EDITORIAL: The International Monetary Fund (IMF) has lamented the missed opportunity to broaden the tax base in the budget 2023-24.
Khwaja Asif, Federal Minister for Defence, made an impassioned speech in parliament on a range of subjects – from accusing the superior judiciary of being responsible for the political crisis to tax evasion by various mafias including builders, real estate tycoons and parliamentarians, terming it a ‘dacoity’ on the national exchequer followed by a conflicting claim: that the budget 2023-24 was the best possible.
It is indeed disturbing that as a senior member of the PML-N which has been in power three times in the past and is at present the lead party in the federal government, a party that has presented ten budgets (including for next year), and yet has failed to broaden the base has the audacity to blame the influencers rather than the influenced (cabinet members in general and the Minister of Finance in particular).
Be that as it may, the country’s tax structure requires urgent reforms that no administration has had the gumption to implement – reforms that have been earmarked by the IMF in the past three programmes contracted during the tenure of the three civilian administrations since 2008.
Instead, all three administrations have, in violation of recommendations made in various reports/studies by international as well local advisors and consultants, focused on raising revenue from existing taxpayers. At present 70 percent of all direct taxes are collected through withholding taxes in the sales tax mode, an indirect tax whose incidence on the poor is greater than on the rich.
The incumbent Finance Minister in his overarching objective to enhance tax collections re-imposed a wider differential on withholding taxes payable by filers and non-filers – a decision that may raise revenue but in the process legitimises non-filers, a legitimisation at the cost of further narrowing the tax base justifiably shunned by several tax authorities of other jurisdictions, but also launched an amnesty scheme on which the Fund commented that “the new tax amnesty scheme runs against the programme’s conditionality and governance agenda and creates a damaging precedent.”
So much for meeting all ninth review conditions of the IMF as repeatedly claimed by Finance Minister Dar and Prime Minister Shehbaz Sharif.
Indirect taxes, rightly described as the low-hanging fruit, continue to predominate in the current budget and in this context it is relevant to note the budget envisages a 25 percent rise in collections from the revised estimates of the outgoing year.
This would require a few conditions be met as per FBR documents; notably, an exchange rate of 290 rupees per dollar, a rise of 8.9 percent in dollar terms in imports (32.4 percent in rupee terms) – a wide differential which raises questions about the validity of the assumption of 290 rupee-one dollar parity for next year, and large-scale manufacturing growth of 3.6 percent (which was negative 25 percent in February and negative 8.1 percent for the first nine months of the current year).
The Fund’s concerns with the budget provisions were anticipated by independent economists, including Business Recorder, and yet the parliamentary thrust appears to be a spirited defence of the budget provisions while trashing the elite, even those within their own ranks, for missed opportunities that is simply not possible without the country’s executive being complicit.
Copyright Business Recorder, 2023
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