A Mini Budget for Major Issues
On January 23rd, the PTI government announced its second supplementary budget of the current financial year. It is essentially a set of incentives meant to encourage investment and economic growth in the country through the introduction of investment friendly policies. The government claims that this, along with its other ongoing policies and projects, will ensure economic growth in Pakistan for years to come however doubt has been cast on these assertions not only by the opposition but by experts as well.
The proposed ‘mini budget’ includes measures to reduce taxes on income generated through loans for low income housing, agriculture and small businesses from 39% to 20% in order to encourage the banking sector to invest more in these areas. Other waivers and reductions include the abolishment of duty on newsprint, waiving off of withholding tax deductions on banking transactions for tax filers and exemption from taxes and duties on investment in renewable energy such as solar panels and wind turbines. Meanwhile businesses have been offered more relief in the form of easing requirements for filing returns, reduction in inter-corporate dividend taxes and the abolishment of super tax on non banking companies from the next fiscal year.
Given that not all of these measures will come into immediate effect and that it is not evident what changes will are expected in revenue after these policies are fully implemented, it is difficult to judge the impact of this mini budget. While much was said in the Finance Minister’s speech about economic equality and helping the underprivileged, discussion about wider ranging reforms required to pull Pakistan’s economy out of its current malaise was left out.
The current state of Pakistan’s economy is a result of many long years of poorly planned and executed policy measures which turned out to be little more than stopgap arrangements that worked temporarily but failed to address systemic issues. Increasing the tax base, reducing our trade deficit and tackling circular debt are on every successive government’s agenda yet the reforms which can enable this to happen in a sustainable manner have not yet materialized. The current set of measures, which constitute the government’s second amendment to this fiscal year’s budget have also overlooked these issues.
What our economy needs right now is a long term plan for the future that is more substantive than some amendments to taxes and duties. Power sector reforms are urgently required to improve its financial management and administration as well as billing and recoveries. The tax base needs to be broadened to include more businesses and our current tax collection methods are in for a long overdue overhaul. Meanwhile, our trade deficit has to be reduced by finding more exportable goods that are not agricultural. Perhaps these reforms will be part of the government’s soon to be released Medium Term Budgetary Framework. While this would indeed be welcome news, it would mean that the introduction of a separate mini budget has been an unnecessary exercise.