Federal Budget circa 1990 – II
The coming Federal Budget promises to be a milestone, a truly once-in-a-decade turn in the financial road should be more than expected, the PM has been dropping enough warnings of impending tough measures. With a populist Government dedicated to the task of finding solutions for the common man, yet hobbled with an economy in utter shambles because of muddled half-baked policies towards the fag end of the last regime, the Federal Budget promises to be a fine balancing act between the need to re-invigorate the economy by giving intending (and present) entrepreneurs due incentive and the contradictory need for imposing more taxes as a form of additional revenue to run the business of Government. What is more possible is that the Government goes in for a one-time massive devaluation, telescoping the creeping method projected for the next year, thus building up badly-needed government revenues. This is in all senses of the word a risky enterprise, with the increase in cost of import, inflation is a sure bet. Big business has not taken to its heels at the advent of PPP, on the contrary amazing accommodation has been shown, barring few aberrations, on both the sides to come to a mutual working arrangement, this is a significant milestone for democracy, business feeling safer historically with the stability of Martial Law Governments. One wishes that the same pragmatism would be seen in the relationship between the Centre and the Province of Punjab so that Pakistan should shrug itself off from the present state of limbo and get on with the task of economic emancipation. The churlishness has gone far enough, the governments at the Federal level and the Provinces are not petulant Under-19 teams.
The proposals made by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) make very interesting reading, they have been well-thought out and generally are pragmatic in nature. Within the Preamble, it clearly states the enormous problem inherited by the PPP Government, the budgetary gap having risen to Rs 66.13 billion and the deficit financing for the current year being estimated at Rs 17 billion. The last two budgets suffered from severe opposition by the business community for different reasons and ultimately were deemed to be unrealistic. Resource mobilization efforts by all the previous Governments have been directed by taxing organized business and the industrial sector, with no attempt being made to broaden the tax-base i.e. tax agriculture income. Even the current expenditures, inspite of the restoring of much-needed financial discipline and wholesale abrogation of some programmes, will exceed the budgetary projections.
The goals of the Government and the business community are similar, increased production, this would not only contain the twin menace of inflation and unemployment but increased local production would act as a spur for foreign investment, provided the PM surrounds herself with able civil servants and technocrat aides whose job ambitions should not be personal gain or self-aggrandizement but (1) the rapid industrial development of the country and (2) enhancing the prestige and credibility of the PM. She has some real phonies around her blessed with suavity and a gift of the gab but who merit discovery and eviction from her inner circle both for her sake and the country’s. Nobody should doubt for a second that she is her own mistress, the essence of good leadership lies in selecting men of the honesty and stature of Maj Gen (Retd) Nasirullah Khan Babar and Saleem Abbas Jilani as she has already done, but the same standards must be maintained down the line. The demands for time-management can also become the tools of corruption, particularly if people with proven credentials in this regard are given such authority. A devious bureaucrat can invent a 100 good reasons every day to sideline major issues, entrepreneurs seeking quick decisions are always good for seed money. Sooner or later these people always stand exposed for what they are but in the meantime they can cause a lot of damage as they represent the PM’s image to the public.
Resource generation in this respect becomes an important factor given the dual problems of (1) low rate of savings in Pakistan as compared to other countries in the region and (2) black money lying idle. A couple of years ago or so we did make an attempt at turning black money into white and thus involving it in the country’s economic growth but our track record regarding the sanctioning of permission for new investment banks to accelerate the rate of savings has been really bad with the result that spurious investment companies moved into the vacuum and took all and sundry for a merry ride. This has been a sorry episode in our financial history, repeated twice during the Martial Law period, most of the blame falling on an unmovable bureaucracy, the responsibility must be shouldered by those at the helm of affairs at that time. It would have been better to give the maximum number of permissions for investment banks in the private sector and regulate them accordingly, making it incumbent for cash insurance cover in case of bankruptcy (leaving it to insurance companies to determine their financial credibility justifying the granting of cover) and thus letting market forces determine the survivors. Too many times, we tend to treat such schemes as plums to be awarded to favourites, the nepotism ensuring that innovation and enterprise, the twin bolsters of any dynamic economy, are unfortunately missing. Some people tend to go berserk with greed, striking at the roots of the potential par excellence that we have in today’s democracy.
