With the third wave of Covid-19 receding, the vaccination drive expanding, a tolerable political temperature, positive economic data and a trusted friend in the finance minister’s office, the business community of Pakistan believes its stars are aligned and wishes to make the most of it. As of now, it expects this buoyancy to continue post-budget.
Familiar with the International Monetary Fund (IMF) programme and its focus on stabilisation, the tycoons dreaded a rollback of the loaded government packages under the donors’ watch.
“If there is anyone who can stand up to the IMF, shield the current concessions and get away with some more, that’s Shaukat Tarin,” an elated tycoon said privately while discussing the anxieties in his circle after the revival of the IMF programme in March.
Since assuming office earlier this month, Finance Minister Tarin has repeated his commitment to accelerated economic growth and promised not to impose any new tax in the upcoming budget. He gave his word to the business representatives that he would leash the tax hounds who had constantly been bothering them. The discussion, if any, on the quality of growth or the equitable sharing of wealth created with government support has not been made public.
The business community is upbeat and expects economic buoyancy to continue after the budget
One economist considers the current gesturing of the strongman — Finance Minister Tarin — regarding the IMF misleading. “You are dealing with a multilateral entity here. Playing to the gallery is one thing, but it’s common knowledge that IMF programmes are not open-ended. Some minor adjustments can probably be requested, but renegotiating a concluded deal is different. The government needs to be careful with its choice of words or it can land in trouble with the IMF, especially when the country desperately needs its health certificate for international market operations,” he commented.
Dr Shahid Kardar, former central bank governor, was a little worried about the future. “The country faces political and economic challenges in the near future, uncertainty and likely tense environment in the region following the exit of the Americans from Afghanistan, costs of servicing the massive and growing domestic and foreign commercial debt, burgeoning liabilities of capacity payments and the political implications of the IMF-supervised course to achieve fiscal discipline will render it harder to achieve the next year’s growth target, especially after the current growth spurt (a likely revised five per cent expansion for 2020-21 from a contraction much sharper in 2019-20 than reported by the National Accounts Committee).
“The evolving structure and pattern of growth of the economy and the ravages of Covid-19 have resulted in real wages of the largest, but less skilled, segments of the labour force squeezed by 8pc over the last 18-20 months, signaling a narrow base of growth beneficiaries. Addressing these challenges is highly likely to be a longish haul.”
Dr Rashid Amjad, an eminent economist, called for widening incentives for investment and growth accompanied with an agriculture package to spur productivity. He also made a case for direct income support for the poor and the implementation of the prime minister’s housing and Sehat Card plans. He believes revenue targets will be met by broadening the tax base to cover trade, services and high pensions. In a written response, he said: “The Public Sector Development Programme (PSDP) will be increased by Rs100 billion for creating jobs, containing the circular debt, avoiding the power rate hike and shifting the current federal expenditure to the provinces. The public-private partnership will be encouraged for infrastructure projects.
“There will be a fresh thrust towards China-Pakistan Economic Corridor (CPEC)-supported special industrial zones and measures to pursue robust economic diplomacy.”
“The government with various economic packages managed to keep the economy afloat during the worst year in the memory of the current generation. As things start looking up globally, there is every reason to think positive. All we need is a little tweaking of policies in the upcoming budget to remove the hitches deflecting investment. I foresee the future arriving earlier than the nation expects,” said a businessman happy with his recent interactions in Islamabad.
Responding to Dawn’s query on budget expectations, Pakistan Business Council (PBC) Chairman Saquib Shirazi shared his ideas about a sustainable growth-focused budget. He listed three key challenges: revenue, employment generation and global commodity super-cycle leading to inflation.
He suggested “volume-based growth budget” eyeing enhanced liquidity in the system owing to higher remittances and savings on travel etc under Covid-19. He advised the thrust towards local investment and consumption be supported. To this end, the State Bank of Pakistan (SBP) should offer a temporary economic refinance facility (TERF) for expansion and modernisation.
“Efforts to broaden the tax base can succeed only if the ease and fairness for the base of existing taxpayers is ensured,” he said. To maintain the growth momentum, the government needs to further facilitate export-propelling textiles, IT and engineering sectors and job-creating SMEs with TERF. The government should ease inflation by chopping multiple duties, curbing imports and hedging against inequity by boosting agriculture productivity and production, he said. The focus of revenue needs to be on volume-linked sales and income tax whereas the customs duty on industrial inputs not produced locally should be reduced.
“To spur confidence and spell the intent, the government can reduce the minimum turnover and withholding tax, cut the energy cost by implementing renegotiated deals and timely telecom (spectrum) auctions to consolidate IT infrastructure and exports.”
Irfan Siddiqui, CEO of Meezan Bank and president of the Overseas Chamber of Commerce and Industry (OICCI), said his proposals focused on supporting existing investors and laying the foundation for accelerated future foreign investment in Pakistan.
“We believe this is not the time to ask for concessions, but the announcement of a plan for the gradual reduction in the corporate tax rate and general sales tax to 25pc and 12pc over the next five years. Currently, it is crucial that the minimum turnover tax of 1.5pc should be reduced and replaced with a normal tax regime. Listed companies and the firms in special economic zones should be exempt. For low-margin businesses such as chemicals and oil, it needs to be cut to 0.2pc and made fully adjustable.
“The government must reduce cumbersome tax compliance reporting, reduce withholding tax from current 45 rates to 10, do away with the fixed tax regime and include withholding taxpayers in the filers’ list. More concrete steps to curb the illicit trade of cigarettes, petroleum products and other items are necessary.”
Khurram Mukhtar, patron-in-chief of the Pakistan Textile Exporters Association, pleaded for the continuity of the current policies. He hopes for the reduction in the general sales tax rate to free up capital locked in inventories and sufficient allocations to clear refund and energy claims besides the announcement of a five-year textile policy.
Amin Hashwani, CEO of the Hashwani Group of Companies, expressed concerns about the distressed segments of society. “Inclusive growth even under normal circumstances is a challenge. During Covid-19, the task has become multiple times more difficult.” He raised some pertinent questions. “Mr Tarin has the private sector’s backing, but what about the rest? Is it realistic to expect the government to honour the National Finance Commission’s demands?”
Ibrar Mumtaz, an analyst, expressed his distrust in the bureaucracy, particularly the Federal Board of Revenue, and saw it as a key spoiler. “Tax revenue will increase if the contact between the tax collector and the taxpayer is eliminated.”
Majyd Aziz, president of the UN Global Compact Network, was optimistic. “Positive economic indicators have boosted morale and the budget must do the needful to maintain the momentum.”
Published in Dawn, The Business and Finance Weekly, May 31st, 2021