ISLAMABAD: The Federation of Pakistan Chambers of Commerce & Industry’s Businessmen Panel (BMP) on Sunday opposed the new taxes in the proposed minibudget, as the government has agreed to impose more taxes to put the additional burden of Rs170 billion on exporters and domestic industry, including 1% increase in GST rate, to meet the conditions of the IMF for the revival of its stalled loan program.
FPCCI former president and BMP Chairman Mian Anjum Nisar said that the annual impact of the new tax measures would be more than Rs500 billion. The government has also assured the IMF of raising gas tariff and petroleum levy rates to chase a much-delayed staff level agreement.
Mian Anjum Nisar, expressing serious concern over the proposed mini-budget to raise revenue by further enhancing the ratio of existing taxes, asked the government to tighten its own belt rather than continuing its previous policy of burdening the trade and industry through further indirect taxation that would devastate the economy, given the appalling state of the economy and menacingly high inflation.
He said that the pressure of new taxes will be on the businessmen, as tariffs, particularly on gas and electricity, will rise significantly as part of the IMF condition to achieve full cost recovery rather than to focus on dealing with sectoral inefficiencies.
He said that the regular attempt of economic managers to impose new taxes and increasing oil prices along with the hike in power and gas tariffs will ultimately harm the government’s pledge of reducing the production cost for the businesses. The IMF has asked Pakistan to impose new taxes to achieve the tax-to-GDP ratio target of 9.5%. Possible shortfall in the coming months may expose the government to more pressure from the IMF. He said that slapping additional taxes on industrial raw material and essential items would lead to further hike in inflation which is already in double-digit.
The IMF statement indicated that Pakistan would have to take all the needed measures before a staff-level agreement could be reached. Pakistan has agreed to implement the prior actions, which include imposing taxes amounting to Rs170 billion, as increasing the GST rate to 18% was part of the taxes — a measure that was highly inflationary and would hurt poor people more than the rich. He said the Rs170 billion taxes would be collected during the remainder period of the current fiscal year while the annual impact of the new tax measures would be much more than Rs500 billion — a figure that was closer to the IMF’s original demand.
It is to be noted the government has agreed to minimize the untargeted subsidies in the gas and energy sectors and this process would be completed with the approval of the federal cabinet, as, the Economic Coordination Committee (ECC) of the cabinet approved withdrawing the electricity subsidies for exporters and farmers. Mian Anjum said the country’s generation cost was around Rs2.9 trillion while only Rs1.8 trillion was recovered. He added that this resulted in an increase in either the circular debt or fiscal deficit. However, the entire difference in amount would not be recovered by increasing the tariff, he maintained.
He said that the IMF was looking for a significant increase in that area in light of the projected 29% inflation rate for the current fiscal year.
He said the industry is the main victim of this International Monetary Fund (IMF) interference, as the donors’ involvement in Pakistan’s economic matters and dictations to the policymakers for taking harsh measures would add to the economic miseries of the country.
The BMP Chairman said that Pakistan’s inflation rate is the highest among all the South Asian nations. He said that the world is moving towards alternative sources of electricity generation but the Pakistan government’s policies are contrary to it.
Mian Anjum said that the decision may have severe socio-economic implications attributable to a 24.5 percent Consumer Price Index, besides lower output due to administrative and exchange restrictions that are negatively impacting on raw material imports and therefore on unemployment levels.
The BMP Chairman observed that the tax compliance should be improved and tax base should be enhanced, which cannot be achieved with a single policy change, but through a systemic approach.
He said that businesses are already in a complicated state-of-affairs, while anti-business actions against business community will not only add to the miseries of the business community but also promote trust deficit between the government and the business community.
He said that in the past instead of focusing on controlling under-invoicing, curbing smuggling and expanding the tax net, the FBR seems to be inclined to pressurize registered taxpayers, who are already suffering due to a high rate of sales tax, income tax, and custom duties by creating fictitious cases for recovery of outstanding dues to meet revenue target.
Pakistan is the most frequent customer of the IMF and the governments often depend on borrowing from the lending arm and accepted stringent conditions, despite the fact that this institution is merciless money lender, which has always forced Pakistan to adopt bad policies like new taxes in the budget, rupee depreciation and massive increases in the electricity and gas tariffs.
Govt additional tax measures’ annual impact to be over Rs500b