It’s a typical Dar budget with some populistic flavor. Penalize anyone who makes money legally and wants to grow their business in the formal sector. “That is Dar’s philosophy of life”, lamented a businessman. Taxing those who are already taxed is the only trick in Dar’s playbook and it seems this time he has swallowed all its pages.
Beyond the 10 percent increase in super tax on those who are making money and already documented, and an additional unclear measure of windfall tax on the same group; there is nothing to take home on tax policy or collection measure.
Rest, populistic touch includes adhoc increases in salaries and pension. The budget is as ad hoc as Dar’s landing in finance ministry last year.
Some had expected tax on real estate (though it is a provincial subject), but on the contrary, the feelings are that there may be some reliefs for the segment. The finance minister’s speech showed zero resolve to tax retailers and wholesalers, supposedly the traditional vote bank of PML-N, which is heaving its last breaths anyway.
No measures have been taken to bring the agriculture sector into the tax net. Again, it is a provincial subject, but do you expect any sense of obligation or responsibility from provinces, when most of the country is governed by encroached caretakers, and rest by those whose philosophy is to make people rich first and tax later. In the process, growing poverty and falling middleclass are mere externalities.
The speech was boring and anticipated – like a broken record, Dar first played the tape of his supposedly glory days – i.e the golden age of bees tera bees sola (’13 to ’16), followed by an imaginary narrative of economic destruction during 2018-22.
Never mind the all-time high inflation and negative growth (which Dar continues to contradict) happened under his watch. And zero thought on the future direction of the economy.
Dar and his team cannot think beyond taxing further those who are already taxed. The only thing he can get himself to focus on are subsidies doled out to textile, or taxing profits of banks. The biggest sector of the economy is wholesale and retail trade (around 20 percent) which contributes one percent of income tax.
The second biggest is livestock (12 percent) which is almost completely undocumented. Then construction and real estate are not even a significant part of recorded GDP.
Historically, manufacturing has paid the lions share of direct taxes. And last year, additional super tax was levied on its profits. Now, the highest slap (or slabs) of super tax is being proposed at 10 percent which would reduce the net income of companies by 9 percent.
The message to documented businesses is that they are fools for having entered a documented segment of the economy. Go grey and live a happy life.
But greys are penalized too. The WHT on banking transactions has been imposed at 0.6 percent for non-filers. Last this was in place was back in 2015-16, and since then currency (cash) in circulation has been on an endless rise. And its growth is unprecedented this year. Instead of trying to lure them back into the sector, they are being pushed to go further down the road of informality.
The question is how many will continue to pay tax honestly, considering they are already an endangered species in the land of pure. That is the story.
The budget is a confused statement by a frazzled finance minister, trying to pretend that he still has everything under control. But the facade won’t last for too long.
Going to the IMF is being willed and denied simultaneously. The way things are an IMF program will remain hard to come by. Either way, private sector participants should prepare themselves for an even harsh mini-budget immediately post elections.
Copyright Business Recorder, 2023