Budgeting Pakistan, Mission Impossible
Finance Minister Shaukat Aziz proposed the Federal Budget for the year 2000-2001 on TV and radio on Saturday June 17, 2000. As any former Finance Minister of Pakistan will tell you, Tom Cruise has it much easier in the two “Mission Impossible” movies he has starred in, moreover Tom Cruise has distractions of the third kind. PML(N) Senator Sartaj Aziz had a perennial smile when presenting the Federal Budget, the smile of a magician about to pull a rabbit out of a hat. In keeping with the present environment, Shaukat was far more grim, and looking uncomfortable in the trademark Pakistani bureaucrat white shalwar-kameez with black waistcoat outfit. Nevertheless the military regime’s civilian Finance Minister was optimistic in outlining his plans despite the fact that with the institutions of governance in the state of disrepair they are in, it is virtually a “mission impossible”. Shaukat in fact pulled a number of rabbits out of his hat, only time will tell whether the hat was deep enough to hold the rabbits and whether the rabbits were real and not illusions.
Doing away with the wealth tax is certainly brilliant. Not only does it circumscribe the widely misused discretionary powers of the taxmen, it is an open invitation to invest again in real estate and other visible assets. The resultant cash flow turnover will not only reinvigorate the economy but the local taxes collected will provide an urgently required cash feedstock for local development which has been stagnating. Similarly giving relief to the salaried class, the 1.8 million Atlas-es bearing the burden of 130-140 million Pakistanis, give or take 10 million, is welcome as is the Rs.21 billion or so injection into poverty alleviation for the really poor. While the Rs.2000 per family for 1.2 million families paid in lump-sum is a welcome gesture, such direct aid is not only susceptible to corruption it would be more suitable putting the money to use for constructing medical and educational facilities as well as enhancing means for transport. With diesel fuel raised a few hours before the Budget, the common man will feel the pinch in his personal finances as consumer prices rise across the board. There are 40 million people below the poverty line, even if one takes 5-6 people in an average per family that would come to 7.8 million families. How will Shaukat select the 1.2 million i.e. one out of the six really deserving? All the Chachas and Mamas will get into that line as is the norm for Zakat distribution. On the other hand, it would cost Rs.12,000 approximately to take 600,000 students of poor families through an intense low cost advanced computer training course, setting them on course for software development careers which would (initially) pay a minimum of US$ 30-40000 as salaries in developed countries. If the yellow cab scheme and the Zakat scams have taught us one thing, it is never to extend direct largesse to anyone.
On the face of it Defence outlays remain at Rs.133 billion, fully Rs.10 billion short of what it was in 1998-99. However by taking out Rs.26.10 billion in pensions out of the military’s financials and into civilian administration where it belongs, the actual figure comes to Rs.106.90 billion. Catering for 4% inflation, the figure comes to Rs.111.05 billion, thereby an actual increase of Rs.21.95 billion which, in the circumstances of India’s increase of defence spending by Rs.148 billion, is a very meagre increase. Modernisation is needed across the board, for the PAF it has become a matter of being operational or not, a 16.5% increase will hardly create any dent. What is more debilitating is the increasing inter-action of the military personnel in civilian administration, that will certainly take its toll in the years to come.
A few weeks ago a person in Dubai was introduced as someone who did business of about a million TV sets or so out of Dubai. Since Dubai cares two hoots where the goods come from and where they go as long as they get the 3% in and out taxes, this “legitimate” businessman smilingly derided me about my logic that duties on electronics would be reduced by the military regime in order to not only (1) curb smuggling but (2) to increase the volume of duties paid into the Government’s coffers. He confidently predicted that he would sell 1.5 million units because “the duty will go up” according to his sources in the CBR. He was right, I was wrong, he knew people in the wood works, I didn’t. Quite simply stated, the higher the duty the greater the take in smuggling. Despite Moin Haider, the “Baras” will keep flourishing whereas Shaukat should have overruled his advisors and reduced duties on TV sets to 10%. For protection to local industry, the components should be allowed duty free and incentives should be given for local manufacture by eliminating corporate and other direct/indirect taxes. One needs to generate employment in consumer manufacturing and not in the smuggling field.
The tax relief for the salaried class across the board and weighted downwards on a sliding scale to favour the more needier is very welcome, it recognizes the fact of their Atlas-like commitment while easing the tax burden on them. We believe much more should have been allocated to Information Technology achieve a quantum leap. But it is satisfying that relief and incentives have been earmarked to kick-start the process in the cyber field. While tax on agriculture income is the domain of Provinces and had been initiated earlier, no serious effort had been made to implement the imposition. Too much discretionary power had been given to the taxmen, not this time. There is a defined tax for canal-fed or rain-fed acreage and that is as it should be even though one can make out a case for those at the very end of the water chain i.e. the tailenders. While taxing the farmers on their acreage was always on the cards, a note of acute disappointment must be expressed at the lack of incentives and reliefs to our agriculture sector that is solely responsible for pulling up the growth rate. There was talk of “corporate farming” earlier by Shaukat Aziz, there is no mention of it in the Budget.
In setting out an ambition for 24% increase in revenues in a country where the targets are regularly under-achieved is taking too much of a “calculated risk”. However this is not within the realm of fantasy, what one needs is an Albert Speer-like person to run the CBR, focussing his attention on a singular purpose, increasing the revenues without upsetting the apple cart. Moreover while making of a level-playing ground for investors, one must ensure a fair deal for those who invested within the country rather than outside, While incentives must be given to foreign investors, an uneven favouring, like the removal of sales tax on foreign investors in the cement industry, will create an unfavourable balance in the market with cement bags being marketed at far lesser prices by the foreign investor. That is not only unfair, it would even mean closure of local factories, certainly not what Shaukat would want. The making of two Zones to sort out problems of cement industry is welcome but the major irritant is one of standardisation and that is the domain of CBR. As one knows in the past admonitions and inducements usually produced “favourable” SROs.
The housewives are not happy, they fear a rise in utility rates around the corner. The traders chief Umar Sailya is not happy with the GST adjustments and he is going ahead with his 40 days strike call. The political parties are not happy because they cannot be happy with anything done by the military regime except if and when it is done against their opponents. Shaukat may not be in the business of spreading instant happiness, he is in the business of making the foundation for long-term, happiness for the people. Unfortunately public perception gives a short shrift to anyone promising a long, hard road without adequate safeguards, Shaukat has tried to cater for this by holding out the carrot of various reliefs and incentives. Regretfully the Budget is long on hope and short on pragmatism. Budgeting Pakistan is not an impossibility, given initiatives with motivation it can be done. The jury is going to be out on Shaukat for a few weeks, we will then find out (which) chickens come home to roost.
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