Taxes and the budget

The pressure Shaikh is under is obvious. Agricultural interests are over-represented in parliament and get their way.

If the PPP government possesses a single ability, it is that of compromise. One may even call it cowardice and a willingness to appease every faction if it will prolong their rule. Since coming into power in 2008, they have already given in to the PML-N on the restoration of the judiciary, to the military on placing the ISI under interior ministry supervision and to the MQM on petroleum prices. Now, in his final speech of the budget debate in parliament, Finance Minister Abdul Hafeez Shaikh has given in one once again. Initially, he had said that Pakistan could not afford untargeted subsidies. Then, in his budget speech, he made an exception for buying wheat and fertiliser. Now, while alluding to pressure from parliamentarians, Shaikh has said that the subsidy will be increased even more.

The pressure Shaikh was under is obvious. Agricultural interests are over-represented in parliament and so tend to get their way. This PPP government, bereft of allies it can trust and facing immense pressure within its own party, has stuck to the rhetoric of deficit reduction but compromised on it in practice. Since curbing expenditures has now been shown to be a political impossibility, the only option the government has to reduce the deficit is to substantially increase its revenue.

The chairman of the Federal Board of Revenue (FBR), has made all the right noises about increasing tax revenue and targeting those who do not pay their fair share of taxes. The words are comforting to hear but the reality in Pakistan is that rhetoric always outpaces reality. Not only will it require immense political will to collect taxes from the rich, who include parliamentarians from both the PPP and the opposition parties, but it also needs a depoliticised, incorruptible FBR. Past experience has taught us that the FBR combines inefficiency with corruption. The government now has to make a choice between fiscal discipline and real politic. The IMF is already going to be breathing down our necks for giving in on subsidies. If we continue our profligate ways, they may decide to turn off the aid spigot.



Published in The Express Tribune, June 19th, 2011.