Contrary to the Finance Minister Shaukat Aziz’s repeated claims that the budget for the year 2002-2003 scheduled to be announced on June 15 would be tax-free, in reality the budget is expected to put substantial direct and indirect tax burden on the common man.

The government has decided to levy 15 per cent general sales tax (GST) on vegetable ghee and cooking oil, withdrawal of 55 income tax exemptions including reduction of limit of withholding tax on National Savings Scheme from Rs300,000 to Rs150,000 and levy of 5 per cent customs duty on most of the zero rated goods are the part and parcel of the upcoming budget.

Can the government present a tax-free budget for the year 2002-2003 ? This is a question generally asked by every stakeholder these days. The bad news is that the next budget is going to be tax-laden as usual with no notable relief to the poor. The process of increasing indirect taxes appears to be a never ending one and a number of items are on the card to be brought under the general sales tax net(GST).

To avoid public resentment, this is a very common practice to levy taxes on items much ahead of the announcement of the budget or after its announcement. The government had already levied GST on all kinds of fertilizers at all the four stages, brought pharmaceuticals and maximum agriculture inputs under the GST; besides, raised the rate of GST on more than 200 items from 15 per cent to 20 per cent.

Now, one can ask the finance minister and the economic wizards that do these not come under the category of taxes, which were levied much earlier than even preparation of the budget.

The new budget, if it is expected to provide some relief to the corporate sector, is carrying a dose of bitter pill for the ordinary people at the same time. The levy of 15 percent GST on cooking oil and vegetable was promised with the IMF, which will now be imposed in the budget. Again this will make this essential kitchen item beyond the reach of common men, who were already reeling under the multiple tax burden. The officials estimated that about Rs 4 billion would be generated from this head. However, with this levy the prices of ghee will go up drastically.

The government instead of considering to enhance GST on certain items it should have seriously considered to reduce general sales tax (GST) from 20 per cent to 15 per cent on most of the items in the budget. While, practically the raise in levy last year resulted in low consumption of these goods as compared to that of previous year.

One thing is now clear that the maximum tariff has to be lowered to 25 per cent from the next fiscal year, with further reduction of total slabs to four for different items.

The question is that either this downward reduction will provide sufficient protection to the growth of local industry or only increase imports from other countries.

The tax authorities were attaching much importance to the scaling down of customs tariff, which they say will have no major impact on the local industry. They say that some of the industry might register decline in their production, which will be compensated through lowering of duty on import of their raw materials.

Apart from this, the most ugly news in the budget may be the likely levy of five per cent customs duty on all the zero rated items except a few.This will raise the prices of all affected products.

On the other hand, it was expected that the SROs culture might be done away with in the next budget and only general SROs will remain in operation for all and sundry to prove transparency and to a great extent reduce the hurdles being faced by the industrialists. Last year the government had lowered the number of SROs to 56 from 120. This year, this should be brought down to almost half to ensure transparency and create competitive environment for the local industries.

And to treat all industries at par, it is also necessary for the government to do away with the over-protection afforded to certain industries under political influence.

It is believed that the rationalisation of customs tariff will result in a loss to the tune of Rs 3 billion, which customs officials believe will be plugged by levying five per cent customs duty on most of the exempted items from the next fiscal year.

To facilitate businessmen, it was also necessary that the government should merge all the customs general orders (CGOs) being issued in the last 30 years into a few for their facilitation.

According to the customs officials the 3.18 per cent growth registered in production of the large scale manufacturing industry in the period of July-March was due to the amendments in the customs procedures and rationalisation of the customs tariff last year. They say that this year they expect that the growth will be doubled due to increased facilities and liberalisation of customs tariff.

Contrary to this, the sword of the Income Tax Ordinance, 2001, with minor changes is hanging over the peoples heads, as it would come into effect from July 1, 2002. There is again a question whether the new law will work cordially while replacing the one in operation for the last two decades.

The budget 2002-03 is going to give a big blow to the people in the withdrawal of 55 income tax exemptions from the list prepared by the committee to revise the income tax ordinance. These exemptions will have an adverse impact on the people but the government is less bothered as it had already committed with the IMF to implement it during the current fiscal.

Are the withdrawal of 55 exemptions not new taxes? This is one of the hard reality which the government even does not want to admit.

The hottest and unbearable issue of the budget for the people will be the taxing of perquisites of the salaried class from the next financial year. This would ultimately increase the average tax liability of every employee by 25 per cent to 205 per cent. With this coming into force, most of the recent raise in salaries of the government employees will be neutralized, besides affecting the salaried class of the private sector.

Apart from this, the second blow will be the reduction of the limit of withholding tax exemption from Rs 300,000 to Rs150, 000 on income from national savings and post office savings schemes from the next financial year.

The government has also decided to issue the record keeping rules for all the taxpayers making them liable to keep all the relevant record for the assessment of their income liability. Analyst said that this is a good action which will help in the documentation of the economy.

Some relief for the corporate sector in the shape of reduction in existing corporate tax rates is on the card from the next financial year. However, there is a need of uniform tax rate for the corporate sector as is the case in most of the countries. Another good aspect of the budget may be the proposal of raising the income tax exemption limit for individuals, Hindu undivided families (HUFs) and association of persons (AOPs) from Rs60,000 to Rs80,000.

Besides, the government has also decided to do away with the withholding tax levied on remittances through outstation cheques. On the other hand withholding tax on petrol pumps to be abolished as the revenue yield is small and the number of recipients of commission is too large. And the withholding tax on indenting commission may be reduced to 5 per cent from 10 per cent in the budget.

On central excise side, it is a good news that the government is likely to abolish it on polyester filament, polyester chips, shipping agent, advertising agent and travel agent from the next financial year.

Taking cue from this, it is said the government wants to bring more and more items in the tax net to increase revenues to cross the psychological barrier of Rs400 billion. Instead of raising taxes, the government should enforce effectively the tax laws, plug loopholes and reduce corruption in the tax machinery which are responsible for consecutive failures in achieving targets. It is said that about 10 per cent of the registered taxpayers in the sales tax department pay 90 per cent of the total revenue while the remaining 90 per cent pay 10 per cent of the revenue collected under the head of sales tax.This shows the incompetence of the tax authorities to bring the tax evaders to pay full tax.