It is difficult for the cash-strapped government, burdened with high debts and a not-so-easily manageable fiscal deficit, to present a ‘please-all budget’ for fiscal year 2015-16.
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However, with the level of stability so far achieved in a span of two years, some space has been created for public policy to tilt towards economic growth. And businesses, which have lived too long under a stability programme, are in no mood to miss this emerging opportunity.
Fearing a ‘harsh’ stability-oriented budget, many in the local business community are planning a forceful response if the thrust of the current budgetary policy is not changed. At this point of time, the key goal for them is: growth-oriented budget. Responding to this writer’s question by phone from Lahore, Mian Muhammad Mansha, chairman of the Nishat Group, cited examples from American history. He referred to ‘Reagonomics,’ which is associated with a reduction in taxes and the promotion of an unrestricted market. Mansha recalled that in the 1930s, then-US President Theodore Roosevelt had sought John Maynard Keynes advice. Keynes had “advised the US to increase the national output through investment to absorb the idle workforce. The advice was heeded and it heralded the spectacular ascent of the US economy”. He indirectly suggested that the government adopt a wealth-creation strategy. In an emailed response, the Overseas Investors Chamber of Commerce and Industry (OICCI) stated: “considering that the GOP has been quite successful in stabilising the economy, it is our expectation that the upcoming budget will be more focused on growth.
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We expect further reduction in subsidies and more funds committed for public sector development projects, including for the China Pakistan Economic Corridor projects. “In terms of revenue measures, the withdrawal of SROs and a greater focus in collecting taxes from sectors which have consistently evaded taxes [or are not in the tax net] are expected. “We hope incentives for investors will be enhanced. There is a need to boost the number of tax return filers.” Local business circles fear an increase in the tax rate for higher income slabs, hikes in the sales tax, capital gains tax and the power tariff, and the removal of special exemptions for certain sectors still in distress. The business community wants the policy focus to shift to increasing the size of the economic pie instead of the government grabbing a bigger chunk of the wealth. It demands a widening of the tax net and the slashing of wasteful expenditure. It has advised the PML-N’s economic team to desist from the temptation to further burden vulnerable citizens and the corporate sector, which are already paying more than their fair share into the tax pool and getting insufficient and inefficient public services in return. The multinationals are hoping that the government would vigorously phase out subsidies that result in market distortions, and that it would create an even playing field for all economic agents.
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Meanwhile, export-oriented medium-sized enterprises are worried as the withdrawal of any fiscal support could throw them off their feet. It would increase their cost of production, squeeze their margins and make exports non-viable for them. They cite the support that their counterparts in competing countries like India and Bangladesh are getting. The business community has taken a cue about the outline of the forthcoming budget from the statements of Finance Minister Ishaq Dar and the IMF staff after the completion of the seventh review by the Fund under Extended Fund Facility. In a press conference last week after talks with the IMF, Dar had assured the lender that over the next financial year, the government will strike down tax exemptions worth Rs100bn, increase power tariffs to settle the circular debt, cut subsidies, and make greater efforts to generate revenue. “Key priorities for the second half of the IMF programme include improving the energy sector, widening the tax net to create space for infrastructure investment and social assistance, improving the business climate and further strengthening external reserve buffers,” said IMF mission chief Harald Finger. Razak Diwan, CEO of Novatex, pointed out that the environment for local investors is becoming increasingly difficult.
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“How can a business regime be considered business-friendly if savings are taxed? Red carpets are being unfurled for foreign investors while potential local investors are made to run extra miles to invest in their home country,” he argued, and expected duties and taxes to go up in the next budget. Former FPCCI President Chaudhry Muhammad Saeed argued that the business community will be motivated as soon as the fruits of the power projects, now being executed, reach them. “Let there be stability, and as the quality of governance improves, the private sector will step forward and not fail the country.” Pakistan Knitwear and Sweaters Exporters Association Chairman Rafiq Habib Godil said the value-added textile sector is its closing ranks to deflect any attempt by the government to hurt its interest. American Business Council President Asad Saeed Husain e-mailed the following response: “We feel that adequate measures have not been taken by the tax authorities to broaden the tax base. Serious action needs to be taken to increase the tax-to-GDP ratio, including measures to document the economy and widen the tax net through direct taxes. We oppose increasing the burden on existing taxpayers”.