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May 25, 2019

Runaway inflation threatens vulnerable population’s survival

Business

May 25, 2019

LAHORE: The current economic scenario is a nightmare not only for the poor but also the middle class. The rich will survive, but the poor and middle-class segments of society would be forced to lower their standard of living.

The state is not in a position to provide any relief to the citizen; instead it would be slapping historic high taxes in the forthcoming budget. The economic planners are assuring that the new taxes would have minimum burden on the poor.

In an economy where almost 80 percent of the taxes are collected indirectly (the government collects even direct taxes indirectly) the burden of every tax measure would be on the common citizen.

The taxation measures would be over and above the havoc already caused by super devaluation of rupee and accompanied increase in rates of most the daily use items.

The power and gas rates have also been jacked up and are to be reviewed upward again. This year would be the toughest the citizens of Pakistan have ever faced. Inflation is in real sense becoming a monster even at a high single-digit.

This is because the prices of every item are already very high and even slight increase in prices has a higher impact. The value of rupee against dollar, between 2008 and 2019, has fallen from Rs62 to Rs152 currently. The prices of most items have also tripled during this period. A 10 percent inflation of an item priced Rs100 in 2008 had an impact of Rs10 on the prices. Now when the same item is priced Rs300 even 5 percent inflation has an impact of Rs15 on the price. Unfortunately, the inflation is on rise so the people of Pakistan would have to brace for hard times.

High borrowing cost would force many documented industries to conceal their actual production. High energy and power rates would be an incentive for electricity and power theft. Under-filing of production would increase that would save the producers 17 percent sales tax that is likely to be increased to 18 percent and compensates for the high bank markup rate.

The benefits of these thefts are not passed on to the consumers. So the exchequer is deprived of revenue, while the commercial banks mint money. Among all commercial and industrial enterprises, the banks would remain in the driving seat. High interest rates fatten their pockets irrespective of the fact that the borrower is state or private enterprises.

Better governance is the only chance to reduce the impact of current situation. If we eliminate power and gas theft, ensure clearance of imports at actual rates, take under-filers to task, and apprehend smugglers, the revenues of the government would increase by more than Rs1,500 billion almost double the taxes that we intend to impose.

This Rs1,500 would provide the government a huge relief in reducing budget deficit. The state may impose new taxes but it should not forego its writ of allowing cheats and thugs to loot the exchequer, while the poor suffer because of scarce government resources.

The current situation is the result of our elitist policies of the past. This government unfortunately has not been able to break the power of the influential.

We have been living beyond our means for a longtime and time has come to move towards austerity. The poor and the middle class would be forced to cut expenses but the government also has to slash its current expenses by 30 percent.

The travelling of bureaucrats within the city should be restricted to public transport. All government cars should be withdrawn. The traveling to other cities should be made through public transport (no air travel at all).

Our bureaucrats have tons of spare time as they seldom spend time doing what they are paid for.

Travel by road or train (no first class) would have no impact on the speed of work. The bureaucrats would start using modern technology by holding meetings through Skpe or monitoring performance by employing software that are available with government departments. Time to squeeze expenses is not only for the poor but for the entire nation.

We have to increase our tax-to-GDP ratio to the regional level. That means doubling it from current 9 percent. However, even if the tax-to-GDP ratio is restored to 1999-level (13.5 percent) in 2019-20 the government would only collect additional Rs2,000 billion revenues.

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