New taxes

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Well, is it a mini-budget? Given by the major restructuring in the scheme of revenue generation, coupled with the costs to be incurred in flood relief, we can safely say that it is. These taxation measures arent going to be too practical. For instance, there is the one-time flood surcharge, which is an additional tax on the salaried classes for a period of six months. Then there is the increment on withholding tax, one that many economists believe businesses will transfer on to the consumers.

To state the obvious, none of these steps is going to be popular. In fact, the government is expected to take these proposals to the parliament in order to even out the political fallout. That might not be such a good idea. Having the government lambasted by the man on the street for the ensuing price hike is one thing, having a public long-drawn out debate against the governments fiscal management on the floor of the house is quite another. This is no 18th amendment. The opposition is most definitely expected to milk all the populist energy out of the situation. In the house, it is most certainly going to be grilled by the PML(N). In fact, opposition came from treasury benches before it even made it to the floor; the MQM has been extremely vocal in its opposition to the measures. Its perceived support base, it claims, would be hit most by them.

The clearance of the reformed GST is being presented by certain sections of the press as an inflationary measure. But that could also have been the case in the previous GST regime. The newer setup simply streamlines revenue generation processes as per the demands of the IMF. The Fund had imposed this as a condition for the release of the next tranche of our loan program.

Sympathy for the government in the particular fiscal crunch it is in. Anger for its incompetence at resolving issues like the RGST in time and contempt at its inability to take steps like the imposition of an agricultural tax while penalizing the existing tax base by taxing it more.