The new more taxes are not likely to address the larger flaws of Pakistan’s ailing economy
The inevitable happened yesterday as Finance Minister Ishaq Dar introduced further fiscal measures to generate 170 billion rupees on top of the remainder of the current budget before resuming bailout talks with the IMF.
The revenue generated after the bill is passed by Parliament will be used to rebalance this year’s budget by keeping the deficit at the target level and bringing us one step closer to the final deal with the IMF.
Given the limited time and resources, some say the government is doing well. Most of the money will come from an increase in the basic consumption tax rate from 17% to 17%. up to 18 percent and levying excise more taxes on the tobacco industry, airline tickets, and sugary drinks.
The remainder comes from other means, e.g.
The impliedly threatened coalition had no choice but to accelerate the “preemption” to meet the Fund’s demands and secure a bailout package that would also unlock other multilateral and bilateral inflows.
But their continued reliance on indirect more taxes to boost revenue underscores the tendency of successive governments, reluctant to tax the rich and powerful, to take the easy route and expand their networks even when a greater opportunity presents itself.
Taxation of retailers, large farmers, real estate transactions, etc. It may not have immediate tax benefits, but it would certainly be a major step in correcting a flawed tax structure and reducing reliance on indirect taxes that tend to hurt low- and middle-income households.
Most additional fiscal measures will raise monthly consumer price inflation, which is already at a 48-year high of 27.6%, and put further pressure on low-income households.
Food prices are rising – well beyond the reach of the average Pakistani – and many expect poverty and hunger to increase.
In his speech to the National Assembly, Mr. Dar acknowledged that the measures taken by his government to restore the economy by controlling the budget deficit and current account would be very painful for most people in the country, but he claimed that these measures ensure price stability and increase (personal) income.
This is a rhetorical statement we regularly hear from every Treasury Secretary who, through his more taxes and other policies, brings even more misery to ordinary people.
New more taxes could provide a temporary solution to the government’s fiscal woes, just as the IMF deal will offer a short-term respite on the outside front. But they are unlikely to fix the major downsides of a struggling economy.
The government needs to dig deeper and go beyond the routine of balancing the budget through temporary adjustments.