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Today's Paper | November 08, 2024

Published 28 Apr, 2011 12:53am

Unrealistic tax aims

THE broad contours of the budget for the next fiscal indicate the government's desire to stabilise the economy by pursuing a relatively tighter fiscal policy. The blueprint of the budget, as reported in this newspaper the other day, also betrays the government's desperation to significantly raise tax revenues in view of falling foreign capital flows. More emphasis has been laid on enhancing tax revenues than on curbing spending, the other imperative half of a tight fiscal policy. The consolidated expenditure is projected to spike by 7.5 per cent to Rs3.5tr. Indeed, it is difficult to cut soaring expenditure owing to deteriorating security conditions and rising debt servicing over the years. Thus, the success of the plan to cut a ballooning fiscal deficit to 4.5-4.8 per cent of GDP will depend largely on the performance of the Federal Board of Revenue.

Given the FBR's poor track record and the government's reluctance to tax incomes from property, agriculture, stocks, etc the tax target of Rs1.95tr is unlikely to be met, notwithstanding the additional taxation measures that penalise existing taxpayers. It is bound to miss the target next year too. Even the implementation of the RGST — a necessary but inequitable levy — and wealth tax and an increase in the rates of certain existing taxes will not help achieve the kind of growth the government wants to see. The tax target also appears unrealistic because the economy is operating far below its capacity owing to a severe energy crunch. At the end of the year, tax collectors will find themselves debating measures to narrow the collection gap by again penalising the existing taxpayers. It is advisable that the government set itself a realistic tax target. It will be no use crying over spilt milk at the end of the year.

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