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January 15, 2020

The moment of truth after over a year of lies

Business

January 15, 2020

LAHORE: It is time the ruling elite came on clean with the electorate that a poverty-alleviating and a life-standards-improving economic turnaround they have been promising since coming into power is simply not happening even until after the end of their five-year tenure.

In fact the masses should be prepared for further belt-tightening.

Prime Minister Imran Khan declared 2020 as a year of growth and job creation. The ground realities belie his claim. Earlier after assuming power he promised a major improvement in economy and governance in first 100 days of his party’s government. The 100 days turned out to be a nightmare for the people. He and his team then said that a change would be visible in next one year. That year has also passed and masses do not see any light at the end of this long dark tunnel.

The year 2020 would be another year of disappointment for them. Genuine leaders do not hide realities from their supporters. Quaid-e-Azam was perhaps the only Pakistani leader, who always stood by his principles and never compromised on merit. He was never afraid to speak truth in front of hostile audience. He announced that Urdu would be the national language of Pakistan in front of Bengali audience in Dacca. Now almost seven decades later we do see that Urdu is the only language that is understood and spoken throughout India and Pakistan including former East Pakistan. He was a visionary and a honest man. He never took any U-turns.

To alleviate poverty Pakistan needs to grow at 7 percent for several years.

This fact was admitted even by Razzak Dawood, PM’s advisor on commerce, recently. Any growth below 4 percent would increase poverty. This is because this growth hardly covers the increase in population and the yearly inflationary pressures.

After World Bank any reputable consultancy Fitch has also predicted a growth rate of 2.8 percent for 2020. If the predications of these two institutions carry weight then we must not hope for any improvement in our economy or job creation.

This growth would be 0.9 to 0.5 percent less than what was achieved last year.

If Dawood is to be believed then the trade tariffs, from next year, would be in the domain of the Ministry of Commerce. The Federal Board of Revenue (FBR) would not be able to cover its revenue shortfalls by imposing higher tariff and regulatory tariffs on imports.

The avenue of revenue earning would go out of reach of the revenue department. The commerce ministry would determine the tariff that best suits the domestic industries.

It would in all probability abolish import duty on raw materials that are a major source of revenues for the FBR. This is good for trade development but bad for the revenue department. Now the FBR would have to generate revenue from sources outside import and export regimes.

This country badly needs revenues. According to Fitch, we consume 45 percent of revenues on debt servicing only. If the revenues fall, this percentage may increase to 50 percent. Another factor worth noting is that the non-development expenditure will continue to grow. In fact, this expenditure has grown more rapidly during past 16 months despite claims of austerity. Moreover, we are taking more loans than ever that are going to increase the debt servicing burden. The FBR would be under immense pressure to increase revenues. Its ability to expand tax base has been exposed as revenues generated from new taxpayers are nominal.

All increases in tax collection came from higher taxation. In the next budget, to be presented somewhere in May or June this year, the government would be forced to increase tax rates to generate higher revenue.

This would further dampen business climate and the prices would also increase for the consumers. The logic of increasing tax rates cannot be justified as the government offers tax incentives to the new investors, while marginalising the operating investors with higher taxes.

These are the ground realities and the performance of year 2020 would be governed by these realities. Investment and growth will not come to Pakistan until the government musters up the courage to tackle vested interests.

We have to move quickly and in a decisive manner to confront all vested interests that until now have been able to keep revenue officials at arm’s length because of their sway in the power corridor.