THE tax-heavy budget for the next fiscal year approved by parliament on Friday will make the life of average Pakistanis even harder and further deepen the trust deficit between the ruled and the rulers as it imposes an array of additional taxes that will directly hit low- to moderate-income households.

The government has unloaded additional taxes of Rs1.7tr to meet its ambitious tax revenue target of Rs13tr, up by over 40pc from the outgoing fiscal year, to finance its growing expenditure and secure a new, larger bailout deal from the IMF.

Every official, from the prime minister down, has tried to use this budget to present the hope of a great economic turnaround in the next few years, but questions are already being raised over the integrity of its targets and the measures it contains. The last-minute changes made in the finance bill, which imposed fresh tax measures of Rs200bn in addition to Rs1.5tr contained in the original bill just before its approval by parliament, betray the government’s lack of confidence in its own targets.

Many economic experts justifiably believe the government will not be able to achieve its tax collection target. The budget has increased direct tax collection by 48pc without actually expanding the existing narrow tax base.

Moreover, it lets off those not in the tax net by preserving the so-called category of ‘non-filers’, a term invented by Ishaq Dar years ago to keep quintessential tax evaders, including traders, realtors, property developers, etc, out of the income tax ambit. Likewise, they say, the estimates of a 35pc hike in indirect taxes next year are exaggerated, given the current economic slowdown and reduced purchasing power of the majority.

The finance minister has repeatedly said that the present budget aims to reduce the budget deficit and raise the tax-to-GDP ratio from the existing 9.5pc to 13pc in the next three years. The budget details do not match the rhetoric. The measures introduced have been the opposite of what the prime minister and finance minister have been promising.

While some reforms such as the withdrawal of tax exemptions for certain lobbies like exporters have indeed been carried out, the budget falls far short of inspiring confidence in the government’s ability to execute structural changes, especially when it comes to reducing its own wasteful expenditure and bringing undertaxed and untaxed sectors, including retail, agriculture and real estate, which have much political clout, into the net.

Essentially, the budget perpetuates the past, beaten economic strategy, tweaking policies here and there, which will hardly have a meaningful outcome. By burdening the middle classes with maximum taxes and levies, without cutting its own expenditure, the government is only ensuring that the gulf between itself and the people is never bridged.

Published in Dawn, June 30th, 2024