Like the real budget proposals,
the post-budget news conference of finance minister Dr Abdul Hafeez Sheikh on
Saturday was replete with hypothesis and surmise on achieving revenue targets ,
capital formation and resource mobilization for 2011-12. The one concrete and
positive step, however, was the announcement that any person bringing his or her
own money on a cent per cent equity basis in establishing an industrial unit
would get a five-year tax holiday. The fact that the PPP-led coalition
government had prepared the budget with an eye on the general election to be
held in 2013, the budgetary measures of pay and pension increase and marginal
reduction in GST rate is a bid of bringing down the inflationary tend. The
finance minister asserted that the government focus this time around was to
overcome a crisis-like situation on the one hand by creating a balance between
income and expenditures and create an environment for economic growth and
creating job opportunities for the educated unemployed youth on the other as the
people expected and aspired for relief from a difficult life to a smooth sailing
of socio-economic living. He admitted that the government sees a greater amount
of success in creating jobs. But the focus now was on achieving the higher
growth in a way as to ensure creation of hundreds of thousands of jobs. One
conjecture on the facility of tax holiday was that given the crowding out of
private sector because of heavy government borrowings, the government wanted to
induce capital from outside the banking system to trigger investment and, at the
same time, attract black money into the formal economy. It is in this background
that the government had promised last year that it would reduce the GST rates;
this meant as and when the tax reforms process is completed, powerful trading
class would be brought to the GST net. The minister said there was a substantial
progress in expanding the GST net by withdrawing exemptions on a number of
items. Though the government would lose some Rs36 billion, this would, the
minister said, help the country to get a substantial gain in trading and
commercial sectors without further inflating economy; this was the step to put
the country’s economy back on the path of self-reliance.What Dr Hafeez Sheikh
lamented as “historic failure” was that no government had succeeded to tax
well-off people and relied on international borrowings to meet expenditure that
affected the social sector and infrastructural development. This anomaly was now
being removed to bring in the tax net some 700,000 wealthy people who did never
pay tax and steps were now being taken to collect at least Rs70 billion from
them. These non-tax payers, who enjoyed lavish living, operated two or more
accounts in different banks and passed summer months in the coolness of north
American and European countries without making a single rupee contribution to
the exchequer, were identified by the Federal Board of Revenue with the help of
the National Database and Registration Authority (NADRA) and were being served
notices seeking them to pay their due to the government treasury. In fact, the
plan to collect tax from members of the affluent class, understood to be two to
three million in number, would be augmented by certain administrative measures
that would help the tax machinery to collect an amount as high as Rs1,952
billion. Even the services of the National Accountability Bureau (NAB) could be
sought to collect tax.What transpires from Hafeez Sheikh’s assertions is that
the government has built the whole budgetary edifice on mere assumptions and
optimism and nothing else except the measures announced. The commitment of
reducing the government expenditures by 50 per cent and austerity steps have not
been put in practice and the rise of the spending on the Presidency and the
Prime Minister’s House is an example. Another hypothesis is that the rich and
the powerful would be brought into the tax net. The fact is that around three
million of 180 million, only 5.4 per cent, have with them the country’s entire
wealth and made the country and it people financial hostage by not paying taxes
and passing on this huge burden to the hapless people from middle classes and
those living under the poverty line. These handful of people are staunchly
religious, pray six times a day, go to Haj every year, help the poor in the
wedding of his or her daughter; yet evade tax without the fear of law and God.
These people have not paid tax since the inception of Pakistan and expecting
them now to do so seems a huge illusion.