Mr. Miftah Ismail found himself amid of furor in the Parliament during the Budget speech who hour before this speech was taking the oath as Finance Minister of Pakistan. There were some opposition members who had more issue with Finance Minister’s being non-electable than the public interests in the budget. Similarly, there are other opposition members who found it illegal that the current Government is presenting her 6th Budget in the Parliament and they in the mid of this rumpus completely forgot that they are mere servants who are answerable to the masses who elected them to safeguard their interests.
Some experts think this is just the sugar coated-poisonous candy for the masses while for others it is just a cover-up for the ruling party to face the people. On the other hand, stock brokers and businessman are in the phase of jubilation while common people feel retarded as what is wrong with them as this budget is rigorously prepared and presented only to them?
First of all, let’s see the juggling of numbers before analyzing the after-shocks of this silent tremor. The 2018-19 Budget worth approximately Rs5.247 trillion. As far as the good news of the Budget is concerned, it only belongs to Government Serving and Non-serving personnel, Forces behind Industries, Agriculture, Stock Exchange and some importers. The government open-heartedly showered all the benefits including tax relieves, increased salaries and pension, tax-exemptions, less or no tariff for the above-mentioned stakeholders. These are the only bright sides of the said budget.
This year the budget is almost 10% bigger in size than the previous year. As we all must know that the Government’s Budget is all about managing her annual expenditures via identifying and taping the potential sources of revenues for the said year. It has always been believed and proven from around the world that the main head of the Government’s expenditure is that of the infrastructure development for the betterment of the common people. Internationally, every Government undertakes research-based studies as what is direly needed for the common people. This seems irrelevant for us Pakistanis as we are more consumed with our internal matters that we even have forgotten the just path of developing and implementing the annual government budget.
Now let’s examine the dark side or more appropriate the complex side of this year’s budget. First of all, let’s make it clear that the biggest head of expenditure of our government is not Public Infrastructure Development. It is Debt Servicing. This seems like a complex term for many of us. Let’s make it simple to understand. Every now and then every Government throughout the year takes loans both from International Sources (Like World Bank, International Monetary Funds, and Issuing Sukuk Bonds etc) and Local Sources (Like Commercial Banks and Government Bonds etc). These loans have their respective share of interest payments which need to be paid by the Government on regular basis. This year’s debt servicing amounts Rs1.620 trillion which is in fact 31% of the total value of the proposed budget. What does this mean? This signifies that this 31% amount of the budget is non-productive and Government needs to arrange different sources of revenue to pay back this whopping amount this year. This past couple of years shows that this debt servicing amount is increasing its share of our budget with every passing year. The cruel part is that the actual or the principal amount of loan is also sky-rocketing every year. For the common people’s understanding, our major revenue generating resources are being used to pay these interest amounts before doing anything good for them.
Now if we look this huge document of the budget, we see that 23% of the total budget has been allocated to Defense. This is in fact very important and vital for the country as we are in the mid of war against terrorism again with reference to various economic theories this allocation is again non-productive and would not benefit anything fruitful directly to the economy. In the nutshell, this year’s budget allocates 54% of its total revenue to Defense and Debt Servicing and this means that it is not beneficial for the common people.
The development budget along with other development expenditures which directly affect the life of the people amounts Rs980 billion or around 18.7% of the total budget. This means that common people must eye on this mere 18% or less than Rs1 trillion amounts as this is their area of interest. People do not have any hope for this allocation too as they are very well aware of the rosy picture of the governance in Pakistan. It is this amount on which common people are hopeless and conversely it is this same amount on which each provincial government fights for the lion shares. It is again the same amount on which each MNA changes his/her alliance for a bigger share in the political arena and it is the same amount on which each MPA is starving for more and abusing others. This is where the corruption begins.
It does not end here. Our beloved elected members in Islamabad had already allocated Rs463.4 billion or almost 8% of the total budget for running their rosy government affairs (so-called for making a better change in the life of the common people) in the civilian Government which again non-productive. This amount is again surging exponentially every year without being noticed and never discussed openly by any opposition party. The question remains that why the civilian government has a huge number of useless and obsolete brigade for running the lovely affairs of the government when they are not being able to produce a single document in the Supreme Court on time and when there are a large number of record being burnt both in capital city and economic hub Karachi? Remember? This amount again goes to the corrupt stomachs which never satiate.
Our newly appointed finance minister is dreaming about achieving 5.8% growth rate of GDP but remained silent and deaf as to how the extra expenditure worth of Rs1.9 trillion would be covered out of the total annual expenditure of Rs.5.247 trillion in his proposed budget. He must be looking for the loans from his favorite donors available both locally and internationally who are happily charging high-interest rates. This extra expenditure amounts to 4.9% of the total GDP of Pakistan. What does this mean? This shows that with every passing year, the economy of Pakistan is shrinking with respect to the local revenue sources. For easy understanding, our economy with the passage of time is getting more vulnerable than ever as it is now more dependent of foreign revenue resources like loans and aids and least dependent on the locally available resources of revenues like taxes, profit earning entities and locally manufactured and/or produced finished and/or semi-finished commodities and goods.
