“Inflation is taxation without legislation”  

Dr. Ikramul Haq

 “Inflation is taxation without legislation—Milton Friedman—Editorial of November 11, 2009 in Wall Street Journal, titled, Taxation without Legislation

The budget for fiscal year 2020-21 was made amidst very difficult times when the country was suffering immensely—in terms of human casualties and economic hardships. It was claimed by the coalition government of Pakistan Tehreek-i-Insaf (PTI) that it would remain in the programme of International Monetary Fund (IMF). However, it will negotiate not to impose new taxes, raise the prices of electricity, POL products and eatable consumed by the poor people. Within 20 days of the passage of the budget for fiscal year 2021-22, it did all required by IMF. It is not only highly immoral—all political parties damn care about—but also going to be destroy tall claims about growth. Current account situation will also deteriorate further with high import bill of POL products and import of commodities like wheat, cotton and sugar, just to mention those we once used to export. 

The PTI has been celebrated with great funfair of plus 4% growth, overcoming current account deficit and moving towards higher and sustainable growth, notwithstanding economic meltdown due to Covid-19 endemic, especially after the third and deadly wave that played havocked. Now the fourth one is here, and one hopes it will be overcomed—though numbers are frightening and measures are inadequate.

Just a six days before the Eid al-Adha, the PTI Government on July 15,2021 increased prices of all petroleum products to historic high for the next 15 days to pass on the partial impact of increase in international prices and rest oppressive taxes on crude oil like 17% sales tax on crude and 10% customs duty plus local sales tax and other oppressive withholding taxes.

The new prices, issued by the Ministry of Finance (MoF), are:

• ex-depot price of petrol increased by Rs. 5.40 per litre and that of high speed diesel (HSD) by Rs2.54 per litre.
• ex-depot price of kerosene was increased by Rs. 1.39 per litre and that of light diesel oil (LDO) by Rs1.27 per litre.

The above is the highest-ever petrol rate, as per available official record, as it had previously peaked at Rs. 117.83 per litre in August 2019, according to a report by an English newspaper.

The report reproduced the following reactions from various stakeholders and ordinary citizens:

“The Punjab chapter of Petroleum Dealers Association of Pakistan was first to cry foul, even before the government announced the increase. In the morning, its general-secretary Jehanzaib Malik, in a press statement said that expecting increase, the oil marketing companies (OMC) had squeezed supplies up to 90 per cent in the last four days, creating crisis for stations”.

“They [OMCs] do it regularly—on on 15th and 30th of every month—especially if they expect increase”.

“For the last four days, supplies were reduced to minimum. What all these companies do during these days leading up to increase in price, they build up stocks, fill the supply chain and flood the market once price in increased. The kind of money they make can be judged from the fact that the city has around 350 stations, with an average of sale of 15,000 litres. Each station would roughly yield additional Rs. 80,000. Multiply it with 350 and it comes to around Rs. 280 million a day, he rues, claiming: “One would see oil carrying vehicles making bee lines at each station to fill its tanks and mint money.”

“Oil moves the whole society, its commerce and trade. Expect freight charges going up in the next few hours and the entire cost passed on to the commodities (fruits, vegetables and milk etc.) that are transported to city on a daily basis,” says Muhammad Ramzan, a fruit trader in the city main market”.

“The truckers do not make formal announcement of increased fares, they simply and quietly increase them and people realise when prices of daily commodities jump. In the next 24 hours, price of vegetables and fruits would surely go up. How much? It would depend upon how much truckers exploit the hike in diesel price (Rs2.54 per litre),” he says.

“Agriculturists are equally furious. “How can a farmer plan his investment (running of vehicles, farm machinery and tubewells) on crops if he has to face multiple increases in diesel rate?” laments Pervaiz Hassan, a farmer from Arifwala”.

“The entire public transport runs on diesel, and those using it are enraged. “The transporters would certainly hike fares double than what the current increase in diesel price justifies,” says Kausar – a house help worker who commutes daily from Walton to Waris Road”.

“The Pakistan Peoples Party condemned the increase in petroleum prices, saying the governments around the world facilitate their citizens, especially before a religious festival. In Pakistan, the PTI is punishing people before Eidul Azha. Deputy secretary information Munawar Anjum in a statement said during the last three years of its rule, the government had done nothing but to inflict high inflation on the people”.

