Desperate situation, extraordinary measures
Prime Minister Imran Khan wants allocation of more financial resources for the containment measures of coronavirus, which has not only further depressed the national economy reeling under acute stagflation over the years but also caused swift downturn of global economy. He has directed the Advisor on Finance Dr. Abdul Hafeez Sheikh to avoid harsh taxation measures for revenue generation from domestic sources and convince the International Monetary Fund (IMF) to lower the tax collection target from Rs.5.103 trillion to Rs.4800 trillion in the next fiscal year. It merits mention that PPP Chairman Bilawal Bhutto Zardari is the only opposition leader, who has urged the government to prepare corona-budget for the next fiscal year. The upwardly revised revenue generation targets had been agreed with the multilateral donor, while availing the bailout package of $6 billion. The IMF has agreed a downward revision of tax collection to Rs.3.9 trillion in the outgoing fiscal year.
In the next fiscal year, non-tax revenue collection will be increased substantially to make room for additional finances of Rs. 200 to 300 billion to be diverted for combating Covid-19. Government wants to restrict fiscal deficit to 6.6 percent of the GDP, which will be a daunting task because of the rigidity in current expenditure. The independent economists’ assessment tells that budget deficit in the next fiscal year will up in the range from of 8 to 9 percent of the GDP in the next fiscal year.
Loin share of tax revenue is contributed, both direct and indirect, by the manufacturing sector which had been hit by the double edge sword of regressive taxes such as turnover tax, withholding tax, currency depreciation and previously high cost of banks’ credit. Agriculture sector is exempted from direct taxes, the facility which is misused by feudal class to evade taxes on their agro-based industrial and commercial enterprises including dairy and poultry farming and fisheries. Recently in the aftermath of coronavirus breakout policy rate has been reduced in phases by 525 basis points and the rate of interest is now down to 8 percent. However, liberal monetary incentives may not go far enough the revival of large and medium scale industrial enterprises. The manufacturing sector will need fiscal incentives as well. The export industries including textile, leather goods, sports and surgical products have demanded the restoration of zero rated sale tax regime, which was done away with in the budget of current fiscal year. Hopefully, relaxation from the IMF for lowered tax collection target can be obtained.