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Bail out or jail out by IMF

The budget is shaping up to be heavily reliant on IMF pre-conditions, as Pakistan recently secured a bailout of $6 Billion under strict terms. Removal of zero-rating status of the five export sectors, as part govt. commitment to remove tax exemptions, is the bone of contention between the govt. and the industrial sector. If implemented, it would sound the death knell for Pakistan’s export sector which is already facing stagnation due to lack of value addition, noncompetitive and insipid global market conditions.

The forthcoming budget expected to substantially stifle national GDP growth, suppress most form of development activity, hamper agricultural sector and unleash an unbearable wave of inflation across all income levels. The budget appears to have all the hallmarks of a typical IMF budget, In other words, budget FY20 is undisputedly an “IMF budget”.

The Budget is to be announced very soon with an expected total outlay of PKR 6.5Tn and is likely to revolve around incessant increase in tax collection, removal of tax exemptions broadening of tax base, improvement in tax infrastructure, removal of anomalies, debt repayments, and implementation of measures to resolve long lingering problems like energy shortages.

The budget will contain measures to address issues pertaining to fiscal and monetary policies. It is expected to focus on stabilization of the economy, managing external deficit by reducing imports, reduction in fiscal deficit through revenue mobilization, and expenditure control, setting the path for public debt reduction.

The FBR has conveyed to business chambers that business would be made extremely difficult for the non- taxpayers from FY20 as cost of doing business of un-registered businessmen would be made very high as compared to compliant taxpayers.

The IMF has not budged from its demand that the govt. should impose heavy taxes equivalent to 1.7% of the GDP. It requires that tax collection target for the FBR should be increased by 25% to a formidable PKR 5.5Tn for FY20 while FBR has proposed to fix its target to around PKR 5.1Tn against revised estimates of PKR 4.1Tn for FY19. The federal cabinet has in principle, approved additional revenue generation of PKR 1.4Tn as part of tax reforms. Consequently, additional taxes of over PKR 700Bn would be levied on the nation.

The local business community’s proposals for federal budget FY20 cover a wide range of topics, including trade and industry development and its safeguards, ease of doing business, domestic and foreign investment in the economy, improving competitiveness, focus on development of domestic commerce, import substitution, and development of SMEs, among other areas. It has also asked for due share of Karachi in the federal and provincial developmental budgets. Implementation of the chambers’ growth oriented proposals would lead to fast paced economic growth through promotion of trade, business and industry in Pakistan.

Karachi Chamber of Commerce & Industry has long been vouching for curbing the unbridled discretionary powers given to the tax man, which are often employed to harass the business community. It has also been demanding for rationalization of the unfair taxation system prevalent in Pakistan which instigates corrupt practices and gives undue advantage to non-payers of tax at the expense of the compliant tax payers.

However, it is yet to be seen whether the budget actually incorporates business friendly proposals, and what concrete steps the govt. would take to provide a conducive environment to the industry. Concerns also remain as to whether the forthcoming budget would be successful in increasing the tax net rather than further burdening the existing tax payers.

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1 Comment

  1. 1.instead of zero rating, FE voucher scheme be introduced for performers industries . A limit be set. 2.Do away with prize bond invearer shape. Instead introduce registered prize bonds (transferable)3. Total ban on import of food items or unreleased RD to 200 . 4 . Capacity tax on markets through association (adjustable)
    5. Lower KIBOR for export industries. 6. Higher RD on used cars above 1299 cc6. 100ckd parts be allowed on flat 10% to improve quality of assembly and incentives if local parts are used.
    7. No support price for wheat and Sugar cane . It be on market demand and supply. Low tax on all exports to Afghanistan to curb smuggling

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