Digging a deeper hole

The government bails out big defaulters by waiving half of their outstanding dues on account of GIDC

The cash-strapped government on Thursday bailed out big defaulters by waiving half of their outstanding dues, worth around Rs200 billion, on account of the Gas Infrastructure Development Cess (GIDC). The biggest winners of this bailout are the powerful fertiliser, textile and CNG sectors. The bailout has ostensibly been extended in hopes that it would encourage defaulters in these sectors to pay up the remaining Rs200 billion. A discounted GIDC rate is on offer for those who settle their disputed amounts.

The decision sees poor farmers lose out after they paid around Rs120 billion as GIDC to the fertiliser industry. The levy had been imposed on gas consumers to raise funds for major gas projects such as pipelines and the LNG project. Moreover, the government has reduced the general sales tax on petroleum products — a move which has caused a revenue loss of around Rs40 billion.

Finance Minister Asad Umar in a post-budget news conference stated that the amendments were “for the welfare of the masses”, adding that they were in surgery mode to revive the economy. Further, Umar was sort of evasive on whether the country was ever going to return to the IMF for a bailout package, stating that Pakistan “do not need any dictation”. He pledged not to bow to anyone and said that the government would go to the IMF if it had some better terms for Pakistan.

This appears to be a tough decision on the part of the government where it has decided to forego a significant chunk of its revenue in hopes of securing a similar-sized, previously unpaid revenue chunk and tie it to further incentives even if it means lower revenues for itself. Umar and company are walking the tight rope but their hopes of coaxing a revenue trickle out of defaulters by pandering to them only means digging a bigger hole for the country.

Published in The Express Tribune, January 26^th, 2019.

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