Monday May 20, 2024

Fiscal challenges

By Mansoor Ahmad
May 14, 2024
Pakistan currency notes can be seen in this image.—AFP/File
Pakistan currency notes can be seen in this image.—AFP/File

LAHORE: Coming budget would be challenging for both the government and the citizens. The government would be constrained to levy more taxes, the brunt of which would be faced by the common man. Still, achieving revenue targets would be an uphill task.

This government has already outlined some of its tax measures, including making changes in the way the traders pay fixed tax on a turnover basis. The traders have vowed not to accept the change. Politicians in the government have doubts about forcing the traders to accept a new FBR scheme for traders, but the Finance Minister, who is not a politician, insisted at a seminar on Sunday that the proposed new tax scheme for traders would be enforced from July 1.

The Finance Minister acknowledged the need to bring down power rates, but that would happen once the power sector reforms and governance matters are streamlined. Till then, there would be no change in power rates.

The trade and industry are demanding immediate relief in power tariff. The next budget would be challenging for all the businessmen. The government is taking heart from the fact that exports have risen for the last eight months despite high power and gas tariffs.

Privatization would be a huge challenge for the government because most of the political forces and the workers in state-owned entities are opposing it strongly. However, once PIA is privatized as planned, the pressure on this front may subside a little. Privatization could provide the government great relief as hundreds of billions going down the drain in losses would be saved.

The government, under the IMF dictate, would have to add 30 percent additional revenues in the next fiscal. That is a tall order, particularly because inflation is expected to sober to 13-14 percent next year. In the past, the FBR collected higher taxes and achieved revenue targets because inflation ranged from 40-33 percent.

The only possibility of achieving the target is to add millions of tax evaders to the tax net. The FBR is not confronting tax thieves directly but is making life difficult for them by asking telecom operators to block the SIMs of tax evaders identified by the revenue authority. This process has faced bottlenecks as telecom operators refused to block 2 million SIMs, which were later reduced to 500,000 and now to 10,000 SIMs at a time. This will consume the whole year or more and defeat the purpose.

The state has taken action against those that kept the track and trace system non-operational since July 1, 2021. The PM on March 24 directed to make the track and trace system functional to prevent tax evasion. He directed the authorities concerned to make the track and trace system fully functional in all sectors, including tobacco, cement, sugar, and fertilizer industries, to prevent tax evasion. Let us hope that the system now operates transparently. It would generate hundreds of billions in revenues.

The apolitical Finance Minister will find it extremely difficult to tame the rent-seeking revenue authority he has inherited. The potential for revenue generation in Pakistan is unlimited, but the will to collect taxes is absent, as looking the other way on tax evasion generates personal revenues for tax collectors.