Federal Budget circa 1990 – III
The coming Federal Budget exposed Pakistan and the Federal Government to the financial ills inherited from the past, not the least of them being a foreign debt burden of US$ 19 billion with almost US$ 6 billion lying unutilized due to inefficient bureaucratic practices. Already plans for a LONG MARCH on Islamabad post-budget are afoot, it being taken for granted that there will be reason enough to make an attempt to bring the streets into the front-line of the Dump-Benazir campaign (or as it is probably known, Anybody But Benazir (ABB). One does not have to be a soothsayer to predict tragic consequences for the country, encouraging the neutrals, or the Great Silent Majority if you please, to take a “plague on both your houses” attitude. The Federal Government needs to elicit support from all sections of the people to find answers to the problems troubling the economy. It behoves the opposition to respond in kind for the sake of the nation. Let’s not play games with economy, in the end the masses that have voted the governments into power need the elected to tend to the more serious matter of ameliorating their atrocious living standards.
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) have come out with an authentic document of realistic proposals, however they should have paid more emphasis on the parameters that will govern the resurgence of the economy rather than going into details. In the case of resource mobilization, the Government has been encouraged by the FPCCI to disinvest those units where the holding is more than 50%, targeting an expected revenue of approximately Rs 25,000 million. At the same time there is proposed a fixed tax on professionals, shopkeepers, landowners, etc as well as treating Foundation and Trusts engaged in commercial activity at par with other tax-payers. As an incentive to encouraging investment, a “no-questions asked” policy has been recommended for entrepreneurs seeking to put their money in industry undertakings.
Though the FPCCI has recommended abolishing of the Wealth Tax on the plea that Zakat and Ushr is already paid and it has yielded only Rs 200 million under this head last year, one could make it more innovative for collecting additional revenue. Instead of raising Basic Exemption limit to Rs 2 million from the Rs 1 million fixed a long time ago, the Basic Exemption should be the Residence one personally occupies. Thereafter all else cumulatively must contribute 1% of the market value as Wealth Tax. If you take Defence Housing Authority as an example where there are 8,000 residences, at least 7,000 on rent/lease, each residence worth at least Rs 2 million if not more, 1% of Rs 14,000 million comes to Rs 140 million obtained as revenue from real estate from one portion of Karachi alone. The amounts that can be gathered from taxes imposed on real estate alone, whether urban property or agriculture lands is staggering, one could do away with the necessity of all other forms of taxes. Our premise is that anybody who owns a property of Rs 2 million and is renting it out is probably getting an average of Rs 6,000 to Rs 9,000 in rent depending upon the area, which comes to between Rs 70,000 to Rs 108,000 in rent. Such persons can afford to give a flat Rs 20,000 in exclusion of all other taxes. Fixation of market prices can be susceptible to corruption and must be entrusted to panels of incorruptible elected officials.
The FPCCI has proposed that the Government repeal Section 31-A, a new section that drastically amends the Customs Act 1969 by the Finance Ordinance 1988 meant to nullify judgements of the Supreme Court of Pakistan and the High Courts of Sindh and Lahore making the date of contract as a reference mark for imposing duties in exclusion of subsequent increase. At the same time expeditious disposal of cases, some of them pending for 8-10 years is required, maybe by creating a separate cadre of judicial offices for customs. The Import Trade Price (ITP) fixation by way of Section 25-B in the Customs Act is liable to, because of imperfections in the system, cut down trade with developing countries as well, though with the association of private sector reps it has shown some improvement. A well-defined duty drawback system with a time limit of 60 days for finalizing rates is necessary in the coming budget.
Certain significant reduction and structural adjustment have been proposed in the import duty structure e.g. refractories required for rebuilding glass furnaces, pesticides, dyestuffs, spares of agriculture tractors and automotive vehicles, optical industrial raw materials, hearing-aids, glue, gum, resins, adhesives, tyres, plastics and raw material for paper. Similarly reductions are proposed on export duties in order to give a fillip to some exports in the world market, e.g. molasses and cotton seed oil-cakes. Customs duty on weight bases much be charge for tallow, betel leaves and zip fasteners. Public transport including auto-rickshaws should be totally exempt from custom duty and sales tax. Protection should be given to the hardboard industry by the raising of custom duty on import to 80%.
As regards sales taxes, it should be completely lifted on scooters and rickshaws while being charged on two wheelers on the import of CKD kit only. For motorcycles recommendation is that it be withdrawn for a period of three years. The consumers have been hard hit by the rise of production costs of soap industry by sales taxes on inedible tallow, sales tax exemption must be restored while bringing palm stearin at par with it for customs duty and sales tax. Single biscuit manufacturers should be exempted from sales tax as these are food for the poor. All the paper manufacturers are operating in losses for the last six years, FPCCI has recommended that import of pulp be free of duty and grammage range of exemption of sales tax be raised from 40 to 70 gr/sq m.
