IN a statement before the National Assembly on Friday, Finance Minister Ishaq Dar rebuffed reports that the government was planning to impose new taxes on the agriculture and construction — including real estate — sectors.
A day later, he insisted that the taxes on these two sectors agreed with the IMF for its new $3bn loan, and widely reported in the media, had already been implemented in the budget for this fiscal year. “I want to categorically state that no new tax will be imposed on the agriculture and construction sectors … we have already endured the pain, and met all prior actions of the IMF programme,” he told parliamentarians.
The budget is estimated to generate additional revenues of Rs80bn by increasing the tax rate for builders and developers and non-filers on the purchase and sale of immovable property and second homes.
The changes in the rates were part of the government effort to secure the IMF bailout by raising additional tax and non-tax revenues during the present financial year to meet the programme goal of producing primary surplus equal to 0.4pc of GDP, as well as strengthen tax collection to 10.3pc of GDP.
Most additional revenue measures were announced on the day parliament approved the budget to satisfy the Fund after the latter’s criticism of Mr Dar’s original budget that the government had ‘missed’ the opportunity to broaden the tax base.
Though the tax target was eventually revised upwards, the minister tiptoed around the broader tax policy goal of effectively taxing undertaxed sectors such as retail, agriculture and real estate — especially incomes from these sectors.
However, this did not come as a surprise. The PML-N — or any party for that matter — and the powerful civil and military bureaucracy are averse to taxing incomes from retail, real estate and agriculture, the economy’s three largest segments, because of their own vested interests.
Former FBR head Shabbar Zaidi has narrated how he was prevented by the previous army chief from taking steps to document the massive ‘file’ business in real estate.
This government’s tax policy was set by a tweet from PML-N chief organiser Maryam Nawaz last year when she indicated to then finance minister Miftah Ismail through Twitter that he should revoke a nominal tax he had dared to impose on the electricity bills of the party’s core support group, ie, retailers.
The narrow tax base and low tax-to-GDP ratio means that the documented corporate sector and salaried classes will bear the burden of any increase in the tax target.
The last two budgets are evidence of this skewed policy. Though the new IMF loan deal commits the government to expand the personal income tax base by adding 300,000 persons, few believe the rulers have the political will to meet this condition.
Published in Dawn, July 24th, 2023
