PBC sees mini-budget to follow ‘unrealistic goals’

KARACHI: The besieged government is missing an opportunity to leverage potentially-laden domestic economy through committing supports to real catalytic forces and shutdown-affected people as it rather shows willingness to run ‘business as usual’, a business lobbying powerhouse said on Saturday.

“The first aspect of business-as-usual is the unrealistic expectation from an unreformed and under-resourced FBR (Federal Board of Revenue) to generate 27 percent higher tax collection in the Covid environment in which sales and profits will be lower than the last year,” the Pakistan Business Council (PBC) said in the post-budget comments report. The PBC said the expectation from a corona budget was relief to affected masses, first through reduction in cost of essentials and second from stimulus to industries to create and sustain employment.

“Affordability and jobs are the acute and urgent needs of the economy,” said the council. “Also, with depressed global demand for exports, leveraging the large domestic market of 210 million people is an opportunity to revive growth. Instead, with a few exceptions, we have a budget prepared on an assumption of business as usual.”

The PBC that is considered an important stakeholder for international institutions, including IMF to know the ropes, believes that the government seems to have repeated the same mistake of setting unrealistic targets as in last budget under the IMF loan program, “which would not have been met even if Covid had not hit us”.

“With 6.5 percent inflation and 2.1 percent GDP growth, the nominal growth in the economy will be under 9 percent,” it said. “The consequence of an unrealistic target is harassment of existing taxpayers.”

The PBC expected the government’s political will to pursue traders to broaden the tax base to be weaker than ever before, “given the impact of lockdowns on the retail business”. The PBC further said the government still didn’t bring agriculture sector that contributes almost 20 percent to GDP and is least affected by the virus crisis, into tax net.

“If it had, it would have been unusual,” it said. However, the council said there are some positives for manufacturing sector which has been declining.

“Cascading import tariffs, removal of additional customs duty and withdrawal of regulatory duty on inputs will promote industry, as will the positive cash flow impact of the reduction in withholding tax on import of plant and machinery,” said the PBC that has been voicing concerns over de-industrialization for almost two years. The PBC said it is encouraging to see a reduction, albeit small in excise duty on cement and the measures taken to ease the cash flow and reduce cost of motor bikes, rickshaws and iron and steel industries, which have been facing downturn.

“However, no measures were announced to boost the automobile sector,” it said.

The council said the reduction in additional customs duty on edible oil and seeds and in import duty on materials for food packaging and chemicals will also have a positive impact.” The PBC said manufacturing has a close correlation with growth and job market, so its revival is vital. Generally, the measures in this budget are unlikely to “move the needle much on manufacturing growth”.

The GDP growth target is ambitious and unlikely to be achieved, it said. “Even for exports, there is no assurance that the current energy tariffs would be renewed. No new measures were announced to make it simpler for small and medium enterprise exporters to reclaim duties and taxes or to automate the credit of export rebates upon realisation of export proceeds.” Though realizing the budget prepared under an unexpected and unprecedented challenging condition, the PBC still believes that the budget makers could tread “a delicate balance between reviving the economy and meeting the IMF conditions”. “The latter seems to have prevailed,” it said, referring to a ‘bold’ step to freeze government employees’ pay increment.

“Is this sustainable and how long can the budget ambition remain divorced from the state of the economy, time will tell. We expect a mini-budget to follow.”