Need for reforms

September 21, 2021

LAHORE: Planners explaining reasons being the price hike do not reduce the miseries of the people. They blame global phenomenon for disruptions, but those were the same everywhere, including...

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LAHORE: Planners explaining reasons being the price hike do not reduce the miseries of the people. They blame global phenomenon for disruptions, but those were the same everywhere, including regional economies, which succeeded in taming inflation.

It is of no help to the consumers that the petroleum rates in Pakistan are the lowest in the region. For them, the hefty increases of Rs5 per litre in the price of petrol or diesel twice in the last four months are bothersome.

Pep talks that price hikes are due expensive imports do not alter the reality that buying even essential items has gone out of reach of the general public. Moreover, the imports are expensive because the rupee has been massively devalued.

The import regime is designed in a way that increases the landed cost of imports through sales tax, import duties, regulatory duties and in some cases excise and other government levies. The contention of the planners that higher levies are slapped to reduce imports has been proved wrong.

The imports continued to increase despite higher duties on luxury items and essential items. As far as the luxury imports are concerned the 5-10 percent minority controlling 80 percent of national wealth has no issue in paying any price to buy the goods of their choice.

Essential items as the name indicates are necessary consumptive goods like wheat, sugar and edible oil that every citizen is compelled to consume on a daily basis. The prices have shot up because the government is minting money on imports through its levies.

Government revenues at the import stage have shot up massively every time the rupee depreciated. Why can the government not charge a nominal duty and other levies on import of edible oil? It could reduce the landed cost by at least 25 percent.

In the same way, why can’t the government double or triple the duties of the import of luxury cars and charge the same on electric vehicles as well.

It will reduce their imports to some extent and increase the import levies appreciably to compensate for the loss of revenue if granted on import of essential items.

The Pakistan Business Council (PBC) that has recently been so vocal in supporting the government policies has finally pointed out that current account deficit or inflation are not because of the overheating of the economy as many government spokesmen claim.

The PBC is of the opinion that in view of rising fuel costs the government should go for conservation and right prices instead of planning to increase policy rates or tariffs. As far as tariffs are concerned, the tariffs of luxurious items must be increased to a level which deters luxurious living.

We are a very poor country surviving on regular borrowing and cannot afford a luxurious way of life. By effectively curbing luxurious imports we will save foreign exchange and as a result check rupee depreciation.

The other alternative of checking rupee decline with higher policy rate has many drawbacks. First, it would increase the borrowing cost of the private sector that already is shy of approaching banks for loans.

Secondly, it would increase the debt servicing cost of the government that is already the largest borrower of commercial banks. The rupee can only be stabilised either by effectively curbing imports or massively increasing exports or by increasing the interest rates.

Government would need strong political will to curb unnecessary imports. The consumers of luxury items are the most influential people in the country.

The state should start with banning the permission to import even bullet proof cars by the most powerful personalities in Pakistan. It eats up foreign exchange and deprives the state of millions in revenue on import of each such vehicle.

This measure would give the message that by denying privileges for its own elite the government means business.

Pakistan needs revenues badly and the Federal Board of Revenue has done a good job of increasing the revenues in the last three months. This is not enough as we need to double the revenues to get rid of borrowing.

The point of sales initiative is a bold step. It is bound to eliminate corruption of both traders and the revenue collectors. The programme was going smoothly till only the largest retail outlets were targeted.

These outlets belonged to influential businessmen and were not lucrative clients for revenue officials. But now that the FBR command has started targeting the mid-size retail cadre, it is hurting the interests of both bribe takers and bribe givers. A protest movement is being launched against the point-of-sale registration.

Resisting it successfully will be a test of the will of the government. If the traders succeed it may force the finance minister to quit.

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