When it comes to the revenue generating sources our Pakistani Government entirely depends on limited sources. First of all, let’s discuss the non-taxable sources before drilling in-depth all the taxable venues. It is a very shameful condition that over the 70 years of independence not a single government came forward with her plan to create this area of revenue. There is no Debts receive from any International Financial Institutions, no external loans given by Pakistan and the Government is so much corrupt and non-functional that it is incurring heavy losses on regular basis on its Public-owned corporations. Central Bank has never been used to lend money to private sectors instead it always borrows money and gives high-interest expense. Privatization of the strategic assets and corporations and installation of incompetent and favorite persons at the top of the Public Corporations further negates any chances of income generation from these sources.
This leaves our beloved Government with only one option and that is Taxation. Theoretically, there are two types of taxations which are Direct Taxation and Indirect Taxation. The economics books say that Direct Taxation is healthy and beneficial for the economy and it includes Income Tax, Property Tax, Wealth Tax on Individual and Companies etc. This is that type of tax on which people have complete information. They know what the Government is taxing them and in return, they demand incentives and facilities from the Government. Conversely, according to the textbook, indirect taxation has always been discouraged as it has negative impacts on the consumer markets and the overall economic growth. The indirect taxation includes Sales Tax or Value Added Tax (VAT), Excise Duties, Tariff, and Duties on Imports. It is that type of taxation on which people don’t have any prior knowledge. These taxes are charged as part of the prices of the products and/ or services.
Taxation and especially Indirect Taxation has always been a preferable tool for all the government of Pakistan since it gives the political government face-saving in front of its voters and she is not being blamed by people for high prices on products and services in the consumer market. In our developing society, people are not aware of the indirect taxes and they merely blame the corporate sector or private sector for high prices of goods and services and in the end, our beloved Government gets away from the wrath of the people.
The Budget 2018-19 is all about indirect taxation by the Government on various sectors of the economy. According to the sources of the Federal Board of Revenue (FBR), the taxation relief on income tax, sales tax, and customs duties would cause a total Rs184.5 billion of less revenue collection for the Government in the financial year 18-19. In order to compensate these losses, the Government has proposed to increase the petroleum levy rates by three times which means that the total petroleum levy or tax per liter would now be Rs.30. This increased-tax would be applicable to all products including kerosene oil and liquefied petroleum gas. This means that in the coming weeks and months we would be bombarded with high petroleum prices. According to the sources, the Government would collect more than Rs.300 billion extra revenues from this single tax. This means that people are charged higher on one side of the sector and are given less tax relief on another side of the sector. Does this not affect the common people? Does this not create inflation? Does this not affect the consumer market and economic growth?
Similarly, the Government has proposed to enhance the sales tax rate to 3% which would generate extra revenue of Rs.12 billion but would increase the overall prices of the affected goods. Furthermore, the 3% increase in the General Sales Tax from 17% to 20% would definitely create lots of inflationary pressure on the consumer market and the ultimate losers would be the end consumers. The Budget has proposed a tax rate of Rs.0.25 to Rs.1.5 per kg on cement which would give extra Rs.11 billion but this measure would increase the cost of housing sector which is already sky high for the common person to own a house.
Amid of all these chaos, all the industrialists, agriculturists and stockbrokers are laughing out loud. There is much good news for them in the form of abolishment of 5% tax on bonus share, decrease in corporate tax by 1%, super tax rate declined by 1%, reduction in the taxes on undistributed profits on corporate sector, decrease in the income tax for mutual funds, and tax rates on fertilizers and agriculture machinery are diminished.
With all these so-called relief and pain of the new taxes, the Government anticipates that the FBR would be able to collect around Rs4.35 trillion of taxable revenue and Rs.772 billion of non-taxable revenues would be collected separately. Our newly appointed Finance Minister presented his first and this Government’s last Budget with a total worth of Rs. 5.247 trillion. The vital part about this budget is that the gap between Rs.5.247 trillion anticipated expenditures and Rs.4.35 trillion of expected tax revenue would be financed from taking the further new loans from both local and international lenders at high interest rates. What does this imply? This means that forget about how the taxed and lent money would be used in the coming financial year, the next year budget would get a higher percentage of Debt Servicing (Higher Interest Payments of the Loans taken from local and international lenders) comparing this year’s 31% of Debt Servicing.
It can be concluded that every Budget has been planned to pay back interest payments on the loans previously taken and these interest payments are being paid by taking new loans from the lenders. It is sometimes disappointing to observe that the all Government’s Finance Ministers juggle with country’s economic data to fool the masses. They play with difficult economic jargons to outshine their respective Government’s economic performances. In reality, the civil infrastructure of the country along with many strategic assets and corporations are deteriorating with the passage of times. Those facilities (Drinking Water, Power-Supply, Low Housing Prices, Health, Sewerage, Education, Low Prices etc) which were previously available 20-30 years ago are no longer available. People are now left without basic amenities and all the revenues collected every year have been utilized for Corruption and Debt Servicing.