Not much of what new finance minister, Muhammad Aurangzeb, said in his first official media interaction was new – privatisation, digitalisation, tax-to-GDP ratio, even hinting at a lower interest rate while not forgetting about the sovereignty of the State Bank. And everybody expects the SBA (Stand-By Arrangement) to be followed by an EFF (Extended Fund Facility), so talk of engaging the Fund for another “large and long program” wasn’t exactly breaking news either.
But one thing was very new.
He said that “wholesalers, retailers, real estate and agriculture income” would be brought into the tax net. That’s already farther than any finance minister has gone before, and this one hasn’t even settled into his seat properly. He’s a Wharton guy, so it’s no surprise that his no-nonsense, forward-looking market approach took him places in his banking career. Now, no doubt, he can do no better or worse than bring that same no-nonsense, technocratic approach to the finance ministry and cut fat, plug loopholes and milk holy cows where necessary.
But he should be careful. Miftah is a Wharton guy too, after all, and look what his expertise in balancing IMF’s very harsh upfront conditions with the politics of a new, temporary, coalition government and then securing not one but two tranches of the previous EFF got him. His own party threw him under the bus when the optics turned bad and reverted to Ishaq Dar – he’s family, after all – and stuck with him even though his tried, tested and repeatedly failed policy of propping up the rupee once again compromised the bailout programme and prematurely ended the EFF.
The new finance minister must also have rubbed shoulders with Shabbar Zaidi at some point in his illustrious banking career. Zaidi is no Wharton guy, but he knows taxes and revenue. He, too, tried to make sense of the tax revenue madness and once decided to tax agriculture — the biggest, fattest, tax-evading sector; primarily because its elite is always in both government and opposition. This was in the PTI government days, when Pakistan was itching to become the epitome of equity and transform into Riyasat e Medina.
But, much to his shock, the only thing his initiative did was unite otherwise constantly bickering MNAs, from all parties, as a good 60 of them descended on him, led by PTI’s foreign minister Shah Mehmood Qureshi, and literally threatened him. These blokes usually spent the evenings badmouthing each other on prime time TV, as was the culture at that time especially, but so much as a hint of taxing their billions and trillions – in keeping with the law of the land – was enough to get them to band together and give the FBR chairman the “or else” threat. It was also enough to get Imran Khan to back down from trying to raise revenue by taxing agriculture.
Surely the new finmin would have factored all this into his somewhat radical approach. He’s already sacrificed his Dutch citizenship and a fat salaried job, not to mention the sure prospect of retiring with all the perks and privileges that are found at the top of the finance industry food chain, just to “save Pakistan”.
Yet handling the political fallout of angering entrenched, extremely powerful and dangerous lobbies in the armpit of the third world, especially reaching for their pockets, is not something they teach you at Wharton. So a lot remains to be seen.
There’s no doubt, though, that taxing the sectors that Aurangzeb mentioned is the only way to keep the country from defaulting eventually. For, even if he gets the EFF he’s eying after the SBA, agrees to all the upfront conditions and raises taxes to meet revenue demand, the small taxpaying segment from the middle and lower income groups will break, triggering anarchy.
It’s only by squeezing the privileged big fish, who are required to pay taxes but always blackmail the government out of it, that the country can even hope to survive. Finance Minister Aurangzeb’s training and experience in the cold logic of the markets has made him say the right things and make the right plans, but whether or not he’ll be able to put his muscle where his mouth is, rather if those that gave him the job will allow him to upset their core constituencies and coalition partners by taxing him, is a different matter altogether.
Time will tell if it’s a “large and long” IMF programme that we’re getting, or just another large and long dose of fiscal pain for the country’s working class majority.
Copyright Business Recorder, 2024