New revenue measures

Published November 28, 2015

THE finance minister says he is unhappy about the growth of luxury imports and wants to take steps to curtail them. The steps he envisions just happen to be measures expected to yield almost Rs40bn in additional revenue for the state. Clearly, these are nothing more than measures designed to fill the gap in first-revenue collections, and satisfy the IMF that the government’s revenue effort is on track. The Fund has made the passage of these measures a prior action before the staff’s recommendation for release of the next tranche from the ongoing programme can be forwarded to the executive board for consideration. So when Mr Ishaq Dar told the National Assembly Standing Committee on Finance that he was unhappy about the growth of luxury imports, it would appear he was not being entirely forthcoming about the real reasons why these measures are being taken. Of course, taxing imports of luxury items is difficult to oppose, but the finance minister should realise that this mushrooming growth of spending on luxury items is in part also a consequence of his own government’s policies, which have encouraged imports through a low exchange rate and placing disincentives on savings.

Now a list of 287 items has been drawn up for additional regulatory duties and excise taxes, and the list contains some items that are indeed of a frivolous nature, such as processed luxury foods and cigarettes. But the list contains some items that should no longer be considered luxury items, such as smartphones. A decade ago, smartphones were no doubt luxury items, but as the price for many has dropped to below Rs10,000 and a number of low-income subscribers are starting to use them for free messaging and voice calling, they are becoming ubiquitous and also fuelling the revolution in telecommunications. They should not be viewed as luxury items anymore. The finance minister should have been asked where the failure occurred in the government’s effort which resulted in such a large revenue shortfall, and what assurances we have that the remaining quarters of the fiscal year will not see similar gaps. The whole exercise smacks of ad hocism, and hearkens back to the bad old days of the minibudgets of the 1990s. If these measures are not properly reviewed at this stage, there will be no guarantee that in the months to come more regressive revenue measures will not be used to bridge shortfalls.

Published in Dawn, November 28th, 2015

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