(042) 35300721
Mon - Fri 09:00-17:00
Free consultant

Wages of inconsistent policies

Dr. Ikramul Haq & Abdul Rauf Shakoori

After the economic mismanagement and inconsistent policies during four years of Pakistan Tehreek-e-Insaaf (PTI), the people of Pakistan were expecting a realignment on economic front with strategic direction towards sustainable growth where new avenues for revenue generation could be explored with offer of relief for those already burdened with heavy taxation. Undoubtedly for any government yearning to provide socio-economic protection from increasing inflation to its people, presenting a balanced fiscal plan during such a tough time in the event when the global lender is pushing hard for revocation of fuel and energy subsidies and imposition of new taxes, can be highly challenging.

Pakistan’s economic difficulties are increasing with each passing day. The current government assumed power with a commitment to address the fiscal issues without putting an extra burden on the common man. However, despite assuming office in April 2022, it has failed to introduce any fiscal reforms and offer any relief to public. The value of Pakistani rupee is on a downhill slope and is hovering around Rs. 206 to the dollar. In a very limited span of time fuel prices have increased by more than Rs. 80 per litre and Finance Minister indicated that another price hike is expected in the upcoming month. Despite tall claims, the menace of load shedding has resurfaced that remains unresolved and although Mr. Shahid Khaqan Abbasi in press conference with federal ministers claimed that load shedding would be reduced to 3-5 hours, the problem is still persisting. This is mostly on account of mismanagement in LNG procurement by the previous government and the Prime Minister has warned of increased load shedding in July.

The available budget documents assign a revenue target of Rs. 7,004 billion and in absence of any proposed administrative measures for capacity enhancement by Federal Board of Revenue this seems to be an ambitious target. However, the draft money bill presented on 10th of June 2022 was appreciated by various segments of society terming it as a balanced document offering new avenues for broadening tax base by introducing taxation on deemed rental income with the aim to tax privileged class owning more than one property valuing Rs.25 million. The budget document also proposed imposition of a new 2% ‘poverty alleviation tax’ on persons earning more than Rs. 300 million while simultaneously proposing relief to salaried class by reducing tax rates.

The last four years have been eccentric in terms of budget presentation, as the National Assembly floor witnessed a new finance minister every year. However, unfortunately all these finance bills were merely ad hoc in nature and failed to deliver the objective of revenue generation, growth, and relief to common man. Previously, finance bills were followed by supplementary acts, in almost each quarter, which burdened people with new range of taxes but this time a significant change was observed at draft level.

Pakistan is facing acute foreign exchange crisis where it is finding it difficult in bridging the gap between its foreign receipts and payments. Pakistan is desperately looking towards global lenders and friendly countries to extend a helping hand to avert possible risk of default. At this critical juncture, the mismanagement and shortsightedness of previous PTI government comes to haunt us which breached commitments and undertakings made with the International Monetary Fund for fiscal reforms disguising the same under their so-called “smart economic management” and benevolence towards public. However, as a matter of fact they had been fast digging a blackhole for the economy of Pakistan. This is a perfect case where incompetence coupled with lack of vision created a mess which could have been avoided. In this backdrop, economic experts were not very optimistic about any negotiation power left with Pakistan while dealing with IMF. Accordingly, the latest review resulted in halt of EFF program and the resumption of same was tied with strict economic measures.

Due to uncertainty and unstable economic situation, the global financial institutions are cautious about doing business with Pakistan. Further, the central bank has also taken aggressive measures to restrict outflow of foreign exchange. These steps are negatively impacting the overall business confidence in Pakistan. Now with fast eroding foreign exchange reserves, Pakistan’s government is left with very limited time and needs to act fast for resumption of IMF program. However, in its pursuit for funds it seems that the government has completely overlooked its prime objective of socio-economic protection of its public. The government’s economic team is willing to take any action to please IMF without taking cognizance of its effects on the life of common man and the economic environment of the country.

The current Finance minister in his parliamentary speech on 24th June 2022 announced new revenue measures like imposition of 10% “super tax” on cement, steel, sugar, oil and gas, fertilizers, LNG terminals, textile, banking, automobile, cigarettes, beverages, chemicals, and airlines. Earlier in the budget, a 2% poverty alleviation tax was announced on persons with annual income exceeding Rs. 300 million. The finance minister announced revising 1% for income exceeding Rs. 150 million but less than Rs. 200 million, 2% for those whose income exceeds Rs. 200 million but is less than Rs. 250 million, 3% for those whose income exceeds Rs. 250 million but is less than Rs. 300 million and 4% where income exceeds Rs. 300 million.

These new measures were taken as a surprise by the businesses and other stakeholders, that are terming them as “anti-business” resulting in increased un-employment and inflation. The finance minister tweeted: “Just to clarify: the super tax of 4% will be applicable to all sectors. But for the specified 13 sectors, another 6% will be added for a total of 10%. So, their tax rates will go from 29% to 39%. This is a one-time tax needed to curtail the previous four record budget deficits.

The government has taken a step-back of relief earlier proposed for the salaried class for the appeasement of IMF. Rather than looking for new avenues of revenue generation and adoption of modern techniques, the government has reverted to same old tactics which are an attempt to further squeeze the corporate sector and salaried class who are already acquainted with their national duty and are compliant with tax regulations. These types of inconsistent decision making are reflecting badly on overall economy and causing damage to the government’s credibility.


Dr. Ikramul Haq, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions, with Huzaima Bukhari.

Related Posts

Leave a Reply