Pakistan’s Budget 2013-14 It is an intelligent Budget which lays the foundation for high GDP growth over the next ten years By Usman Khalid rifah.org/site/pakistan%e2%80%99s-budget-2013-14/ Finance Minister Ishaq Dar Finance Minister Ishaq Dar who presented the first budget of the newly elected PML(N) Administration that has excited the people as well as the International Community because of the ambitious programme of investment in power generation and road-rail infrastructure The annual budget presented by Finance Minister Ishaq Dar on 12 June is remarkable in many ways. I watched the whole speech of the Minister but what struck me the most was glum face of Prime Minister Nawaz Sharif. I was reminded of the interview he gave to Hamid Mir in which he narrated how was transported handcuffed in a military plane to Karachi. After narrating the event he said, “Who would want to become the Prime Minister of Pakistan?” The cheerfulness with which President Asif Zardari is looking forward to relinquishing his office in three months underlines the same fact. No one with any self respect would like to hold any ministerial office in Pakistan. The job entails being reviled and insulted by the media on daily basis. Some have chosen never to appear on TV at all. But that has not discouraged the media anchors. They keep coming up with new ideas. One TV anchor chose three persons to discuss the budget with – one was a sweeper, the other an electrician, and the third was a young girl described as a ‘make up artists’. All three were self employed and none was a tax payer. They all lived from ‘hand to mouth’ and the point made in the one hour programme was that the budget did not improve their life. The conclusion, which continues to be repeated on all TV channels is that the budget is not ‘awam dost’ i.e. people friendly’. No TV channel hosted intelligent comment. All were spreading despondency and hate. The slogans were not very original either. Evert channel and news comment was that the budget has done nothing for the “poor” or the “common man”. Even if I had watched the budget speech of five, ten or even twenty years ago, I would have seen the same comment being made. Even if the budget is largely neutral, as is the case with this budget, the very mention of the word ‘budget’ and the endless misinformation and outcry by the media lets the business community increase prices substantially. I can understand why Prime Minister Nawaz Sharif was so glum. It is not possible to have a good word for the political class after their misrule over the last five years plundering the exchequer and destroying the institutions of the state. But with a change in government the more serious concern is whether the media and the business class would let the new administration do two things that it must do for Pakistan’s economy to increase the GDP at the rate of about 8% per year. The two things are: 1) increase tax to GDP ratio to at least 16 %, 2) get the media to support this effort not undermine it. What I find remarkable about this budget is that it recognizes the business community’s ability to resist change and media’s will to assist the business community. Since Mian Nawaz Sharif himself belongs to that community, he must be sad that it is his own community which is letting him down. Tax to GDP ratio cannot be increased without increasing tax rates unless the tax net is widened. That requires the economy to be documented. All over the world the introduction of VAT has been used to encourage/ensure proper documentation of all business transactions – sales and purchases. Finance Minister Ishaq Dar knows that well but he also knows that the business community opposes it. It is the business community which also stands in the way of elimination of theft of gas and electricity. Theft is carried out at the highest level between PEPCO and IPP owners of which there are 17. It is also carried out between industrialists and DESCO linemen. Mian Nawaz Sharif has to make up his mind if he is going to look after the interest of his class or the country. Finance Minister Ishaq Dar has made it possible for him to choose the interest of the country. How? The GST rate has been raised by 1% to 17 %. An additional 2% of GST is to be paid by all “unregistered” traders. The traders have an option to pay 19% GST on bogus accounts or 17% on genuine accounts. Next year, he can give them an option to accept VAT at 15% or GST at 19%. Since VAT registration has a threshold, small traders would not need to submit VAT returns. The media has not yet underlined that the business community is raising prices by 5% or more even on food on which there is no GST. The introduction of withholding tax on Hajj Operators, school fees, agricultural income tax etc are a part of a plan to encourage people to register for Income Tax and GST. They idea clearly is to give incentive for registration as refund or adjustment of withholding tax is more easily made in tax return. The introduction of VAT which is the eventual aim, would ensure documentation of the economy. Finance Minister Ishaq Dar may not raise the tax to GDP ratio this years by very much but he has laid the foundation for the introduction of VAT next year and expansion of the income tax net which would raise the tax to GDP ratio by at least 5%. He does have a plan for overcoming the resistance of the business community to the introduction of VAT. If he succeeds, this would be a great achievement. The end of load shedding of electricity and gas is the most pressing issue for the Government. The focus in the budget is on end of the circular debt by striking a deal with creditors. That may mollify the IPP owners but that would not solve the problem. The real difference would be made by changes in management. When the installed capacity is very nearly equal to the demand, the management has to demonstrate where is the point of equilibrium between retail price, subsidy and theft which can be sustained. The most remarkable aspect of this budget is the projects of national importance to be started this year. It is also being adversely commented upon as being too ambitious and unrealistic. But this is actually a bold new approach that transformed the economy of China. The private sector investment by Pakistani entrepreneurs and foreign investment promised by China, Saudi Arabia, Kuwait and UAE etc would be many times more than the public sector investment. This budget lays the foundation for double digit growth in the GDP of Pakistan. Those talking about the inflationary effect of 1% in crease in GST miss the point. The economy is going to expand and expand so fast that salaries, incomes and prices would be dictated by international competition rather than local demand. Our media is utterly inadequate to handle the challenge of the change. It is best to ignore the idiots masquerading as media pundits. But having destabilized the state and the society for the last fifteen years, they would continue to do what they know best. The hope of the country is that the business community would understand what Finance Minster Ishaq Dar is trying to do. That the stock exchange rose by 500 points after the budget speech, shows that they do. ++
Posted on: Sat, 15 Jun 2013 04:32:57 +0000
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