THEY say if you cannot control a situation you might as well lean back and let it happen.

This seems to have been the guiding philosophy of the budget 2020-21. Caught between the demands of the International Monetary Fund (IMF) and the expectations of relief from businesses and people, the Imran Khan government came up with a document, which is neither here nor there.

The budget document has mostly been used by the government, which has now been in power for almost two years and presented two mini and two full-year budgets, to pass on the blame for its harsh IMF-mandated policies to the spread of the disease and indiscreet policies of the past administrations. That is less than half the truth.

The lack of bold policy response and initiatives have disappointed the businessmen.

Abdul Basit, a former president of the Lahore Chamber of Commerce, says the budget apparently assumes that businesses would wriggle out of the disastrous impact of the pandemic. “But that assumption is totally misplaced; no business can shake off the adverse effects of the pandemic without government support.”

“The government’s focus has mostly been on facilitating construction and tourism. I wonder how it can boost these two sectors in the age of coronavirus”

He appreciates the incremental measures taken to improve ease of doing business but says the budget has failed to give a plan to save businesses in distress. “We were expecting the government to give the (sick) industry cash injections to prevent their permanent shutdown by extending the scope of the State Bank policy allowing restructuring of bad loans to all units still operating despite Covid-19,” he argues.

Additionally, Mr Basit says, the industry is expecting further cuts in the interest rate to bring down the input costs as well as a reduction in the electricity and gas tariffs. He is also disappointed to see no policy measure in the budget to boost fresh investment. “Indeed, the government has taken some steps to ease the business environment but these aren’t enough. This is an extraordinary situation and requires an extraordinary response to save existing investment and encourage new projects. The budget does nothing on these counts.”

Ahmed Jahangir, an executive director at a major textile company, agrees with him. “The budget makers have tinkered with the tax policies here and there like reduction in import tariffs on raw materials and 2pc cut in sales tax on retailers linked to the Federal Board of Revenue but nothing drastic is done. The government focus has mostly been on facilitating construction and tourism. I wonder how it would boost these two sectors in the age of coronavirus.”

Syed Nabeel Hashmi, the chairman of the Punjab Industrial Estate Development and Management Company, is the optimistic one. “The government has done a decent job in the current circumstances. I am happy that the focus on tariff reforms continues to help the industry reduce its costs and save it from a lot of hassles.”

Nevertheless, like others, he is also worried about the unrealistic tax collection target, saying it is impossible to achieve this target without strangulating the industry. In his view, the new budget reiterates the government’s priorities: higher tax revenue and continuation of the IMF stabilisation programme.

Almas Hyder, another former president of the Lahore Chamber of Commerce and Industry, dubbed it as a “survival budget” with little to offer the small and medium enterprises (SMEs) or the export sector. “It does not make many changes in the existing policies. The documentation drive continues (without any regard to the impact of the virus pandemic on businesses and jobs). Now the factories have been bound to not sell more than 20pc of their production to a customer who is a tax non-filer. The step will ultimately benefit the economy but will damage the businesses in the short term,” he argues.

Exporters aren’t happy either as the budget offers no incentive to boost exports and remove hurdles in its growth. “The global trade is heavily affected by the restrictions imposed by countries to halt the virus outbreak. The lockdowns in many countries continue with global demand dropping as many foreign buyers have declared bankruptcies and closed their stores, leaving their suppliers without clients,” says Ijaz Khokhar, a textile clothing exporter from Sialkot.

In these conditions, he adds, “the exporters were expecting some plan to help them boost their global competitiveness, and find them new markets and customers. But the budget carries no such things. Textile exporters are also not sure if they will continue to get energy at the current rates. Neither it carries the steps needed to simplify the export refund system or automate the credit of export rebates upon realisation of the export proceeds, especially for the SMEs that are always in dire need of liquidity. The restoration of the zero-rating regime for the export industries would have been a great help to exporters.”

Ziad Bashir
Chairman, Pakistan Retail Business Council Founder, Ideas

FOR the documented retail sector, the past year has been very challenging. Sales tax was increased from six per cent to 14pc, rendering the compliant sector uncompetitive. Interest rates were increased twofold and disposable income was sucked out of the family unit by increasing the salary tax. Rents became high, import duties were increased and cash flow and liquidity became tied up between taxes and financial institutions. Large brands started closing branches even before the pandemic struck.

When the lockdown was announced, retailers were sitting on the highest inventory levels ahead of Ramazan. The sector went from having a horrible year to fighting for its very survival.

There was just one ask: a one-point agenda to lower the sales tax for one year back to 5pc to keep the documented sector solvent. The government decided to lower the sales tax by two percentage points only. The government decided to take the safe route and pass a budget, which would have been acceptable in a routine year.

Khurram Mukhtar
Patron-in-Chief, Pakistan Textile Exporters Association

TEXTILE exporters didn’t get any impression of real restructuring at the FBR. They appreciate the proposal for the automation of the exemption certificate. But a comprehensive reforms plan is still missing.

The ongoing pandemic requires the development of an export-oriented economy. But the current framework does not support exporters to help them sustain and grow exports. The primary challenge is the growing undocumented or informal sector of the economy. The budget should have proposed more mobile banking and financial inclusion initiatives to encourage digitisation in order to curb cash transactions.

Published in Dawn, The Business and Finance Weekly, June 15th, 2020