Choppy seas ahead

Updated July 11, 2019

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The writer is a member of staff.
The writer is a member of staff.

AND so it begins. The ship of state has finally entered those choppy waters that it has been drifting towards for many months now. As the curtain rises on a new fiscal year, the first thing to be revealed is a massive IMF programme taking centre stage. Around that, a commotion is under way, with threats of strikes, desperate calls for removal of confusion and anomalies from the new tax plan that sits like a crown atop that IMF programme, and large supply lines and factories grinding to a halt.

One by one, as the details of the new finance bill where the tax plan is laid out in all its muted glory filtered through the business community, a familiar series of actions unfolded. First the business leaders tallied up the new costs they were facing. With interest rates having more than doubled in just over a year, and the rupee having lost nearly 50 per cent of its value (from 105 to 157), they were now poring over the details of the finance bill to figure out how their business would be impacted by the new tax plan.

Read: IMF gunning for debt reduction, programme shows

They met their managers, then called their accountants and tax advisers, and wherever they looked, they got different answers. There was little clarity as many of the details simply were not adding up. In some cases, the new tax plan had made it more profitable to be an importer of a product rather than its manufacturer. In other cases, it made it impossible for certain categories of business to claim input adjustment since an excise duty would now be implemented in sales tax mode, without actually being a sales tax. In another case the government claimed a ‘typo’ had been made, and quickly reversed some of the language.

Once clarity began to dawn, it became evident that not only were tax rates going up in just about all cases, but in many other cases the documentation requirements laid down were so stringent that manufacturers were about to find themselves estranged from their own distributors and retailers. One by one the realisation spread that nobody has been spared.

‘You will have to pay these taxes’ was the response they received wherever they went.

At this point, they began to speak to each other, first through their personal networks, then through the organised channels of the many trade and industry associations spread across the country. Chambers and association leaders were choked with calls from their constituents, each with their own story to tell. Some got an audience in higher places, others clamoured for attention. The powerful textile barons of Faisalabad even got the chairman of the FBR, and an important architect of the tax plan, to come and visit them. Others travelled to Islamabad and got audiences at the FBR, with the finance adviser at Q block of the secretariat.

A few anomalies were worked out, but by and large the government was not budging from its position. ‘You will have to pay these taxes’ was the response they received wherever they went. The prime minister himself told visiting delegations that he would not interfere and they should take their concerns to the finance adviser, from where these delegations had just come after a fruitless appeal.

Read: 'It's time to change the mindset on taxes,' PM Khan tells Karachi's businesspersons

Then the traders issued a strike call in Karachi, followed shortly by trader bodies in Lahore and Faisalabad as well. In all cases, they were given a tough message by the government. ‘You have come this far without paying your fair share in taxes, but today that journey ends’, they were told. Register yourselves with the tax authorities, and start filing returns and documenting your transactions.

Everybody has been asked to retain a copy of the CNIC of those they buy from or sell to. This applies to manufacturers as well as traders. Payments for which an input or output adjustment is sought must be made through a bank account, they’ve been told, so the details can be tallied up. It’s no more Mr Nice Guy, the new FBR chairman wants to tell all these undocumented businesses. ‘We will find you, because there are more registered industrial consumers of gas and electricity than there are registered with the tax authorities.’ Notices will be sent, raiding teams will visit your premises, neighbourhood police will be used to gather information in their areas.

Alarmed at all this, some delegations went to the army chief himself. As per their own telling, the message they were sent away with was the same. ‘Pay up, the country is going through a difficult time, all must shoulder their burden, we all know how much money you have made in years past’ and so on.

The state cannot back down now. They have already tallied up the revenue they intend to collect from this drive, written it into their projections for the next three years, and chiselled those projections into the IMF programme. They have told the IMF that their “ability to overcome entrenched resistance to reforms, will be critical for this new programme to succeed” where others failed before them.

The IMF knows all this. Thirteen programmes and three decades ago, all this played out for the first time, only to peter out as the state discovered that in economic matters it cannot simply force its way. The programme has one objective: reduce Pakistan’s debt to manageable levels. “Fiscal slippages and resistance to some of the fiscal measures could undermine the programme’s fiscal consolidation strategy, thus putting debt sustainability at risk,” the Fund says. “Progress in governance and institutional building may be opposed by vested interests”, they continue. “Moreover, the absence of a majority by the ruling party in the upper house may hinder the adoption of legislation needed to achieve programme objectives.”

The headwinds facing the government are about to get very intense indeed. No government can last long if it is at war with everyone, the politicians, the media, the business community. But in at least one of these confrontations, there is now little to do but plough ahead.

The writer is a member of staff.

khurram.husain@gmail.com

Twitter: @khurramhusain

Published in Dawn, July 11th, 2019