Budget – not a panacea

Government must reduce its expenditure and bring down its borrowing from the financial sector.

Perhaps there are not many countries where the annual budget of the country acquires the kind of significance as it does in Pakistan. Weeks, if not months, before the ‘great debate’ on what the budget should look like, every analyst known and unknown, whether in print or electronic media, randomly comments with no hold barred. It is in continuation of this sentiment that I venture into commenting too, on how a banker looks at the budget.

Firstly and most importantly, the task at hand for the government is to enhance revenue collection – this is a mantra – at least this is what I have been hearing since I came into professional life. Taxing, the already heavily taxed, has been the cornerstone of all previous budgets. The tax net does not seem to be enlarging at all – in fact it is only the salaried class, that has shown increase in number of tax payers and the total of tax paid. The ‘sacred cows’ of the economy remain untaxed.

Consequently, there was focus to tax the corporate sector, where tax rates are still the highest, in comparison to other states in the region. Within the corporate sector, the financial industry, attracts the tax collector. This fatal attraction is based on the premise that the banking industry as a whole has ‘large spread’ and therefore makes ‘handsome profits’, hence it is justifiable to tax it further. Here, what is significantly important is that only a decade back, this very banking industry was a major burden on the national exchequer. It is the successful privatisation policy, where private entrepreneurs were allowed to takeover banks, which were bleeding to death. This offer enticed foreign investors to come in and takeover banks – it is private enterprise that turned around these banks from being a drain to being now hefty contributors, to the coffers of the state.

The tax rate, as promised by the duo of former President Musharraf and Prime Minister Shaukat Aziz, was successively reduced to the present level of 35 per cent. The government must remain cognisant of the importance of maintaining sovereign commitments. Any attempt to tax further, at any later stage, will frighten away potential, if any given the circumstances, investors. We are all aware that there are many a financial institutions in the market today that are flirting for would-be investors, to get fresh capital and to remain within the ambit of minimum capital requirements. The current taxation rate that has been, maintained for the financial industry, augurs well for the country.

The budget should have concentrated on enhancing, deepening and broadening the tax base. While agriculture is and must remain the “main stay” of our economy, it must also through a programmed effort brought within the tax net. Simultaneously, the government must reduce its expenditure and also bring down its borrowing from the financial sector. This would allow the crowding out effect to be eased for the private sector.

The need of the hour is not to get a shortsighted annual budget passed by the parliament, but what is imperative now, is the development of a consensus between all political parties and stakeholders on a long-term, definitive economic agenda, of which the annual budget should constitute short-term targets.

On a conclusive note, will the parliamentarians, politicians, feudals, agriculturalists and the ‘tax-efficient’ corporates, put in their rupees and paisas to the treasure chest of the country? All and any contributions will be welcomed.

The writer is the Chief Executive Officer of Bank Alfalah







Published in The Express Tribune, June 11th, 2011.