Another report posted the following disturbing facts:

“The federal government has decided to increase prices of wheat flour, sugar and cooking oil in the range of 19% to 53% at the Utility Stores Corporation (USC) by reducing subsidies for the poor, taking a second major administrative decision in as many days that will further fuel inflation”.

“Despite the claimed sugarcane bumper crop, Economic Coordi­nation Committee (ECC) meeting–chaired by Minister for Finance Shaukat Tarin also approved to import 200,000 metric tons more sugar, taking the total quantity to 300,000 metric tons within three weeks”.

“The ECC also approved the revision in prices of three essential commodities namely, wheat flour (atta, 20 kg-bag) to Rs950, ghee (per kg) to Rs. 260 and sugar (per kg) to Rs85, owing to an increasing gap between the subsidized prices offered by the USC and the prevailing market prices”. 

“The wheat flour prices were increased by 19% or Rs150 per 20 kg to Rs950. The market price is Rs1,235, according to the Ministry of Industry”.

“The ECC decided to increase ghee prices by 53% or Rs. 90 per kg to Rs. 260. The market prices have increased to Rs. 330 per kg due to wrong taxation policies and surge in prices in the international market”.

“The sugar prices were proposed to be increased from R. s68 to Rs. 80 but the ECC decided to increase it to Rs. 85 per kg—an increase of 25%. The summary stated that the market prices were Rs104 per kg”.

“In the budget, the government changed the mode of taxation on sugar from wholesale to retail price, which has given a shock of Rs. 7 per kg increase in the prices.

The report says:

“Prime Minister Imran Khan had announced Rs. 50 billion relief-package to provide essential food items at subsidized rates but the government never released the full amount. Against Rs50 billion PM’s Covid package announced in April last year for the USC to provide five essential items at subsidized rates, only Rs7.7 billion had been provided for spending as of the third week of June this year, indicating a gap between political promises and actual delivery on the ground”.

“The PM’s USC package had been offered till June last year but due to the USC failure to utilize the funds and low allocations by the finance ministry, the package remained largely unutilized. The ECC was informed that the Enterprise Resource Planning system, currently being installed in the USC may not be operational prior to the end September 2021”.

“In this situation, the PM’s Relief Package 2020 may be extended from July 15 to September 30 or the introduction of the targeted subsidy regime, whichever is earlier, at an estimated cost of Rs/ 3.1 billion”.

“The ECC also approved a summary moved by the Ministry of Industries and Production for importing 200,000 metric tons of sugar to build strategic reserves and minimize the role of speculative elements in the domestic market. In case of need, more reserves will be built through import, the ECC decided.”

“The ECC also allowed procuring 200,000 cotton bales through the Trading Corporation of Pakistan to promote cotton production and bring stability in the domestic market.The ECC also approved the formation of the Cotton Price Review Committee (CPRC) with a mandate to review market price and propose intervention on a fortnightly basis. The ECC decided to link the domestic cotton prices with the CotLook-A Index and set it at 90% of the index”. “The government will intervene in the cotton market only when the cotton prices would fall below Rs5,000 per 40 kg. The cotton production has dropped to just below 7 million bales during the third year of the PTI government, mainly due to decline in crop cultivation area in Punjab and thin profit margins, the ECC was informed”.

“The ECC also approved the amendment in its earlier decision dated 19-02-2021 regarding the “Prime Minister’s “fiscal package for Agriculture in the wake of Covid-19 Kharif. The package offered a subsidy on DAP at the rate of 1,500 per acre for cotton and rice crops, during the Kharif Season 2021. Now according to the amendment, the farmers can avail subsidy on any phosphatic fertilizer according to their choice”.

“The ECC approved a summary tabled by the Power Division regarding non-cash settlement for Power Sector re-lent loans against subsidies payable by Government of Pakistan equal to Rs116 billion”.

