Federal Finance Minister Muhammad Aurangzeb expressed hope that the government will receive a long-term loan from the IMF, which he believes will bring macroeconomic stability to the country.
He talked about reducing inflation and increasing the tax-to-GDP ratio. No one disagrees with increasing the share of taxes in national income, as there is room for this in the country’s economy, and Pakistan lags behind other countries in the region in terms of tax-to-GDP ratio. However, problems arise when tax imbalances grow to an unacceptable extent, and certain sectors feel that they are paying more than their fair share while others are paying less.
There is a question in the minds of the people as they ask from the economic experts: what is the reason that stock exchange is showing the bullish trend as it goes upwards but the economy of the country is going down and down.
It is a matter of pondering that the expenditure of a common man’s home, having just a short family of three members, has touched to six figure digits due to excessive utility bills. But on the other hand his salary is minimized due to the abundance of taxes imposed in the budget.
This has also happened in the recent budget, where some sectors already burdened by taxes have been further taxed as they are seen as easy targets for tax collection. For example, GST, from which hardly anything is exempt, requires no effort from the FBR to collect, or the salaried class, for whom tax deduction from salaries is not a difficult task for the government. On the other hand, sectors with significant financial volumes, where there is ample scope for tax collection, are considered too challenging and have been left untouched.
The finance minister announced bringing 42,000 retailers into the tax net, but given the retail market’s financial volume exceeding 150 billion dollars, with an annual growth of 8 to 10 percent, bringing 42,000 into the tax net is no great achievement. Similarly, the agricultural sector, where inputs are taxed but there is no system for taxing agricultural income, remains an issue.
Ignoring the negative effects of strategies that increase the share of taxes in the country’s total output by leaving major sectors untaxed or nominally taxed is unwise. While this approach does increase government revenues to some extent, it has severely strained the middle-income class.
Economic prudence demanded supporting the lower and middle classes to stimulate economic activity, as they have lost the purchasing power, which would have a negative impact on the business. But the government has instead imposed the heaviest burden on these very classes to increase tax collection and comply with IMF directives. Meanwhile, there are no significant cuts in government spending; in fact, contrary to claims of austerity, government expenditures have increased. New taxes on essential items like food, medicine and energy have significantly added to the financial burden of the common man.
By overburdening the tax system, the government has complied with IMF guidelines in the budget, but the demands of the international financial institution do not seem to end here. There is now a demand for immediate implementation of further increases in the prices of electricity, gas, and petroleum products, which will likely be complied with promptly. The IMF appears satisfied with the government’s performance in increasing the tax burden and ending all kinds of concessions for the public, but it has made the lives of the people miserable.