Shaukat Proposes. Who Disposes?
Some people have their destinies written in the wind, ephemeral in character this disappears like chaff in the face of any crisis. And in any case the wind cannot read. This may or may not be so for Shaukat Aziz, Finance Minister-in-waiting for almost every government in the last decade. With full-time cover of a military regime Shaukat finally got his chance to define how he would govern the economic health of the nation and look after the well-being of every individual citizen, if not till Kingdom Come, maybe for the next three years, or at least for the next year. As “Mission Impossible(s)” go, Tom Cruise had it much easier, and then he had distractions of the other kind, the kind that is anathema to the Ulema who hold Pakistan hostage intermittently. Abandoning the “best dressed list” for the standard bureaucratic white shalwar-kameez, black waist coat outfit was out of character but symbolic. Whatever magnificent plans Shaukat may have had for Pakistan when in faraway land, like the Romans do when on Pakistani soil you do exactly as the bureaucrats want you to do. And when you have the fudgers-in-chief of the last 4 regimes surrounding you, one hardly has any choice.
The abolition of the wealth tax was absolutely brilliant, however this was “a Pindi-dictated” initiative not a Shaukat Aziz one. Wealth tax has been the subject of misuse of discretionary powers by the CBR personnel and the abolition of it must have left CBR shell-shocked (maybe of the self-propelled kind). He came up roses in consolidating of Provincial taxes from 30 to 9. If you own a business you would know how different Departments can drive you crazy taking full advantage of levying some unknown tax, harassing and intimidating you with penalties, incarceration, etc till you cough up. However CBR had the last laugh, importers will now be held to blackmail for “under-invoicing” at the discretion of the Principal Appraiser (PA), the threat of confiscation by Customs Collectors (who will never dare disagree with the PA’s observations) will be very real.
Shaukat optimistically expects to collect direct taxes of Rs 435.7 billion, in 1999-2000 this was revised downwards to Rs 351.6 billion. And indirect taxes are also projected to go up to Rs. 298.2 billion, GST revising 44% to Rs 172.60 billion from Rs 120 billion. The figures are way beyond the realize of present experience, skeptics predict that not one but many mini-budgets cloud Pakistan’s immediate future.
The touchstone of any budget lies not in juggling with figures but in asking what is in it for the common man, given that the wealthy are content with the abolishing of their wealth tax? Why did Shaukat repeat the cliche “the rich have become richer and the poor poorer” when the budget proceeded to do the same, rhetoric notwithstanding. Statistics show 10% more people live below the poverty line than at the beginning of the last decade, presently fully 32% of the population is desperately poor. The government has translated some of the rhetoric about poverty alleviation into substance by allocating approximately Rs 21 billion. However one does not agree with the proposed utilisation, its focus should be employment generation at the lower end of the spectrum, particularly in Services rather than handing out largesse. The relief of Rs 2,000 as a lump sum allowance for poor employees is a mistake. People who get used to handouts never become productive, focus should have again been on employment generation and/or the means to earn more. The establishment of a micro-credit bank is an excellent initiative, let’s wait and see how much credit will actively go to the genuinely poor. A mandatory allocation of 20% of the loans disbursed by every commercial bank in the country to be earmarked for to the poor, duly verified by creditable private sector agencies that the “poor” are really poor, would be more practical.
Some people may call it a sleight of hand, some call the shifting of Rs 26.1 billion meant for “military pensions” to the account of “civilian administrative expenditures” realistic apportioning. It may push the cost of running the civil service up by a drastic 66% in the projected Rs 80.2 billion, at least 17% more is available for Defence expenditures than in 1999-2000. India has increased its military spending by Rs 148 billion, much in excess of what is proposed for Pakistan’s total defence budget. Faced with this increase it requires courage not to enter into an arms race but one cannot afford to be foolhardy, forget the glory of “the Charge of the Light Brigade”. An increase of actual defence spending by about Rs 22 billion is the very minimum one can take a calculated risk with. How much longer weapon modernisation through the whole spectrum, small arms to heavy artillery, can be held off is a gamble that our military planners seem to be prepared to take in the face of Indian belligerency. Equating the threat perception with the state of our economy is singularly bold, they have obviously decided that the economy is the greater threat. It is also a major departure from the military mindset, a clear signal to the IMF and the World Bank that even a military government faced with very visible external dangers considers an economic threat to be more real.
The reduction of duties on newsprint from 10% to 5% helps the cause of education in the production of cheaper books. The reduction of income taxes vide a slab basis on the salaried class is also very welcome, this class desperately needs relief. The allocation for information development as requested by Dr Ataur Rahman is not enough, we must invest more for the future. Allowing 70% of refund on duty drawbacks within 24 hours is also very commendable. However the increase of diesel prices a few hours before the Budget smacks of another sleight of hand, in the face of such ambiguity are the housewives wrong in worrying that other utility rates will also rise? The diesel price-hike will result in higher consumer prices, at the very least the transportation used by the poor will be dearer.
The reducing of customs duties and sales taxes across the board to 30% is supposed to help invigorate industry, unfortunately it is not low enough as yet by about 10-15%. Too many times we have erred in giving protection to local industry by increasing the duty on imported items, resulting in indifferent quality goods at high cost. Let us be very clear that rampant smuggling has sounded the death knell for local manufacture, not high taxes. High taxes has been the reason for unabated smuggling, a base-line philosophy established by successive CBR gurus with personal motivation over the years. Come to Dubai and find out who are the richest Pakistanis? Bring down the duties on most imported items, down to 15-20%, (approximately the cost of smuggling any item), this would force local manufacturers to compete both in price and quality. By keeping duties/sales taxes on raw material and components at zero and eliminating other taxes, foreign manufacturers will have tremendous incentive to produce things locally, thereby increasing employment. What’s happening in Dubai is no miracle, the city-State has been built on the follies of an errant bureaucracy conspiring to filling their own pockets at the cost of the government’s coffers. The provision of having a Tax Ombudsman is excellent, this necessary initiative should go a long way in curbing the atrocities of the taxmen. The import of furnace oil to the private sector is a good decision, it will give the IPPs some heart, bringing down the price of electricity-production and easing the tariff heart-burning.
As someone who pushed the consumer sector in his “private banking” days, the Finance Minister was expected to give a solid hand to the Services sector, the lack of such support was rather disappointing. Jobs are very necessary and can be created in the Services Sector without foreign investment (or borrowing). As regards tax revenues, in the face of dire prediction of possible economic apocalypse, only an outstanding Albert Speer-like person should be the chief tax collector. Shaukat’s proposals are founded on one premise and one premise alone, drastic increase of revenues. It is not a matter of discretion anymore, Pakistan’s economic survival depends upon having a revenue-Czar who will deliver. The road to economic apocalypse is becoming increasingly familiar if not any less uncomfortable. Sane counsel is advising that even though the budget is very far from earth-shaking, reason and sanity requires giving the budget a chance to prove that it is worth the paper it is typed upon. Or throw it into the wind which cannot read, what does frustrated aspirations matter to the people of Pakistan anyway? We are familiar with that particular road.
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