Regulatory duties

Despite the reassurances of Finance Minister Ishaq Dar this week, it is clear that Pakistan is facing economic trouble. The most immediate problem is the spiralling current account deficit. Whether or not the government admits it, there is no other way to interpret the decision to increase tariffs on 376 imported goods mid-way through the financial year. After a meeting of the Economic Coordination Committee last week, the Federal Bureau of Revenue (FBR) has issued a new SRO to impose between 5 and 80 percent tax on a range of imported items. This is a clear indication of the lack of fiscal planning. How could the spiralling current account deficit not be visible in May 2017 in time for the new import duties to be included in the budget? The constant mismanagement of the taxation part of the budget has become a regular feature, with the use of SROs and mini-budgets being roundly criticised by economists. It continues to make little sense why the use of temporary fiscal measures that have not been approved by parliament has become an essential feature of the complicated fiscal management under the current government.

A number of the products falling under the new regulatory duties can be considered luxury items for which it might not be a bad idea to have high tax duties – but the corollary is that it lowers the standard of life enjoyed by citizens and also increases inflation. Bypassing parliament should not be acceptable when taking such decisions. Even if temporary fiscal measures are to be taken, they need to go through parliament. The government has imposed over 50 percent in new taxes on many products, which should not be possible through SROs. Amidst all of this talk, there are no guarantees on whether there will be any impact of the country’s $31 billion trade deficit. The government would do well to explain what its next move would be if the measures cannot curtail the trade deficit. We must remember that this situation has developed in a time of low oil prices – and Pakistan may just have to return to the begging bowl if oil prices get higher. Falling exports are only one part of the explanation for the current situation. The scale of our economic troubles is not clear just yet. We hope that the temporary measures are able to provide some relief but this is not a substitute for serious planning.