People and businesses do not expect surprises in the upcoming budget now that the government has already increased the petroleum prices and shifted the load of Rs105 billion worth of subsidy to private, commercial and industrial users. Finance Minister Miftah Ismail has already signalled a big increase in power rates and left no ambiguity on the amnesty scheme, to be withdrawn from the next fiscal year.

The decision of the oil price hike by a hefty Rs60 per litre in two equal instalments in a week will cut the cost of subsidy on the petroleum products to the exchequer steeply, from Rs140bn a month to Rs25bn.

If the current fragile coalition government of a limited tenure somehow manages to net in tax dodging resource rich segments instead of piling up the burden on captive tax payers (to comply with the donors’ demand of resource generation), people and businesses may be willing to hold their horses till the next elected government assumes office after the elections.

Taking a clue from recent measures the rural and urban families and businesses, however, dread that Prime Minister Shahbaz Sharif’s government, overwhelmed by the economic stresses and political pressure may opt for easier shortcuts to win over donors, leave untouchable alone and appease the poor by cash dole-outs.

The pressing problems of the fast sliding economy and mounting donor pressure may force the government to opt for the relatively convenient option of targeting captive taxpayers

The struggling small and medium enterprises (SME) and middle-class families stand to lose the most in such a deal and could decide to react and protest. Will it instill new life in the hostile PTI push against the current government? Keeping the political power dynamics in sight my guess is as good as yours.

Most salaried professionals — doctors, engineers, lawyers, teachers, retailers, etc — bitter, anxious and confused, on either side of the political divide, were reluctant to own up their ramblings on the ability or the ineptness of the rulers. Generally, they foresee more of the same.

“All governments exemplify problems, blame the economic mess on the preceding government and punish honest taxpayers by making them pay for the follies of others (inept government, anti-social elements and willful tax evaders). “Like others before them, the current government will again ask us to endure the pain now for gains later. We have little choice but to put up with rulers’ theatrics or risk whatever little we have built over the years,” a close watcher moaned.

“I don’t expect any relief. The fact is that I will be happy if there are no new taxes though I know it is unfair to let go of the parasitic elite and ask working families to sacrifice every time the country lands in trouble,” said a mid-career doctor.

The corporate heads dread new taxes for an instant increase in revenue collection and further withdrawal of tax breaks and subsidies for the export sector.

Traders made a case for lifting the ban on imports of high demand items. “The ban will depress duty collection. In the case of high-demand price-inelastic items where legal imports lag, illegal channels are activated. Anyone interested can check the number of outbound ‘khapias’ after the ban,” said a commercial importer.

Saquib Shirazi, CEO, Atlas Honda and former chairman of Pakistan Business Council (PBC) acknowledged that the economic team of the current government did try to shield the tax compliant minority from the burden but the pressing problems of the fast sliding economy drifting towards default and mounting donor pressure may force them to opt for relatively convenient option of targeting captive taxpayers to ‘get the donors on board quickly’. “Pakistan needs to create a positive story and growth momentum as being done by Turkey and Indonesia,” he advised.

Zubair Tufail, former president Federation of Pakistan Chamber of Commerce and Industry (FPCCI) believes that all incomes including agriculture be taxed. He repeated: “The existing taxpayers cannot bear the burden of increased taxes in 2022-23. Industry is already stressed by expensive energy/gas prices rendering exports uncompetitive. Workers turnover has increased as they switch chasing higher salaries adding to employers’ worries”.

Ehsan Malik, CEO, the Pakistan Business Council (PBC) termed Mr Ismail’s job of budget-making an ‘unenviable’ one that on the one hand is severally constrained by the International Monetary Fund’s asks and on the other by the uncertainty of the longevity of the present set-up.

He thought that by lowering taxes, the finance minister may rope in evaders and manage energy tariffs to minimise the impact on the competitiveness of the industry. “Under the current circumstances, I expect the budget to remain front-loaded like the IMF programme, set revenue and circular debt targets without fundamental reforms and with reliance on existing taxpayers.”

“Cognisant of the economic reality, the PBC this year recommended measures to increase the differential of advance and other taxes between non-filers and filers, explore ways to obtain consumption data from utilities, share import data to stem under-invoicing and reduce the frequency of interactions between the Federal Board of Revenue (FBR) and taxpayers.

“The FBR should set two separate tax collection targets, one for new taxpayers and the other for the existing ones to provide transparency on effectiveness of the tax base broadening efforts. We support a more level playing field between real estate and the real economy. The current fiscal regime encourages real estate over the industry.

“We are conscious of the constraints but regret that inequitable minimum taxes, multiple taxes on inter-corporate dividends and denial of full loss relief within groups may continue. The honest energy consumers will be burdened further with higher tariffs whilst those who steal will enjoy a greater incentive to continue dodging.

“We also hope to see significant cuts in non-development expenditure and more equitable distribution of revenues between the federation and provinces.

“We are aware that an interim government can mainly do firefighting. Longer-term reforms require a cross-party consensus through a charter of economy for which PBC has provided a framework.”

Shariq Vohra, former president of Karachi chamber of commerce and industry regretted that successive governments lack steel for taking bold decisions.

Syed Shujaat Ali, a leading leather products exporter said ending the political uncertainty is most crucial for businesses at this point. He thought a roundtable of all stakeholders needs to be convened before the budget for trust-building.

He listed paying attention to land productivity for food security, managing water resources, sufficient affordable electricity availability and provision of effective support to SMEs as a precondition for an economic turnaround. He advised policymakers to learn from Turkey and India.

Nasser Hayat Magoon, former president of FPCCI foresees a tough budget. The premier representative body, he said, has proposed a low flat tax rate across the board irrespective of the source of earning. “If the super tax on high profit-making companies and banks along with bringing 15 million evaders identified with the help of National Database & Registration Authority are brought in the net, the simplification of taxes and their filing it would yield results and provide support to the economy”.

Published in Dawn, The Business and Finance Weekly, June 6th, 2022