Deeply concerned about the continuing hike in taxes and energy prices, trade bodies are pressing hard the country’s policymakers to review the revenue-triggered policies that stifle economic activities, impair business confidence and discourage investment, growth and employment.
Ministries are working in silos chasing revenue for short-term targets while sacrificing the health of business and the economy in the long term, the Pakistan Business Council (PBC), a leading industry advocacy body, said in reaction to the Power Division’s decision on Jan 13 to revise upwards the quarterly electricity tariff and fuel adjustment charges with unexpected policy deviations.
Worried about the government’s knee-jerk policy U-turns, especially with retrospective effect, the PBC said they did not bode well for the economy’s competitiveness and investor confidence.
The industry has been hit by an increase of 35 per cent in the average electrify tariff over the last 18 months. “Why should exporters be encumbered by legacy, inefficiency and idle capacity costs of our poorly managed energy complex?” asks the PBC. It has warned that yet another knee-jerk U-turn in government policies could discourage investment in capacity and capability.
Which domestic constituency does the self-declared anti-elitist PTI represent and work for?
It may be pointed out here that the government has failed to restructure energy companies or privatise them over the past one and a half years.
Observing that the outlook for inflation has remained broadly unchanged, with risks that included the potential increase in utility prices, the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) decided on Jan 28 to keep its policy rate unchanged at 13.25pc.
The committee overlooked the fact that private-sector borrowings have plunged owing to a high interest rate. With exports moving at a tardy pace, attracting dollar investments in government securities has apparently become a priority to keep foreign exchange reserves at a comfortable level and the rupee stable.
Despite a drastic cut in imports financed substantially by foreign loans, debt-servicing costs have surged on account of both unprecedented dollar borrowings and a huge rupee depreciation, widening the gap between revenues and expenditure for the much-criticised taxpayers to fill.
Sidelined in the reforms agenda, both industry and agriculture have been hit by current stagflation. Industry leads growth in other sectors and agriculture, notwithstanding the steep fall in its contribution to GDP over time, is still the backbone of the country’s industrial economy. It is industry that provides the government with the bulk of tax revenues.
Economic mangers have also not made much headway in reducing the cost and ensuring the ease of doing business. Though there is so much talk about tax reforms, there are 60 different direct and indirect taxes that the business community is forced to pay, laments the former president of the Islamabad Chamber of Commerce and Industry, Mohsin Khalid.
A tax expert says at least some taxes with a very low yield could have been abolished as Sindh has done in one or two cases in the services sector to avoid unjustifiable hassles for both taxpayers and tax collectors.
Stating that the incidence of double taxation is an example of the Federal Board of Revenue’s (FBR) poor management, Mr Khalid stressed the need for tax harmonisation and effective coordination between the federal and provincial tax authorities.
There are around 150 licences, including 74 from provincial governments, which are required for retail shopkeepers and businessmen to be operational. Prime Minister Imran Khan has now directed relevant authorities to abolish unnecessary taxes, licences and inspections.
Notwithstanding these historical legacies, notable industrial progress was made under the last PML-N government and agricultural activity received a stimulus under the last PPP government. That explains why the PPP retains its political grip over rural Sindh while developed Punjab remains the stronghold of the PML-N. Their support to commodity-producing sectors provided their politics with muscle.
Earlier economic activities were substantially debt-driven, and now the ‘stability’ programme is being fuelled by a further accumulation of debt.
Soon after assuming power, the PTI withdrew tax concessions given by the outgoing PML-N government to the middle class whom Imran Khan’s party is supposed to represent. That worked against the promotion of a middle-class economy with a happy blend of the elitist component.
The impoverished blue-collar workers and the jobless are being asked to share PTI’s dreams supported by some doles here and there with no hope to join the ranks of the middle class any time in the near future. The question arises as to which domestic constituency the self-declared anti-elitist PTI represents and works for.
The underperforming economy has shaken business confidence and weakened the PTI’s foothold in its political constituencies. Now the situation of party MNAs and coalition partners is not as smooth as it was earlier, a PTI source was quoted as saying after the recent meeting of PM Khan with party legislators in Lahore. The ‘political disconnect’ between the elected representatives and the civil bureaucracy in Punjab is growing. In Khyber Pakhtunkhwa, three provincial ministers were removed for publicly opposing the chief minister.
The country’s politics is in the melting pot, and brewing political instability will likely enhance risks to macroeconomic stability. Banking on over-used IMF prescriptions and that too in changing times, the cash-strapped PTI government is focussed on an administrative fiat to raise revenue while depressed economic activities are reducing the potential for tax revenue.
It is time to remove the mismatch between the IMF-agreed programme and the imperatives of private sector–led economic growth to pull the economy out of a deteriorating situation.
Published in Dawn, The Business and Finance Weekly, February 3rd, 2020