The National Transmission and Dispatch Company (NTDC), WAPDA, Pakistan Atomic Energy Commission (PAEC) and Neelum Jhelum hydropower company owe Rs273 billion as of May this year and their receivables were Rs347 billion as of June last  year. The PAEC had given consent for settlement of Rs16 billion dues, WAPDA Rs41.4 billion, NTDC Rs31.8 billion and Neelum Jhelum Company Rs15 billion, bringing the total to Rs104.2 billion. However, the finance minister asked to increase the non-cash settlement amount to Rs116 billion”.

“The circular debt is estimated at Rs.2.4 trillion as of end June this year. The government has now started settling the debt from the budget but has not yet been able to improve efficiency to reduce the debt build up”.

The Prime Minister needs to be told that to come out the above mess, “out of the box solutions” and the way forward is already provided by the Pakistan Institute of Development studies (PIDE) in PIDE Reform Agenda for Accelerated and Sustained Growth, (April 2021), launched on April 22, 2021. The launching ceremony was chaired by Mr. Asad Umar, Federal Minister for Planning, Development, Reforms and Special Initiatives.

The fourth (unelected) Finance Minister, Shaukat Fayaz Ahmed Tarin,whoheld the same portfolio from 2008 to 2010 in the Cabinet of Yousaf Raza Gillani, was highly critical of economic policies of his predecessors but now doing much worse than all.

It is a fact that even after three programmes of IMF, availed by PPP, PMLN and PTI, our economic woes are continuing, rather becoming sever with every passing day. In view of conditions contained in  IMF’s Country Report No. 2021/073 of April 8, 2021, the Government of PTI, as predicted, was, in the coming days, had to accept all the demand ensuring more miseries for common citizens and destroying businesses adversely affected by Covid-19

Big to small and medium enterprises (SMEs) have been demanding a comprehensive bailout, including tax reliefs. They are complaining of facing difficulties in securing loan facility announced by SBP to pay salaries/wages. Those on rent are demanding remission/deferment/loan to pay the same. Their demand is of interest-free loan and/or grant to employees to avoid lay-offs as after opening of businesses, they argue, it will require many months to recoup losses and achieve break-even position. Amid this bleak scenario, they claim that markup would be an additional burden.

Unfortunately, nobody is talking about reducing wasteful expenditure, right-size the monstrous size of government machinery, monetize all the perquisites of civil servants and make taxes simple and low-rate. State lands, lying unproductive owned by the federation and provinces by elites, should be leased out for industrial, business and commercial ventures. It will generate substantial funds, revenue (through public auction 5% as full and final tax can be collected amounting to billions) and facilitate rapid economic growth.

Devising a rational policy and revenue mobilisation strategy is the biggest challenge before Shaukat Tarin. All agree that we need to adopt economic policies aimed at rapid growth and investment. On taking charge, Shaukat Tarin rightly highlighted that his top most priority would be sustainable growth and prosperity for all the citizens. Taxes will increase with growth and not by high taxes and withholding provisions. The contrary prescription by IMF of higher taxes and costly energy will lead to unemployment and dismal growth. This is what the PTI Government is now exactly doing.

It is still time for Prime Minister and Finance Minister to consider the following to come out the present mess and stop taxing the masses through inflation:

1. Budget 2021—the public view, Daily Times, June 19, 2021

• Budget 2021-22 and erratic taxation, Daily Times, June 13, 2021

• Budget, taxes, jobs and growth, Daily Times, June 7, 2021

• Development for social justice, Daily Times, May 29, 2021

• Budget 2021: Taxes, Inflation Growth & IMF, Surkhyian, May 23, 2021

The closing words are by way of simple solutions:

Contrary to the IMF’s prescriptions of higher taxes and costly energy leading to slowing of growth and further unemployment, business community is demanding massive tax reductions in coming budget so that they can survive and retain employees in difficult times. IMF agenda is diametrically opposite of vision of Prime Minister and Shaukat Tarin to adopt economic policies aimed at sustainable growth and looking after millions underprivileged. Since taking charge, Shaukat Tarin has been saying that his top most priority is sustainable growth and prosperity for all. Taxes will increase with growth and not by imposing high taxes. Will Shaukat Tarin be able to convince IMF on this? The chances are bleak, but only the time will tell who prevails!   

Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, IT, intellectual property, arbitration and international tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation.  He isVisiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.