delays in updating data that must surely be available to the Ministry of Finance at the time of uploading the Monthly Economic Update and Outlook June 2022 which gives fiscal deficit for June-April 2021-22 at negative 3,275 billion rupees (against the deficit for the comparable period of the year before at 2,020 billion rupees), primary balance at 890 (against 159 billion rupees in the comparable period of the year before) and at negative 360 billion rupees in the budget documents.
FBR revenue, non-tax revenue and Public Sector Development Programme data are also limited to April in the Outlook though FBR has updated its data while PSDP data refers to authorisations which are distinct from disbursements. The Outlook provides updated data for all those sectors/subsectors where State Bank of Pakistan website is the primary source, including remittances, exports, imports and current account deficit.
So far the calculations for the additional revenue measures have not been made; however, the 10 June finance bill envisaged around 35 percent of the additional one trillion rupees to be generated by FBR from measures taken in the budget.
Only 26 percent of additional revenue was sourced to income tax (it is however, not clear whether this amount included the supertax which is for the outgoing year) and the rest from indirect taxes while around 65 percent was to be generated from a budgeted unrealistic growth rate of nearly 55 percent.
The main question today is whether the seventh IMF review conditions have been met and the Fund Board approval for the disbursement imminent? This optimism maybe premature as the Finance Minister declared on a private channel that negotiations on the monetary policy have not yet concluded, though traditionally, unlike the Ministry of Finance, the SBP has been very prompt in implementing agreed conditions.
While there is intense speculation on what precisely is contained in the Memorandum of Economic and Financial Policies that inadvisedly the Minister tweeted had reached Islamabad yet it is the first draft and one would sincerely hope that the relevant ministries, if not the cabinet, debates the draft to ensure that the general public is protected by the scourge of inflation to maximum extent possible.
Copyright Business Recorder, 2022
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