The imposition of a flat Rs 3,000 per ton customs duty on newsprint whose import has been allowed without quota is to be deeply regretted. The quota lifting restriction was overdue but the Government’s open policy has not been well-served by the Ministry of Information by this ill-advised levy. A correct method would have been to gauge the circulation based on periodical APNS and/or CPNE figures and issue import licences accordingly on a quarterly basis. In this way the onus of distributing quotas would be upon the elected representatives of the newspaper industry. In case it was judged by APNS and/or CPNE that smaller newspapers and periodicals would not be able to finance imports easily, their consolidated quota could be handed over for import by the Trading Corporation of Pakistan (TCP) on a quarterly basis and distributed on a monthly schedule as per the user’s requirement. In the long run, the government stands also to lose in import duties, as paper merchants will shift from the import of paper where duties, sales taxes may be higher to newsprint imports at a flat rate, maybe importing more than is required. The Government had an excellent rapport with newspapers and magazines which has been blown away. As time runs down to the crucial Federal Budget session, the politically neophyte step of alienating the sensitive print media at this juncture should have been avoided. The “protection” being given to newsprint to develop by levying customs duties would be funny if it did not hurt that much. Ms Benazir must not listen to theoretical policy-makers who have no political expertise or background and must go with her own instincts and experience.
An excellent recommendation has been to charge excise duties on capacity basis rather than on supervised clearance which tends to foster corruption and loss of revenue to the government. Nitro-cellulose paint has been proposed by the FPCCI to be exempt from excise duty.
The FPCCI has not given due thought to its recommendation for jute goods and import of raw jute. The jute goods industry is virtually a scam being subsidised by the government. The first step in the golden fleece of the government exchequer is the imposition of luxury duties on imported jute goods. By doing this, the marker price of a jute bag is kept high allowing jute manufacturers to inflate the price of their jute bag to close to the landed price of an imported jute bag. This allows them an exorbitant profit, at least 6-8 times that in India or Bangladesh. Since almost 90% of the jute goods is bought by the government, the government pays an enormous subsidy to the jute manufacturers, almost Rs 1500 million, for a total saving of only US$ 25 million in foreign exchange if the government had imported the bags (import duty + sales tax charged going from one head of revenue to another). The government cannot afford to pay this huge subsidy to 14 jute manufacturers, this industry needs to be investigated by a tribunal headed by a judge of the Supreme Court. The Government must calculate the price of a jute bag based on prices in India and Bangladesh. Import of raw jute into Pakistan is without duty, the cost of freight and of production have miniscule increases over that of India or Bangladesh. Keeping a fair return to the jute manufacturers, the prices must be set by the Government. Repeatedly the RECP has exposed the greed of the jute industry. The price of jute bags being offered to the Director General of Supplies by the local manufactures is at least Rs 3-4 bag more than that offered to RECP during the same period, given that RECP have the advantage of re-export and can purchase these from abroad. Rs 3-4/bag translates to Rs 900-1200 per bale. In case of std B Twills and Rs 1500 per bale in case of Hessian bags. Considering that various government departments purchase over 300,000-400,000 bales yearly, the cost difference is too enormous to be ignored.
In sum and in general the FPCCI has made sound proposals. The Federal Government cannot accept each and every suggestion as it has to have a general overview of the situation but it is hoped that the PPP Government will accept some of the very pragmatic ones made by the FPCCI, even though there is some loss in projected revenue. Despite her pre-occupations, the PM has to give her full concentration on the devising of the Budget Plan, as no less than her political life is at stake. Given that her charisma and international credibility abroad is the best enjoyed by any previous leader of Pakistan, given that she has a hard core of her party workers giving her a sound base of domestic popularity, given that she has education and intelligence much beyond what can be expected normally in a country’s head of Government, she has to remember that people cannot eat these attributes, they cannot live on rhetoric and good cheer alone. A tough Federal Budget without extraordinary innovation will result in a rapid erosion of goodwill among the masses, cases in point are Venezuela and Jordan where riots were a direct result of IMF intervention to lessen subsidies on various services and commodities. The ultimate test of the June Budget will be in the streets of Pakistan and that is not a prediction but a simple statement of fact. The PM has the capacity to reach beyond her circle for competent advice, i.e. if some of the exceedingly theoretical phonies used to living off graft and corruption allow her free rein to choose her priorities correctly according to her natural instincts.
For her sake and for the sake of the country, one wishes that she lives upto the expectations of the masses.
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