ISLAMABAD: Every person who observes the economy in Islamabad is asking two questions; why are the most important budgetary steps being taken before the budget day and does the government fear being prevented from announcing the budget.
Two most important steps announced in the past fortnight were; the tax amnesty scheme and jacking up the slab of taxable income from Rs400,000 to Rs1,200,000.
Two questions arise from the first step; why did the government make these announcements pre-budget; which group of people is to benefit from these changes?
The major question about the consequences of raising the slab of taxable income is: how would the government be able to broaden the tax net after pushing about half a million low-income people out of the ledgers?
The answers to these questions were given directly by Miftah Ismail, the Adviser to Prime Minister on Finance and the architect of these two pre-budget structural reforms.
Ismail said, “We lose Rs90 billion by removing the half a million taxable incomes from the net. Once the money freed from the tax burden is circulated in the market, there would be an impetus on the supply side. The wheel of economy would move faster. The state’s coffers would benefit more than before in terms of tax deposits.
“The tax amnesty scheme is not just one announcement letting the foreign and local undeclared assets and amounts into the market on 2% and 5% tax, respectively. It is accompanied by a clause in the relevant rule, forbidding purchase of property in the future by people staying outside the tax net.”
Ismail’s explanation on this count is interesting. If he is serious, things are going to take shape like this. Those outside the tax net and not opting for availing the amnesty on their above Rs1,200,000 a year undeclared incomes, would not be allowed to buy any property, and, a couple of more things, which would be announced in the budget.
What would be those two things? Let me guess…expensive motor vehicles? Acquiring the running businesses? Property and businesses are two catchable things as far as taxation is concerned. And these are two things lucrative in terms of making profit.
Now I turn to the question: why announce these major changes pre-budget? Does the PML-N government really feel insecure; does it fear that it would be prevented from announcing the budget 2018-19? Why are these changes so vital to its political goals? And what are these political goals?
These changes can be reversed if the government is eventually prevented from announcing the budget. A new government composed of forces other than the PML-N could reverse it. Even the interim set up can put it in abeyance until the takeover by a newly elected regime.
To questions like this, Ismail said that we approached the PPP and the PTI leadership to evolve a consensus on our government announcing the next fiscal year’s federal budget. Imran Khan, after agreeing, made a statement that his party would not allow it. Why does he not make it public that he is opposed to changes benefitting the small income group and supporting the broadening the tax base?
Obviously, Ismail refrained from answering the questions about haste and fear directly. He turned political when asked to explain the haste and the fear. At a pre-budget seminar, he said, “don’t ask me difficult questions”. Try and get to the bottom of his response. It is difficult for him to stop his government from announcing the next budget in defiance to the opposition’s threat that it won’t allow it. It is difficult for him to explain this defiance.
Ismail does not agree that his government should just announce a quarter-of-fiscal (three-month) budget and leave the rest to the new government. He argues; how can you announce pension increase and defence-budget increase for just three months? Such steps are taken on a 12-month basis. It is inevitable that my government makes a full-year fiscal statement.
Letting the low-income group out of the tax net and pension-increase for the old can be politically beneficial to the PML-N in the upcoming national polls. That could be one plausible explanation to the haste in announcing major fiscal changes.
Now, the tax amnesty scheme is the one last time the door to the keepers of undeclared assets is opening, says the finance adviser. This door is being shut for all times to come. Those who do not opt for taking the scheme, would in future be asked to explain any suspect transaction and holding. And the holdings and transactions are being made easy to catch. “We are going to catch them through the NIC number.”
He sounds so sure claiming that the new scheme and the rules accompanying it might do the trick without any doubt. But it is not advisable to be so sure when facing political challenges in this country. Anything big might change any time. What would Ismail be saying in an eventuality of political turmoil before the budget, or, before the new national polls?
The writer has worked with major newspapers and specialises in the analysis of public finance and geo-economics of terrorism
Published in The Express Tribune, April 23rd, 2018.