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June 20, 2021

Budget’s reliance on indirect taxation to widen rich-poor gap

Islamabad : Excessive reliance in the budget for 2021-22 on indirect taxation, including withholding tax as part of indirect taxes, will further widen the gap between the rich and poor. Besides, sustainable and inclusive growth will remain a pipedream in the absence of a paradigm shift in initiating structural reforms, economists have warned.

The economy specialists were speaking at a webinar titled ‘The Federal Budget 2021-22: A Review’, which was organised by Institute of Policy Studies (IPS), Islamabad.

The panellists included Dr Mahmood Khalid, senior research economist at Pakistan Institute of Development Economics (PIDE), Dr Shahida Wizarat, dean College of Economics and Social Development, Institute of Business Management, Dr Pervez Tahir, former chief economist at Planning Commission, and Dr Abdul Saboor, dean faculty of Social Sciences, PMAS Arid Agriculture University. IPS Vice Chairman Ambassador (r) Syed Abrar Hussain chaired the session, IPS Research Officer M Wali Farooqi was the moderator whereas senior practitioners including Mirza Hamid Hassan, former federal secretary at ministry of water and power, and Zaigham M. Rizvi, expert consultant on housing and housing finance, also took part in the discussion.

The speakers said the growth target of 4.8 percent set by the government in the budget is unlikely to be sustained in the longer run given the state of the fundamentals of the economy. The proposed growth target can be short-term but will pose a challenge to the government in the future as Sustainable Development Goals (SDGs), renewable energy, climate change and capacity-building of the public sector are not in focus.

The speakers observed that better sectoral performance and fiscal discipline during the pandemic have improved growth rate. However, the revenue target of Rs5.8 trillion, which they opined has been set to appease the IMF, is unrealistically high despite the fact that the government has failed in achieving the tax collection target for this fiscal year.

They termed incentivizing the stock market as a way to benefit the privileged at the cost of the poor and the middle class who constitute the major chunk of the society. They warned about further increase in food inflation which is likely to happen as the government has entertained industry bigwigs in the budget but ignored the common man.

The discussants were of the view that if the government fulfils its promise of providing affordable housing, it will give a boost to dozens of industries that fall within the ambit of the construction industry. However, the government’s initiative of doling out funds through lawmakers was criticized as, the speakers said, it will only serve vested interests and give rise to corruption.

Ruing what they termed as misplaced priorities in the budget, the speakers were of the view that the primary focus in the Public Sector Development Programme (PSDP) is on brick and mortar projects such as roads whereas human development initiatives that can actually drive growth and development have been ignored.

During the webinar, it was also discussed that the budget does not offer much to the common man as debt servicing and defence expenditure consume most of the budget allocations, resulting in a mere 11percent appropriation for development funds that too largely remain underutilized at the end of the year.

The speakers also maintained that there is a massive crowding out in the financial sector due to the government’s borrowings, starving the private sector of credit for investment in the country. Furthermore, there is a trust deficit between the government and the private sector that needs to be addressed.