LESS than two months after the passage of the national budget, the PML-N-led ruling coalition has announced new taxation measures of around Rs50bn. Its decision has been necessitated by the government’s need to cover the significantly large hole created in its budgeted revenues due to the withdrawal of the new fixed tax regime on retailers and the cash given to PSO to save the state-owned oil company from defaulting on its foreign payments. Meanwhile, the government has lifted the two-month-old import restrictions on luxury items and introduced new taxation measures to make items like cars and handsets expensive enough to inhibit demand and contain the rapid rise of the current account deficit. Once approved by parliament next week, these steps will help the government meet the requirements of its pending deal with the IMF for the resumption of the lender’s bailout package by the end of this month. The new measures will shift the major additional revenue mobilisation burden of Rs36bn onto the tobacco industry. The remaining amount will be raised through the imposition of 400pc to 600pc regulatory duty on luxury cars, cellphones and home appliances.
The good thing is that the new taxes do not affect the common people, and are in line with the stated policy of the government to slow down growth during this fiscal to ensure external sector stability by plugging the outflow of dollars as the country’s liquid foreign exchange reserves slide below $8bn. Yet it is hard to support the decision to revoke the fixed tax regime to appease the party’s core constituency — traders. Although present retail tax rates are being revised, the withdrawal of the fixed tax regime will give traders tax discounts of at least Rs15bn. A good taxation policy that taxes all incomes fairly and equitably is essential to ensure sustainable economic growth and provide relief. Sadly, we have seen successive governments give in to the political pressure of different lobbies, stop short of taxing the untaxed and undertaxed sectors, and shift the tax burden onto existing corporate and individual taxpayers. The government hasn’t done any differently. Instead of increasing the tax base to raise the abysmally low tax-to-GDP ratio of 9.2pc, it has chosen to further milk existing taxpayers. No matter how tough times are, the present crisis can be an opportunity to put our house in order by taxing the sacred cows of our economy.
Published in Dawn, August 20th, 2022