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Neither bold nor innovative, though business friendly

June 17, 2013

THE capital market warmly greeted the budget with the KSE-100 index climbing to new levels. Many business leaders, however, did not find it ‘bold or innovative’ and saw it ‘tinkering on the edges’.

An analyst felt that, “all said and done, it was a business-friendly budget.” The budget proposals of Finance Minister Ishaq Dar include measures aimed at improving investment climate, stabilising the economy and generating growth.

On Thursday, the day after the budget announcement, the KSE index rose by 433 points to hit a new record level of 22,758 on the index chart. Most trade bodies extended qualified support to the budget fearing a public backlash.

However, the proposed taxation measures are regressive as they burden common man disproportionately much more than the elite. The reduction of subsidies will lead to increase in utility rates, and result in worsening of living standard of ordinary citizen.

The economy, a top businessmen said, faces serious structural problems forcing it to underperform. “The budget proposals fell short of our expectations in addressing root causes of problems and appear to be a half-hearted attempt to improve management of the economy”.

Some people believe that using strength of numbers the government would get it passed by the National Assembly as any significant retraction of proposals could be interpreted as the government’s weakness and could send a wrong signal to the IMF that is expected to send its monitoring team to Pakistan in the next few days.

The suggested budgetary measures suit big business interests. They offer little to struggling labour intensive small and medium companies in trade and services. Within five key, high performing local industries (textiles, pharmaceuticals, cement, fertiliser and auto sector) the auto industry in particular was disturbed over higher vehicle registration rate and liberalisation of taxation regime for hybrid cars.

In a written initial reaction, the Overseas Chamber of Commerce and Industry (OICCI) evaluated budget thus: “On the first review, we find the budget proposals well below our expectations. It appears that the opportunity of tax reforms has not been availed and instead the government resorted to old ways of taxing the already taxed at higher rates. Increase in turnover and sales tax will impact our members adversely and we find it discouraging for future investment.

“We find the proposals lacking incentives for honest taxpayers, no additional tax credit has been suggested for new investment except those in special economic zones. The one per cent reduction in corporate tax rate is positive but proposed increase in rate of turnover tax and additional withholding tax will burden various business segments”, the OICCI remarked.

The representative body of multinationals and foreign companies endorsed steps to broaden the tax net but was doubtful about their implementation. It also raised questions over the government’s capability to achieve over 22 per cent increase in revenue generation to achieve 4.4 per cent GDP growth while containing inflation at eight per cent.

“We find the budget requires improvements if the government wants large inflows of foreign direct investment in the country”, it concluded its comments.

CEO, Pakistan Business Council Kamran Mirza found the budget disappointing and not in sync with the PML-N election manifesto. “They endorsed 98 per cent of our business agenda but their promises are not translated in their budget proposals. I am ready to give them benefit of doubt that perhaps the paucity of time did not allow them to carve out a befitting strategy to deal with structural bottleneck stifling growth in the country”, Mirza told Dawn over the telephone in his initial comments on the budget.

“It is not a budget that will change the character of the economy. It is neither bold, nor innovative. It failed to address the root causes of economic malice. The captive tax paying class has been punished with more tax burden instead of bringing in tax evaders in the net”, he said.

“An opportunity has been missed to make a difference to our struggling medium/small trade and industry. I expected better from a party led by a businessman”, a top leader of retailers and wholesalers said in a cranky tone over the telephone.

“Perhaps the disappointment has more to do with unrealistically high expectations of trade and industry which misinterpreted electoral rhetoric of PML-N”, said an analyst monitoring the reaction. He saw the budget to be heavily tilted to suit the interests of the urban elite.

“If you analyse the budget 2013 on merit, it is a desperate attempt to appease the IMF to qualify for its budgetary support, hinting at the deficit target reduction by 2.5 per cent”, he added. The budget proposes to pull the deficit down to 6.3 per cent of the GDP from the current 8.8 per cent by implementing taxation measures and containing government spending.

The chambers and trade bodies of Punjab issued press statements hailing the budget. Zafar Bakhtarwi, President Islamabad Chamber of Commerce and Industry said through a press release: “Many immediate concerns of the trade and industry are addressed including clearing of circular debt within 60 days and completing Nandipur power project”. He hoped for better management of energy situation by Nawaz government.

“All said and done, it is a business-friendly budget and will go a long way in restoring the confidence of investors resulting in surge in economic activity over the period ahead” Sayem Ali, spokesperson of Standard Chartered Bank on matters related to economy and business told this scribe soon after the finance minister finished his budget speech.