Hypothesis and Conjecture

(Mian Zeeshan Ahmed, karachi)

Like the real budget proposals, the post-budget news conference of finance minister Dr Abdul Hafeez Sheikh on Saturday was replete with hypothesis and surmise on achieving revenue targets , capital formation and resource mobilization for 2011-12. The one concrete and positive step, however, was the announcement that any person bringing his or her own money on a cent per cent equity basis in establishing an industrial unit would get a five-year tax holiday. The fact that the PPP-led coalition government had prepared the budget with an eye on the general election to be held in 2013, the budgetary measures of pay and pension increase and marginal reduction in GST rate is a bid of bringing down the inflationary tend. The finance minister asserted that the government focus this time around was to overcome a crisis-like situation on the one hand by creating a balance between income and expenditures and create an environment for economic growth and creating job opportunities for the educated unemployed youth on the other as the people expected and aspired for relief from a difficult life to a smooth sailing of socio-economic living. He admitted that the government sees a greater amount of success in creating jobs. But the focus now was on achieving the higher growth in a way as to ensure creation of hundreds of thousands of jobs. One conjecture on the facility of tax holiday was that given the crowding out of private sector because of heavy government borrowings, the government wanted to induce capital from outside the banking system to trigger investment and, at the same time, attract black money into the formal economy. It is in this background that the government had promised last year that it would reduce the GST rates; this meant as and when the tax reforms process is completed, powerful trading class would be brought to the GST net. The minister said there was a substantial progress in expanding the GST net by withdrawing exemptions on a number of items. Though the government would lose some Rs36 billion, this would, the minister said, help the country to get a substantial gain in trading and commercial sectors without further inflating economy; this was the step to put the country’s economy back on the path of self-reliance.What Dr Hafeez Sheikh lamented as “historic failure” was that no government had succeeded to tax well-off people and relied on international borrowings to meet expenditure that affected the social sector and infrastructural development. This anomaly was now being removed to bring in the tax net some 700,000 wealthy people who did never pay tax and steps were now being taken to collect at least Rs70 billion from them. These non-tax payers, who enjoyed lavish living, operated two or more accounts in different banks and passed summer months in the coolness of north American and European countries without making a single rupee contribution to the exchequer, were identified by the Federal Board of Revenue with the help of the National Database and Registration Authority (NADRA) and were being served notices seeking them to pay their due to the government treasury. In fact, the plan to collect tax from members of the affluent class, understood to be two to three million in number, would be augmented by certain administrative measures that would help the tax machinery to collect an amount as high as Rs1,952 billion. Even the services of the National Accountability Bureau (NAB) could be sought to collect tax.What transpires from Hafeez Sheikh’s assertions is that the government has built the whole budgetary edifice on mere assumptions and optimism and nothing else except the measures announced. The commitment of reducing the government expenditures by 50 per cent and austerity steps have not been put in practice and the rise of the spending on the Presidency and the Prime Minister’s House is an example. Another hypothesis is that the rich and the powerful would be brought into the tax net. The fact is that around three million of 180 million, only 5.4 per cent, have with them the country’s entire wealth and made the country and it people financial hostage by not paying taxes and passing on this huge burden to the hapless people from middle classes and those living under the poverty line. These handful of people are staunchly religious, pray six times a day, go to Haj every year, help the poor in the wedding of his or her daughter; yet evade tax without the fear of law and God. These people have not paid tax since the inception of Pakistan and expecting them now to do so seems a huge illusion.

Mian Zeeshan Ahmed
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