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Post Budget: the war of words

The Budget 2021-22 is the third issue of Imran Khan’s government. Federal Minister for Finance and Revenue Shaukat Tarin was expected to explicate new pro-growth directions of the government. It reflected with fiscal allocations that are in agreement with the International Monetary Fund (IMF) while encouraging the existing and new enterprises. Apparently, from the Budget speech it appears that Mr. Tarin has been successful. However, a critical evaluation is required to justify this. Though the PTI government has faced lots of economic challenges, multiplied by the Covid-19 but it has successfully progressed from recovery and stabilization to sustainable growth. The provisional GDP growth rate for FY 2021 is estimated to be 3.94 percent against the targeted growth of 2.1 percent.

The current account balance during July-April, FY 2020-21 had been in surplus of $0.8 billion (0.3 percent of GDP) against a deficit of $4.7 billion (-2.1 percent of GDP) in the corresponding year. This had been possible both by an increased export of 6.5 percent to $21.0 billion and remittances significantly growing by 29.0 percent to $24.2 billion. FBR tax collection grew by 14.4 percent to Rs 3,780 billion during July-April FY 2020-21 against Rs.3,303 billion last year and is expected to post a healthy Rs. 4,691 collection by the end of FY 2020-21. Government has posted a primary surplus for the first three quarters of FY 2020-21. This has enabled the government to resume the $6 billion Extended Fund Facility and completed the second to fifth review under the programme with IMF.

On the revenue front, targets are once again aspiring and rigorous which might lead to possible increase in already over burden debt. As opposed to introducing various new major taxes, the government is expected to achieve this by focusing on broadening the tax base through augmented documentations. The sales tax on locally manufactured cars has been reduced from 17 percent to 12.5 percent. It is expected that the prices of 850cc cars will go down as it has been exempted Federal Excise Duty (FED) on 850cc cars and would also slashed duty on electric cars. Though the government was introducing third-party audits which would thwart the Federal Board of Revenue (FBR) harassing any individual or business entity, however those who are found guilty of evading taxes or deliberately hiding their income will be fined severely.

Through the Finance Bill 2021, the threshold of monthly electricity bill has been reduced from Rs75,000 toRs25,000 for the purpose of levying withholding tax at the rate of 7.5 percent. However, this tax will not be applied on persons who filed their annual income tax returns and are on the ATL issued by the Federal Board of Revenue.

The specified goods when supplied within the limits of the Border Sustenance Markets, established in cooperation with Iran and Afghanistan, will be completely exempted from the sales tax. The rich will be asked to pay taxes in accordance with their wealth, so the salaries class will not be burdened with additional taxes. Custom duty from vaccine and medicines of livestock abolished to promote the livestock sector. Tax exemption on paper used for Quran publication, auto-disable syringe, and oxygen cylinders. The withholding taxes on mobile phones, will be reduced to 10 percent at first and then 8 percent later from 12.5 percent. Tax collections saw an 18 percent increase last year as the country crosses the limit of Rs4000 tax collection. 75 percent more tax refunds were made this year. The Federal Board of Revenue (FBR) has been tasked to collect an additional revenue of over Rs1 trillion in budget 2021-22 over the current fiscal year’s collection. This additional revenue will be achieved through the withdrawal of exemptions in sales tax, income tax, minimizing concessionary tax rates as well as through growth in economy and inflation.

Prime Minister Imran Khan, while chairing the federal cabinet meeting, said maximum relief would be given to people in the budget 2021-22. He said special emphasis would be made on development projects keeping in view the public needs. Sugar included in the third schedule of sales tax act, helping in the elimination of artificial hike in prices of the commodity.

Blowing the trumpet

The government provided relief to low-income people and underdeveloped regions for achieving inclusive economic development in Budget 2021-22. By inclusive development, the government is e committed to remove discrimination among all four provinces, including the marginalized districts of Khyber-Pakhtunkhwa (KPK) and Gilgit-Baltistan. The Provincial share in the federally collected taxes to stand at Rs. 3,411 billion. Provinces share in NFC increased, to receive extra Rs707 billion.

As per the statement of Federal Minister for Planning, Reforms and Special Initiative Mr. Asad Umar, the PTI government had also allocated Rs. 54 billion for marginalized districts of KPK in the budget as compared to Rs24 billion in previous budget. About the current economic growth figure, he said that for the last 11 months, June to May of current FY2020-221, the country’s export growth was observed at 14 percent, and remittances increased by 29.4 percent in the last 11 months. Mr. Asad Umar said that at the revenue side, Rs4164 billion target was achieved by 18 per cent growth in the last 11 months of current FY2021-22, which is expected to reach Rs4800 billion till July 30 of this FY. He further added that in the last 11 months of this FY, growth in Information Technology exports was observed at 46 percent and 12.8 percent growth observed in large scale manufacturing (LSM).

The expected criticism

However, the opposition criticizes the budget, severely. The Leader of the Opposition in the National Mr. Shehbaz Sharif demanded increase in salaries of government employees by 20% and fix minimum wages of workers at Rs25,000. Delivering inaugural speech of the debate on the federal budget after a three disorderly days. Mr. Shehbaz told the house that during the PTI government, joblessness had doubled and the income of the poor had halved, He said inflation and price-hike was written on each page of the budget bill. He stresses unity to steer the country out of crisis. He also asked the government to bring down electricity and gas tariffs to the rate of 2018 and reduce prices of fertilizers and pesticides by 50%. At outset of his speech, the opposition leader strongly objected to the passage of over 20 bills in haste in a single day on June 10. He said the legislative business was bulldozed in violation of Constitution and rules.