By far Mr Tariq Saeed has been the most dynamic among a long chain of excellent Presidents of the FPCCI. During the past year it was he who spearheaded the business community’s severe disenchantment with Dr Mahbubul Haq, particularly over the Income Tax issue, not only with the modalities but also with the unacceptable manner in which it was stated. Mr Tariq Saeed has also been active through the broad spectrum of the business community’s various concerns and his will be a very difficult act to follow. One always forgets that part of his success is due to excellent staff work by the FPCCI staff, headed by its amiable and effective Secretary General, Mr Aziz Y. Siddiqui, who has created a corporate excellence within the FPCCI in keeping with the highest standards of the Pakistan business community. He maintains an excellent rapport with the media and has provided the Pakistan business Community with well-prepared papers for evaluation on many subjects. One wishes that FPCCI would create a Special Award for Merit and give it to Mr Aziz Y. Siddiqui as a recognition of his contribution to the affairs of FPCCI in particular and the business community in general.
The FPCCI has suggested to the Federal Government in its deliberations to take into account certain proposals, the foremost among them being about Income Tax. The withdrawal of the Self-Assessment Scheme with its inherent immunity which had been in vogue since 1979 has been viewed with concern, resulting in agitation by the business community which almost paralyzed the then Government in June 1988. One of the first acts of the representative Government has been to give some relief to a large number of assessees by restricting the panel system to registered firms but in the view of the FPCCI it did not go far enough, should have reverted to the old status quo. The deduction at source has been deemed to be too high, resulting in blockage of funds as the Government is generally reluctant to return money already paid in, similarly FPCCI has proposed a uniform, fixed Exemption limit of Rs 40,000 instead of the present slabs of different categories which leaves room for corrupt exploitation. One of the major reasons for destroying further investment has been the inculcation of the average rate system instead of the direct deduction of investment rebate, FPCCI has asked for restoration of this facility. An innovative scheme has been suggested for Income Tax Refunds which has become a bone of contention and corruption. It has been suggested to put the Commissioner of Income Tax Appeals under the administrative control of the Ministry of Justice so that he is not susceptible to collection target figures instituted by the Income Tax Department, at the behest of the Ministry of Finance. Further a time limit should be stipulated for finalisation of appeals as well as streamlining the procedure for Second Appeals by Income Tax Department who tend to appeal each and every award resulting in delays for several years.
It has been suggested that the Bedwear Industry be treated at par with the Garment Industry in the grant of tax holiday as both are similar in nature. Expenses made for medical, legal and similar fees should be made chargeable on proper receipts on payments, this would also help maintain a check on the income of such Professionals.
As an incentive for industrial development, income tax exemption was given to industrial undertakings in under-industrialized and agriculture areas but with the stipulation of having registered offices. Because of the lack of Corporate structures in underdeveloped areas these new industrial undertakings are mostly Sole Proprietorships and Partnerships, the suggestion is to include these ownerships in the exemptions as well as include under-developed areas of Punjab and Sindh in the tax holiday status for 8 years while giving 100% exemption from customs duty.
FPCCI’s suggestions include raising the limit to Rs 175,000 for allowing tax depreciation of cars not on hire and reimbursement of leave passage at 10% of salary without the necessity of showing of proof. It is also contended that the additional tax at the rate of 24% is exorbitant and should be brought in line with bank lending rate i.e. 15%. The FPCCI has opposed the clubbing of agriculture income, which is contradictory in the face of the on-going hue and cry raised by the business community, indeed all tax-payers for the taxing of agriculture income.
It is believed that the Government has taken a decision not to impose tax on agriculture income. In the present circumstances with the National Assembly and the Senate full of agriculturist landowners, this bill would have required compromising the principle of politics, i.e. not standing on principles. Some day someone will have to bite the bullet. This is a populist Government without the money to effect the measures needed to translate the rhetoric about a better life for the masses into practice. Money can only come from additional taxation measures or from devaluation of the currency, in the circumstances the latter route is a safer bet, though in all fairness Advisors like Mr V A Jafarey might elect for a combination of both. This would affect the few already bearing the tax burden in theory but in actual practice will have a snowball effect on inflation as the knowledgeable rich pass on the burden manifold to the poor (in some cases even with profit). A fairer method is to broaden the tax net to draw more people to share the tax burden. It is a Catch-22 situation, our law makers mostly are not tax payers, how can one expect a realistic apportioning of the tax burden from them? We do not look forward to June, the last decade has left us in a debt morass which is hard to overcome, we can only hope that the streets will be stoic about any taxes proposed. Ms Benazir’s fledgling government has been given Hobson’s choice, damned if they will, damned if they don’t.
It will require great skill combined with political acumen, with plenty of charisma for Ms Benazir to get past the Federal Budget — not to speak of a great deal of luck. Well, dame Fortune has been smiling on her lately, maybe her luck will hold out and maybe it won’t!
All Pakistanis, whatever his/her creed, belief or conviction, will certainly hope, for the sake of the nation, that she will succeed.
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