Monday September 26, 2022

Tax evaders’ paradise

August 20, 2022

LAHORE: The tradition of withdrawing economically prudent measures continues unabated as the government after deciding against collecting taxes from traders on power bills under pressure from political and business quarters, has now lifted a ban on the luxury import.

The state lacks the muscle to remain firm on its decisions. The traders and the politicians demanded withdrawal of the decision to protect tax evading traders. The state complied and instead resolved to make up the loss of budgeted revenue through new punitive taxation measures.

This government then lifted the ban on import of several food items classified under luxury imports. At that time there was no talk of IMF pressure. Now the government has lifted the ban on imports of all luxury items including cars and cell phones under the IMF pressure.

The ban was imposed to reduce the burden on our foreign exchange reserves. And the decision yielded positive results. We go to the IMF for help whenever we face a balance of payment crisis.

We are still facing that crisis and must have the right to preserve our resources for more essential imports of food and industrial raw materials. We are short of wheat, our staple food; we have to import over two million bales of cotton to operate our textile industry. We import almost 80 percent of edible oil for local consumption. Above all we are dependent on imported fuels be it petrol, diesel, furnace oil, liquid petroleum gas or coal.

These imports carry a high foreign exchange ticket. Our imports were almost three times our exports last fiscal year. We were making efforts to curtail imports by slapping a ban on various unnecessary imports.

Even then the exports were expected to be half our imports. We expected to nearly balance our trade balance through remittances sent by overseas Pakistanis.

Our balance of payments will come under pressure again after the lifting of the ban on most imports. Did we ask the IMF to finance the foreign exchange part of our luxury imports? We dare not.

Why did we resist the IMF advice of opening trade with India? The cheaper raw material, wheat and cotton would have lowered the foreign exchange bill. We did not because we were afraid of political backlash.

This shows that we refuse to take pressure when we want and offer no resistance to the pressure if similar pressure is being exerted by influential segments in the country. This backing away from prudent decisions shows the lack of interest on part of rulers in taking the economy out of the woods.

We can understand the government agreeing to keep the petroleum rates in line with its commitment to the Bretton Woods institution. We understand the desire to generate revenues as we are running a huge fiscal deficit. But we do not appreciate the government decision to withdraw taxes on traders and increase them on sectors already heavily taxed.

As far as luxury imports are concerned the retail prices would increase in line with three to six times increase in import duties. However, the measure would benefit the importers more than the government as these imports are heavily under-invoiced.

Would the government muster the courage to charge duties and levies based on the manufacturer’s prices of food items like milk, cheese, or processed chicken? The revenues would increase manifold in that case and there would be less imports.