Mr. Shehbaz also asked the government to withdraw sales tax on crude oil, LNG and infants milk powder. The opposition leader managed to complete his speech on the budget for best part of over two hours in a peaceful atmosphere after the government and the opposition reached an understanding in this regard. Coming down hard on the PTI government policies, the opposition leader said in the last three years, another 20 million people had been pushed below the poverty line while the income of the poor had come down by 18% due to inflation and price-hike of essential commodities. He said the government was also deceiving people in the name of construction of five million houses. Posh residential schemes are also being counted, he added. Shehbaz said the unemployment rate had also reached 15%, coupled with price-hike. “Seeing performance of the present government, it goes without saying that old Pakistan was better than this new Pakistan. He pointed out that debt on every Pakistani had reached Rs175,000 while future generation was also being mortgaged. “Pakistani rupee had also devalued by 35% in the last three years and as such exports could also not increase,” he said. He regretted that the fiscal deficit also increased to Rs10,000 billion in just one year. He pointed out that the government also could not establish any new educational institution, industry or power houses except for unveiling plaques of old projects, initiated by the Nawaz Sharif government.Contrary to claims of the government, he said Rs383 billion new taxes would be imposed in the next fiscal year. The house should be taken into confidence over the IMF program as to whether the IMF had approved the budget.

The chair of the leader of the house, Shehbaz said, remains empty when there is discussion on budget, price hike, Kashmir and Palestine. He said that Imran Khan talks about governance and merit but he questioned as to how many IG Police and chief secretaries had changed in Punjab in the last less than three years. Mr. Shehbaz Sharif questioned as to why the country was facing severe electricity shortage when power generation was in surplus. “Had the PML-N not installed power generation plants, the electricity load-shedding at present should have been 16 and not six hours,” he said.

He recalled that the PML-N completed Neelum-Jhelum project and started Diamir-Basha Dam plan. He said officers would not be ready to perform and take initiative if the government would put everybody in jail. He pointed out that prices of pesticides had also increased while those of fertilizers enhanced by 50 to 100 per cent. Similarly, the electricity tariff has also increased to Rs13 per unit.

He also demanded restoration of local bodies in the light of the Supreme Court decision. He advised the Government that issues should be resolved through consultation and not by the use of stick.”The Accountant General of Pakistan’s objection to release of Rs140 billion to the Federal Board of Revenue has exposed the credibility of the official economic statistics,” said Shehbaz in a reference to a report which stated that the tax refund money was not excluded from the revenue by the FBR leading to the objection by the authority responsible for reporting federal government’s transactions.”The AGP is demanding that the government show as revenue loss the payments made as tax refunds,” he added.

On the other hand, the opposition parties’ leaders have rejected the federal budget 2021-22, saying that it added to price-hike and unemployment, while the government ministers say the opposition is commenting on the budget without reading it. The PPP Chairman Bilawal Bhutto Zardari condemned the budget proposed by the federal government, calling it an “economic attack on Pakistanis”. He said the PTI would not be permitted to “play with the nation’s future”. “The inflation ratio in the country is higher than Afghanistan, India and Bangladesh,” he remarked, adding, “Ministers are so embarrassed that they’ve hidden the figures for poverty and unemployment from the Economic Survey.”The PPP chairman said that while the government was busy presenting ‘false facts’ through the Economic Survey 2020-21 and claiming that the nation is flourishing, the government employees protested against inflation outside the Parliament.

The PMLN leader Ahsan Iqbal also said that there was no value of the figures given in the national budget presented by the PTI government since these were all ‘fabricated’. “Despite the fact that members of the opposition protested, but all our protests fell on deaf ears,” he deplored.

He questioned as to why was the government in a rush to get the bills passed? “Never ever in any democracy have the laws been passed in such a haste,” Ahsan remarked.

Opposition leader in the Senate Mr. Syed Yusuf Raza Gilani raised the question on the constitutional status of the budget, saying that the presentation of the budget is un-constitutional without the announcement of the National Finance Commission (NFC) Award.”The Federal Budget for the fiscal year 2021-2022 has no legal and constitutional status without the NFC,” he said.

Last word: impact on common man

The sustainable and inclusive growth would remain a distance dream in the absence of a paradigm shift in initiating structural reforms. The excessive reliance in the budget for 2021-22 on indirect taxation, including withholding tax as part of indirect taxes, will further widen the gap between the rich and poor. The revenue target of Rs5.8 trillion, which they opined has been set to appease the IMF, is unrealistically high despite the fact that the government has failed in achieving the tax collection target for this fiscal year.

The growth target of 4.8% set by the government in the budget is unlikely to be sustained in the longer run given the state of the fundamentals of the economy. The proposed growth target can be short-term but will pose a challenge to the government in the future as Sustainable Development Goals (SDGs), renewable energy, climate change and capacity-building of the public sector are not in focus. There would be further increase in food inflation which is likely to happen as the government has entertained industry bigwigs in the budget but ignored the common man. The budget does not offer much to the common man as debt servicing and defense expenditure consume most of the budget allocations, resulting in a mere 11% appropriation for development funds that too largely remain underutilized at the end of the year. There is a massive crowding out in the financial sector due to the government’s borrowings, starving the private sector of credit for investment in the country.

The author, Nazir Ahmed Shaikh, is a freelance columnist. He is an academician by profession and writes articles on diversified topics. Mr. Shaikh could be reached at [email protected]

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