IN turbulent Pakistan two years is a long time but the budget for the next fiscal year has clearly been crafted keeping 2018 general elections in view.
The resource crunch did not permit wider liberal dole outs but the budget proposals attempted to win over the poor, the bureaucracy, export-oriented industrialists and rural constituency. The urban middle class has largely been left out to fend for itself.
The lofty ideals of sustainable inclusive development often reiterated by the policymakers requiring a rethink on current economic strategy have been forgotten. Be it reversal of regressive tax regime or provision of social and physical infrastructure facilities for all citizens at affordable rates or delegation of powers for a lean, clean and efficient government, it has all been left for some other time.
Instead, to generate political capital for the PML-N some goodies have been offered: minimum wage increase; rise in the limit of minimum annual taxable income from 0.4-0.5m; 10pc salary increment and double jump in grades for low level government employees; no tax no refund regime to five export oriented industries and a slew of concessions and subsidies for the farmers.
“The PML-N government has bought the loyalty of its employees. There must be celebration going on in the ministries and divisions in Islamabad and federal government offices elsewhere, manned by several hundred thousand accountants, secretarial staff, clerks, peons, drivers, orderlies, etc as employees under grade 16 jumped two grades overnight along with increase of 10pc in salaries proposed by Finance Minister Ishaq Dar on the floor of the house last Friday,” commented a retired federal secretary.
“They delivered on their promise of facilitating the export-oriented industry. Had they given a clear deadline to settle all outstanding refund claims the industry would have shot into action immediately,” commented Shabir Ahmed, leader of apparel exporters.
“We are pleasantly surprised by the government focus on agriculture. It is too early to project impact of the reliefs offered but it has generated positive energy in a depressed community,” Eijaz Ahmed a progressive mid-level farmer from South Punjab commented.
The middle class, employees of the private sector including office workers, teachers, service providers, etc, are confused: everyone trying to deconstruct the measures announced in order to guess what the federal budget means for them.
The middle class, employees of the private sector including office workers, teachers, service providers, etc, are confused: everyone trying to deconstruct the measures announced in order to guess what the federal budget means for them
It is difficult to quantify in haste the actual impact of budgetary steps on an average family but it would be safe to say that a big share of additional revenue that the government hopes to collect will be drawn out of the pockets of middle income families at the cost of their kitchen or education spending.
All said and done if the base of direct taxes has not been expanded and the reliance on indirect taxes hidden in utility bills and prices of commodities and services continue to be the preferred source of revenue generation there is no way for ordinary middle class Pakistanis to escape the tax burden.
The federal budget proposals are not expected to ease the pressure on the family budget of tax-paying salaried middle class.
The shift in the government policy to treat withholding tax on non filers as a revenue stream rather than a penalty to improve the documentation level, as noted earlier in Dawn, signals weak commitment of the government towards tax reforms to achieve equity/efficiency.
Let there be no ambiguity that the ultimate burden of all indirect taxes, liable on whichever segment and collected by whichever agency, are ultimately borne directly by people. Other measures to clip the discretionary powers of tax officials and curb SRO culture are good but insufficient to phase out regressive tax regime.
The existing tax structure is a heavy burden on families who are made to spend almost all they earn and whose consumption basket is full of products under sales tax net.
A Dawn informal study conducted last year and repeated this year found that the households at two extremes on the social scale (very rich/poor), tend to escape direct adverse impact of national budget on their family well-being.
The poorest of the poor are insulated from taxation measures as subsisting below poverty line they are not liable for income tax and their consumption comprises of generally tax-free bare essentials. They normally pay a flat fixed charge for utilities often accessed informally.
On the other extreme, the ultra rich families are shielded by their enormous wealth. They resent and oppose higher taxes but nothing short of a revolution can disturb their families’ lifestyle. They consume a tiny portion of their income so the impact of consumption tax as a percentage of income is less on this category. Besides, the opportunity cost of taxes they pay is less unlike the middle classes where often more taxes means less for the family.
Besides, the poor are provided relief in form of direct interventions (BISP) and subsidies (tax breaks in power/other tariffs). The minimum wage has been increased from Rs13,000 to Rs14,000.
But in the middle income bracket, except for the government employees, who were granted 10pc increase in salary, the rest have no hope of any improvement in their pay package.
A family budget of a middle class nuclear family with monthly earnings falling in the income bracket of Rs70,000-180,000 was developed with weighted key expenditure heads based on an informal survey.
The impact of the budget 2016-17 was assessed against each head and arrows signify the change. As there is no change in income tax rate, the direct tax incidence for the middle class as a proportion of their income will remain unchanged but the impact of indirect taxes may increase.
The kitchen budget will increase by the rate of inflation. The rent may actually increase because of expected increase in housing cost. The transport cost can be moderate if the government decides to absorb the increase in oil price globally but utilities can cost more than the concluding year. For fixed income salaried families, it means lesser savings.
Published in Dawn, Business & Finance weekly, June 6th, 2016