National Budget 2015-16 considerations

Author: Mr. Kashif Mateen Ansari
Author: Mr. Kashif Mateen Ansari

Pakistan made 55th on the index of Economic Freedom but in the “Ease of doing business” it stand at 110th. This speaks volumes about our economic environment.

In order to increase the revenue; if the government would keep on squeezing the existing taxpayer than how we can expect any enhancement in the tax generation. The situation of exacting high rate of tax on the documented parts of economy and consistent lapse in bringing the other sections of society under the tax net has promoted the culture of tax evasion. There is nothing new about this problem.

This is the time for the economic managers of the government to sit down and come up with the national budget for the next fiscal year.  Needless to say that budget is one of the most important policy document of the government, which outlines its economic priority and the way forward.  Like any season this is the season for the budget proposals, budget seminars and the discussions around these.

However, like any other policy debate we have “done it all and said it all”.  If you look at the budget proposals given prior to the previous budget or the ones prior to that one we would find that enough proposals have already been floated.  But what is important to note is as to what has been the result. The way we see Pakistan today as a nation, we are facing variety of crises. These include law & order, power shortage, inadequate infrastructure, lack of preparedness for natural disasters, dearth of basic amenities of life and the poverty.  Although, poverty has come as the last one in this list but this might be one of the most alarming aspect of our economic reality.  By some estimates there are more than 60 million Pakistani who are living below the poverty line. And this would be worthwhile to mention here that the poverty line as defined and accepted by the Government of Pakistan is just a meager 2$ a day. A matter of grave concern for Pakistan and its economic managers is the yawing gap between the rich and the poor.  It would be important to look at the GINI index of Pakistan.  GINI co-efficient for Pakistan is 0.68, which reflects huge income disparity that exist between the rich and poor.  It would be worthwhile to note that over the period of last 10 years or so this disparity has widened as in 2002, the same co-efficient was reported to be 0.30.  Just to recap that this GINI index measures the extent of the disparity of income or consumption expenditure among individuals or household within an economy. So a GINI index of 0 would show an economy where there is no disparity and anything moving away from 0 towards 1 would show increasing income inequality.

Recently, I was part of a line of Speakers in a pre-budget seminar conducted by the Institute of Cost and Management Accountants of Pakistan. We found out that from the revenue perspective many budgetary proposals were on the table but again the same question arose whether the economic managers of Pakistan have ever tried to address the real issues.

While looking into the corporate issues the first and the foremost with respect to the revenue generation of the government is the trust deficit between the taxpayers and the taxman.  Our corporate sector is afflicted with the affects of energy crises, which has almost crippled it, and resultantly the cost of doing business has gone higher.  The corporate environment is far from being enabling, as all the documented businesses feel strangulated by the ever-increasing burden of the taxation on the current taxpayers. The enforcement of rights and contracts, investment insecurity and the corruption of the tax machinery along with other government departments have increased the difficulties of doing the business. The time and energy of the business that would have gone into formulating the strategies to face the global competition are going waste in the process of coping with these issues.

Analyzing any budget till today we can point out certain consistent problems that include ever-increasing budget deficit, lack of adequate revenue generation for the development expenditures and non-productive government spending.  Yes, the task of any one trying to balance our budget in the face of these constrains is herculean.  Pakistan made 55th on the index of Economic Freedom but in the “Ease of doing business” it stand at 110th. This speaks volumes about our economic environment.

 In order to increase the revenue; if the government would keep on squeezing the existing taxpayer than how we can expect any enhancement in the tax generation.  The situation of exacting high rate of tax on the documented parts of economy and consistent lapse in bringing the other sections of society under the tax net has promoted the culture of tax evasion. There is nothing new about this problem.  This is all known and yet we are too slow in implementing the policies that could correct this state of affairs.

The discussion about revenue, allocations and the budget cannot be completed unless we talk about the miseries and sufferings of the common man.  If we do not take into account the injustice that is being meted out through regressive taxation in the form of indirect taxation then we are surely missing the mark.

According to certain assessments this regressive taxation has further enhanced the imbalance by raising the burden on the poor by 38 percent where as during the same period i.e last two decades there has been a decrease of burden by 18 percent on the rich.  This is a clear indication of our collective sense of justice and equity.

Very often in such discussions we find FBR lamenting at the fact that most of the budgetary proposals they receive from the corporate sector or the professional institutions essentially deal with reducing the revenue. But we feel what is totally missed in this discussion is that the government and the taxman has to change their perspectives. The revenue is directly proportional to the economic activities in the country.  If there is economic growth and healthy economic activity the revenue would grow automatically.  We have to look at the measures that would increase the pie instead of trying to snatch the last loaf from the poor. Overall the tax rate on the individuals and the corporations has to be rationalized to reduce the undue burden.  Whereas such areas of economy, which have traditionally slipped out of the tax net because of their nature have to be brought in, to pay their share.  This includes the transportation sector where medium and heavy transporters have to be charged something by way of fixed annual tax.

The salaried class is the real underdog of this process.  They are the ones who bear the brunt of ever-increasing taxes as they find little avenue for tax evasion so become fully compliant and unfortunately highly burdened. For them the tax rate has to be reduced and the basic exemption limit has to be enhanced to 500,000 per annum.  The salaried class should also be allowed tax credit on such expenditure as education, health and utilities. The rebate to the teachers and the educational professionals should be enhanced and those service providers who export their services should be given tax exemption.  In the current era modern economies flourish more by providing services and exporting them.  We need to strengthen our professional service providers and enable them to compete in the global market place.

The talk about the taxing the rich landlords has almost attained the level of a cliché.  Anybody walking on the street if asked about tax reforms would surely talk about taxing the agriculture income and the feudals.  The problem lies in the willingness of the federal and provisional governments to lay their hands on the high and mighty.

We have talked about the regressive taxation and the injustices it has done with the poor but this discussion will be meaningless unless we do not say often-repeated recommendations that we need to reduce sales tax rate.   Higher sales tax rate and the mechanism of adjustment and refund has lent this regime to mega corruption at many places and a burden on the exporters and other corporations on the other hand. Reducing the rate of sales tax to a single digit and making it non-adjustable and non-refundable may help the situation.

On the allocation side we need to understand that the real test of any budget would be as to how it handles the chronic issues of poverty, inequality, economic growth and justice. Unless we accord higher priority to education, health, housing and transport to improve the equality and standards of the common man the abject misery and poverty of millions will not be addressed. The divide between the rich and the poor will keep on increasing. The society will collectively be responsible for the injustices and hence we won’t find peace and prosperity from with in.

About Kashif Mateen Ansari

A Harvard Alumni, who brings more than 20 years of diversified experience of leadership and management. Have hands on experience of strategic planning with excellent sense of translating strategic vision into workable action plans. Have demonstrated experience of managing 30 companies and businesses successfully. Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on Google+ (Opens in new window) Related

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