The Federal budget is a huge event every year. The annual budget speech delivered by the Finance Minister in the National Assembly is always broadcast live on all news channels; hours of television programming discussing what needs to be done and what has been planned precede and follow the speech and representatives of trade and industry swarm media outlets to voice their reactions to the governments intended plan.
But the importance of the upcoming budget is elevated by its proximity to the general elections. Have no doubts about it; the upcoming budget will be a classic example of populist measures designed to deliver short-term advantages to the electorate. It will be an election budget.
The Prime Minister has reiterated the governments resolve to offer 100,000 new jobs in the public sector in the upcoming budget. Salaries and pensions of government employees are expected to be revised upwards once again, as is the minimum wage for labour, which according to officials shall be hiked to Rs8,000.
Some of the expected tax reductions are a continuation of promises made in previous years, such as the phasing out of FED on cement and on beverages. The government is also considering extending various support programmes like the Benazir Income Support Programme, along with subsidies on agricultural inputs. All these steps will likely entail further strains against the governments revenue collection.
So how does the government intend to beef up revenues? At a recent press briefing, Finance Minister Hafeez Sheikh stressed that existing tax payers will not be burdened further. Pressure from the existing tax base has been supplemented by calls by the IMF and other multilateral donors who have urged Pakistani legislators to broaden the tax net and equitably tax revenues across all productive sectors of the economy. But given the potential political fallout, the government is unlikely to target agricultural income to help swell its kitty.
On May 6, Sheikh was quoted as having warned that "there will not be any good news for tax evaders in the upcoming budget". These remarks are reminiscent of FBRs previous attempts to reign in those paying less than their due taxes, or none at all.
Last year, former FBR chairman Salman Siddique had trumpeted the tax mans plans for cracking down on tax dodgers through data obtained from Nadra. However that exercise has all but fizzled out, so claims of improved tax enforcement have so far belied reality.
So while expanding the tax base and raising revenues are important priorities for the government; they require tough love towards untaxed sectors. Whether the current coalition government will swallow the bitter pill needed for long-term benefits such as reducing reliance on foreign aid and loans and narrowing the fiscal deficit, or dole out sweet offerings that will bring voters to polling stations in a few months time, remains to be seen.