And Rs40b worth of new taxes
The finance minister presented the ‘mini-budget’ in quite a matter-of-fact way. It was necessitated, he said, to “make up for a shortfall of Rs39.8b in the revenue target for the first quarter of the current financial year”. It almost seemed as if he really did not realise that the “shortfall” is a reflection of government inefficiency and incompetence in matters of tax collection – considered unforgivable in most countries – and such actions are never without strong political reactions. There were other important factors, too, that Dar sb did not touch upon at the press conference.
One, that PML-N made the most noise about taxes and revenue – along with electricity and security – on the campaign trail. There were loud, and repeated, promises of finally expanding the tax base and improving the revenue stream that is hostage to borrowing and remittances for far too long. Yet half way through the electoral cycle tax collection has as actually worsened. And it is not as if the party pushed through difficult reforms that never saw the light of day due to heavy political opposition. It is, rather sadly, that the government never lifted a finger on the tax front, something that should have it worried as the next general election is not all that far away.
And two, that this ‘mini-budget’ is the direct result of some painful IMF arm twisting. Throughout the outgoing program the finance ministry’s only achievement has been getting the Fund to agree to downward revisions in revenue, growth, etc. But now that the program is about to end, and tax collection has not impressed the lenders, another line of credit is not going to come unless the Rs40b is raised; hence these new measures. At the end of the day, the government’s inability to do its basic job – raising taxes – is now going to choke the small honest bunch that does pay taxes. Such things have been known to trigger serious social, and subsequently political, backlash. Hopefully the government will give the economy serious consideration before it is too late.
