Budget 2024: less relief, no reforms

KARACHI:

The verdict is out. The much-awaited last budget of the current regime is a bit of everything and not exactly what the economy needs.

From a broader perspective, the election is being kept in mind, as well as the fact that squandering money at this pace will shut the doors of the International Monetary Fund (IMF).

Keeping the hopes alive for a new programme, the budget aims to address most of the issues halfheartedly. Clearly, the government wants to just tide over the elections and fulfill this operational responsibility. Let’s see what is in store.

Firstly, macro-economic targets are broadly in line with the mantra of fiscal prudence. The government is ambitiously targeting increasing tax revenues by nearly 30% by primarily taxing the already taxed.

That should yield net savings (primary surplus) on expenses excluding debt interest payment. In short, expenses are being controlled to reduce the stock of debt.

On exports and remittances, the targets are not challenging but rather humbling and defeatist. It’s as if the government knows that they have nothing major to offer to exports except some benefits here and there, and they are hoping to achieve marginal growth somehow.

Most of the taxes will go towards paying interest, while the fiscal deficit is expected to be controlled only if provinces adhere to spending less.

Secondly, the information technology (IT) sector is receiving good incentives from the budget. Credit should be given to the government for attempting to catalyse the export of IT services in Pakistan.

Incentives such as duty-free imports, recognition as an SME (small and medium enterprise) industry, lower taxes for financing IT sectors, setting up a venture capital fund, declaring freelancing as a cottage industry, and providing 100,000 laptops for students are a few ways to revitalise the sector to some extent.

At least the government’s intent is rightly anchored in employing more labour in the sector that can turn around Pakistan.

Frankly, a lot more could have been done if more deliberations had been undertaken and recommendations from the private sector had been adhered to.

Thirdly, in order to gather more taxes, the rate of super tax has increased drastically on those who are already documented and heavily taxed.

With a token reduction in turnover tax for PSX (Pakistan Stock Exchange) listed companies (usually loss-making), a clawback is put in the form of taxes on bonus issuances.

Unfortunately, those companies that have benefited from currency depreciation/ exchange gains will have to surrender more of their windfalls, such as IT, textile, exports, and banks. However, it should be noted that they just happen to run businesses that benefit from structural inefficiencies, and no malicious intent is observed per se.

It’s not as if these gains will be rerouted to those who suffered from such disastrous currency depreciation and interest rate hikes either.

Fourthly, taxes on non-filers are increased on the purchase of services on cards from foreign vendors (Netflix?), the purchase of expensive leather and branded clothing stores in malls, and the re-imposition of the tax on cash withdrawal from banks (Dar’s favourite).

The latter will surely dent the documentation as cash in circulation is already enormously high, evading the taxable market.

In order to document the sector, they should have demonetised currency, gone after retailers, taxed agricultural land, and made expensive purchases of assets for non-filers, but no. Vote banks are preserved, and electioneering is maintained.

Back in Shaukat Tareen’s days, efforts were rife to install PoS machines across the country, but all the good and bad things of outgoing governments are naturally reversed by incumbents.

Lastly, incentives are doled out to government officers in the form of a 30-35% increase in salaries. That’s humongous but largely justified for honest officers trying to serve the nation.

Until and unless Pakistan reforms its pension time bomb, the liabilities will continue to increase to an extent that could financially bankrupt the country.

A 17.5% increase in pension is less than the domestic urban or rural inflation, but it’s a right move to set a precedent for the corporate sector to begin negotiations on salary revisions for the upcoming year.

The cherry on top is a surprise amnesty for people bringing dollars into the country. Now you can bring in up to $100,000 per year with no questions asked, up from the previous limit of $17,000 per year.

A lot of black money will get whitened now, and it might just be enough to stabilise the currency market by adding a few hundred million dollars per month in the absence of an IMF programme revival.

Dar did give a disclaimer that the IMF is our priority, but with this budget, the IMF may not be happy but won’t be too ticked off either.

Pakistan is walking a very tight rope, and this budget is far from a case of the structural reforms that a quarter billion people deserve. Under the garb of Sustainable Development Goals (SDGs), parliamentarians are doled out billions of rupees every year, which could have been used to provide immediate relief to the middle class looking for a one-way ticket out.

The budget is elementary at best and does not reinvent the wheel. The economic wheel is already jammed. Business as usual is not an option until a blueprint for export growth, IT growth, an end to public sector entity losses, tightening the noose of the law around tax evaders, and a clear resolve to document the economy are visible.

This year, people shall merely aim to survive as well or say goodbye to an eternally
mis-utilised – and underutilised – country.

The writer is an independent economic analyst

 

 

Published in The Express Tribune, June 12^th, 2023.

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