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Political budgeting

April 17, 2017


The government has set the tone of its politico-economic policy for the elections ahead of its final five-year term budget.

With the political economy in mind, influential quarters have already started lobbying for incentives in the upcoming budget 2017-18 that the government is contemplating announcing, for the first time, in May — ahead of Ramazan.

Top among them is the call for reduction in general sales tax from the existing 17pc to 15pc or 16pc across the board, like the PPP did in its last year in government.

Another case in point is the greater increase in salaries and pensions, more than the average 10pc the PML-N has been announcing these four years.

Also, there are indications that the government may offer incentives for investments and listings in the stock market.

The index has almost doubled in the past four years from about 25,000 points to close to 50,000 points recently, and yet the market capitalisation is at less than 35pc of GDP unlike up to 100pc in some countries.

It is likely that the government may continue with the current rate of tax on capital gains, some tax breaks could be offered on purchase of securities to encourage the fresh generation of investors to switch towards the capital market from real estate.

Likewise, the government is also reported to have finalised an amendment to the Income Tax Ordinance 2001 to be included in the upcoming finance bill in order to streamline withholding tax on cash withdrawals through branchless banking. This way it aims to promote greater financial inclusion as part of National Financial Inclusion Strategy (NFIS).

The amendment is said to be critical for the NFIS because branchless banking agents — like services being provided by small time shopkeepers — were not only facing problems themselves but were also unable to meet the requirements of tax authorities and clients. This has to be brought in line with withholding tax applicable on other banking transactions involving Rs50,000 and above.

With the political economy in mind, influential quarters have already started lobbying for incentives in the upcoming budget 2017-18

There is also a strong possibility of increasing the limit for bank transactions to at least Rs100,000 in view of liquidity problems faced by the banking industry and streamlining the process of differentiating between filers and non-filers to facilitate filers.

The corporate sector has been demanding a reduction in corporate tax currently at 31pc and removal of the super tax introduced for one year, two years ago, but the government has not yet made up its mind on both counts.

Last month, the prime minister approved around 97 gas schemes for domestic consumers worth Rs37bn on the recommendations of party and coalition parliamentarians, mostly from Punjab and Khyber Pakhtunkhwa while lifting a moratorium on gas connections.

Its endorsement was secured from the Federal Cabinet last week to comply with judgments of the Supreme Court of Pakistan restricting the Prime Minister from exercising such powers unilaterally.

As if that was not enough, the government also announced lifting the general moratorium on gas connections for industrial, commercial and bulk domestic consumers of housing societies and high-rise buildings, saying the import of Liquefied Natural Gas (LNG) had improved gas supply.

This has not gone well with PPP’s Sindh government — threatening to take over Sui Southern Gas Company and its pipeline that supplies gas to Punjab. The move fits well with the anti-Punjab political rhetoric in the run up to the elections; the party says it is against the spirit of Article 158 of the Constitution. The said article says the province in which gas is produced shall have precedence over other parts, subject to prior commitments.

Interestingly, gas expansion schemes for domestic consumers are mostly (77 out of 97) being launched in Punjab which is a gas deficit province while surplus gas quantities are produced mostly in Sindh. That means fresh gas commitments are being created in Punjab at the cost of other provinces.

Punjab produces only 3.4pc (137m cubic feet per day) of the country’s total natural gas supply to the gas distribution and transmission network and consumes about 42pc of gas (1154mmcfd).

Compared to this, Sindh produces about 65.2pc (2630mmcfd) of total locally produced gas while it consumes around 48pc or 1756mmcfd. Likewise, Balochistan has 22pc (889mmcfd) share in gas production against its 12pc (424mmcfd including non-pipeline quality gas) gas consumption. KP on the other hand is currently producing about 377mmcfd of gas (9.3pc in total production) against its consumption of about 267mmcfd of 7.7pc.

The PML-N government has also lifted the ban on government jobs recruitment and plans to regularise more than 50,000 workers currently working on daily wage, temporary or contract basis through preferential scores for those hired in the last four years.

This would be in addition to subsidised housing facilities on 15-20 year instalments to the homeless the government is expected to announce over the next couple of weeks. It expects the scheme alone will be a big boost to economic growth because of expansion in about 40 allied industries including cement, iron and other construction materials besides the related services sector.

Published in Dawn, Economic & Business, April 17th, 2017