Budget review

September 20, 2018

The amendments in budget were an astringent pill that the government had to gulp down. It shows that even though the government has had to give the development budget a substantial cut, its choice to tax in slabs is cheering and futuristic. Cancelling PML-N’s tax relief to those who enjoy high earnings, for example, and increasing tax rate for the uppermost income slab form 15pc to 30pc are just the class of hefty measures that are required to put some kind of life into tax revenue. Amplifying customs duty on more than 5,000 luxury import items was also necessary to bring outflows in line with the enormity of the deficit. This will check the familiar myth that the Pakistani super rich upper class is not sensitive to taxes and luxury import
demand is unable to adapt to new conditions. And this will call for scrutinizing not only the black economy and smuggling but also execution of the program. It is heartening that PTI’s main concerns consist of caring for the poor and sustaining exporters. But unless these steps are converted into policy the finance minister will have even less nudging space by the time next budget nears. Hence, execution of the program is the key. The stock market has responded
optimistically. Conceivably what the markets have to see is financial leadership in the driving seat making bold actions. The steps taken indicate the start of the proceedings. One of the taxes
that has increased but wasn’t referred to is inflation. It is the tax that we everyone pays, being fueled by the depreciation of the rupee. The announcement contains appealing, clear-cut, quick-fix stabilizing measures. In essence, this permits the government to tighten its belt a tad and signals to the world that we can pay back our debts. The fine part of the bill was that the government needs to indisputably boost revenue, and increasing taxes on big earners was probable and inescapable. Giving them broad tax breaks last year was unwise bearing
in mind the revenue shortfall and high-level economic disparity in Pakistan. The uncertain part is that improving tax revenue by reforming administrative procedures is going to be easier said than
done, as this involves expanding the capacity of the national tax infrastructure. It will take time and money to do so. The bill doesn’t clarify how the government will do this. Fiscal measures are just one feature of a multifaceted economy. Fiscal policy will prove fruitless without a comprehensible monetary policy as both fiscal and monetary policies work side by side. In Pakistan we have a wilting monetary policy. Borrowings, inflation, interest rates are not in control. Taxation policy will be fruitful only when we set appropriate monetary measures.

Fiscal policy will prove fruitless without comprehensible monetary policy as it work side by side

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