The politics of the budget

A business-friendly anti-poor budget that leaves the well-heeled out of the tax net

“Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other”

–American labour organiser, writer and columnist Oscar Ameringer

To put it plainly the newly-elected PML-N’s budget is soft on the business class and hard on the common man. Many had expected this, for Mian Nawaz Sharif is a member of the business community and had shown a marked tilt towards business-friendly policies in his earlier stints in power.

Being business friendly is alright as long as one does not ignore the malpractices of the business community – especially those that go against national interests, to the extent of making the governments to seek loans. One also expects from a party elected by 14,874,104 voters, overwhelmingly comprising the poor and middle class, that it would not make policies that hurt the common man.

The government needs extra taxes to run the country and has set an ambitious target in the budget to finance an economic revival. Instead of burdening the rich and the mighty, it is putting most of the weight on the man in the street. Obviously it lacks either the will or courage to confront powerful lobbies, particularly those for which the party in power has a soft corner.

As things stand it is the ordinary man who will have to bear the burden of the new taxes despite the pitch having been already queered against him. Power shortages have hit him the hardest as he does not have the means to acquire generators etc. The shortages have led to industrial slowdown, thus adding to the number of the unemployed. The common man is also harassed by inflation. The factors have sent more and more people down the poverty line. Still the man in the street is being required to pay additional taxes.

The budge has considerably increased indirect taxes. The GST has been raised from 16 per cent to 17 per cent. This implies a universal increase in the prices of goods which would hit everyone including the poorest living on doles. A day after the announcement of the budget, petrol prices were increased by petrol pumps in Karachi without waiting for a government notification. A new wave of inflation is going to hit the country in the days to come.

There is also a proposal to bring down subsidy on power and gradually increasing the electricity tariff for all consumers. While an organized section of the population like government employees can pressurize the government through strikes to raise their pay to enable them to cope with rising prices, the vast majority of the people have no means to seek relief.

The budget would also adversely affect sections of the middle class. After the administration’s failure to provide quality education in government managed schools and colleges, parents have been forced to send their children to expensive private educational institutions even though they could bear the expense with great difficulty. Now an adjustable advance tax at 5 per cent of fee will be collected by these educational institutions from the person paying the fee. Increasing the taxes on marriage halls will further burden the common man who cannot hold these functions in his small house.

A number of economists had recommended measures to bring under the net those among the supper rich who continue to evade taxes. The culprits include those who purchase luxury cars, own palatial houses, frequently travel abroad, hold multiple bank accounts and pay hefty utility bills yet fail to pay taxes

Figures collected by NADRA last year show only the tip of the iceberg. There are 1.611 million people who frequently embark on international tours but do not pay a single penny as income tax. About 584,730 Pakistanis have multiple accounts in domestic and multinational banks, but do not possess NTNs. Over 56,000 people live in posh areas and more than 20,000 people own luxury cars, still pay no income tax. There are 66,736 individual consumers who pay large utility bills, but no income tax. More than 13,000 people have licences of both prohibited and non-prohibited weapons, but they do not possess an NTN. There are 25,130 people who are engaged in lucrative professions like medicine, engineering, law and chartered accountancy, but they do not pay a single penny as income tax. Nearly three million people possess a National Tax Number (NTN), but only 1.4 million of them filed income tax returns last year.

The PML-N rules Punjab where the tax to GDP ratio is lowest in the country. If it could persuade the Punjab Assembly to impose agricultural income tax, it would increase the ratio while it would also encourage other provinces to enforce the measure. But the PML-N government has no appetite to persuade or confront their landowning MPAs. Lack of political will stands in the way of taking a measure that would bring funds to the national kitty without causing problems to the common man.

The PML-N had conducted a campaign against Zardari’s corruption. It maintains that it is still committed to bringing back the looted wealth from Switzerland. Such claims sound hypocritical when over a million super rich who have amassed fortunes by defrauding the nation are not required to cough up what they are supposed to surrender to the national kitty under law?

There was no proposal to end the SRO culture in the budget. The SROs provide exemptions in taxes to the ruling parties’ financiers, cronies and powerful lobbies. The cost of such tax waivers and exemptions is in excess of Rs150 billion a year. As Shahid Kardar has put it, “The abuse of such discretionary powers has enabled inefficient producers to thrive at the expense of us unfortunate, hapless consumers who pay a heavy price for keeping afloat producers who are not competitive internationally.” According to the former Governor, State Bank of Pakistan, “the SROs encourage monopolies and discourage foreign capital which is shy of operating in an environment muddied by such concessions.”

The government is also not willing to annoy the powerful armed forces. The new budget marks a 10 per cent increase in defence budget. In fact defence gets much more than is shown in the annual budget. The pensions of the retired servicemen are outside the document. The periodic needs of the army require further allocations which are made after depriving other sectors of part of their allocated funds.

The claim to break the begging bowl therefore sounds hollow. While funds can be generated by taxing the rich and the powerful, the government would prefer to knock at the door of the IMF. By extending the tax net to the largest and richest section of the tax evaders soon after taking over with a solid mandate, the government would have met with little resistance. In the days to come the task would become increasingly difficult.

The writer is a political analyst and a former academic.