Even though the budget 2018-19 was packaged and marketed as relief oriented, it instead seems to be by the businessmen and for the businessmen.

The businessmen trio of Prime Minister Shahid Khaqan Abbasi, hurriedly sworn-in Finance Minister Miftah Ismail and Special Assistant to Prime Minister on Revenue Haroon Akhtar’s new measures may seem to be populist but their long term impact will result in the diversion of burden from corporations, bankers, professionals and the salaried to the masses via indirect taxes.

Here are the numbers to justify this reasoning: direct taxes would add only Rs172 billion or 11 per cent to the current year’s estimated collection of Rs1.540tr. In comparison, major flows, about Rs570bn, are targeted for collection from the masses including the poor through indirect taxes and ‘other taxes’ that are also indirect in nature.

Increase in the rate of petroleum levy on all petroleum products including on LPG stands out along with a surge in Information and Communication Technology (ICT). Therefore, the so called “other taxes” would increase by 114pc (Rs242bn) to Rs454bn. That would have a bearing on almost every aspect of life, hence inflationary.

The measures announced in the budget may seem populist but their long term impact will result in the diversion of burden from corporations and the salaried to the masses via indirect taxes

In fact, a bigger cushion has been created in the head of petroleum levy rates than its collection estimates. That would provide the incoming government an opportunity to play with petroleum related tax collection. While the government has targeted Rs300bn out of the petroleum levy (PL) instead of Rs170bn during current year, up almost 77pc, in case of actualisation PL rate could jack up its collection beyond Rs500bn.

But as they say, it is all in the details. The rate of this levy on all petroleum products has been set at Rs30 per litre. This would mean the PL on high speed diesel would jump by 275pc from the existing rate of Rs8. Diesel is an item that impacts the cost of transportation to agriculture and in fact almost every aspect of life, hence inflationary.

Likewise, the petroleum levy is estimated to increase by 200pc on petrol from the existing rate of Rs10 per litre. That affects the middle class and the lower middle class, the so called carwalas and motorcyclists. The levy on kerosene oil would go up by from Rs6 to Rs30 per litre, up about 400pc.

Similarly, the maximum limit for petroleum levy on domestic production/extraction of Liquefied Petroleum Gas (LPG) has been jacked up by almost 325pc to Rs20,000 per tonne compared to Rs4,600 per tonne. This cushion has been created to facilitate imported LPG and expand the market.

Also, a steep 786pc increase has been proposed in the taxes on information and communication technology (ICT) to generate Rs37.55bn next year compared to Rs4.23bn this year. Likewise, the gas infrastructure development cess (GIDC) would generate Rs100bn next year compared to Rs15bn collected during the current year. The cess has been battling a court challenge that the government expects to win.

In comparison, all the direct taxes (income tax, workers welfare fund and capital value tax put together) are estimated to go up only 11pc compared to 114pc growth in ‘other taxes’ and about 14pc growth in indirect taxes called including sales tax, customs duty and federal excise. Interestingly, the most vibrant indirect tax — general sales tax — would show a less than 10pc increase in collection from Rs1.55tr to Rs1.7tr.

Conversely, federal excise would yield almost 18pc growth in revenue to Rs265bn next year while customs duties would generate almost 23pc higher revenue to Rs735bn, mostly originating from recently imposed duties to slow down imports of luxury items.

The next year’s budget expects about Rs530bn increase in total federal revenues. Total tax revenue would be up by Rs740bn than the current year but a Rs210bn reduction would come from the non-tax revenue to Rs772bn next year from Rs979bn budgeted this year.

Almost half of the additional space is estimated to come from ‘other taxes’ even though additional tax measures would generate about Rs93bn compared to Rs184bn worth of loss to relief.

In overall terms, the total FBR taxes are to show about 12.7pc growth next year despite the fact that a natural growth — 6.2pc of GDP growth rate and 6pc rate of inflation — should add an automatic 12.2pc increase. That would mean the combined effort of the tax machinery, audits and tightening of noose around non-filers would add just half a per cent growth in revenues.

On the other hand, because of the political opposition to new development projects, the PML-N government appeared to be shifting gears from development pushed growth to consumption pulled expansion as evident from income tax related discounts and exemption to encourage consumptions and thus create new demand.

Defence spending on the other had saw the highest increase in years and was also one of the reasons behind increase in current expenditure along with fewer scaling up of subsidies, running of the government and debt servicing.

The current account deficit is expected to remain under pressure and the government concedes the challenge but attributes its need to maintain faster economic growth rates.

Nevertheless, the government is banking on the lagged impact of duties on luxury items and two currency devaluations besides the incentive package announced by the former Prime Minister Nawaz Sharif last year for exports to bridge the gap.

In the absence of healthy growth in domestic savings, the government expects the channelling of foreign savings into increasing exports to bring down fiscal deficit and current account deficits.

Published in Dawn, The Business and Finance Weekly, April 30th, 2018