Daily Times Editorial June 24, 2013

Dar’s winding up on budget Finance Minister Ishaq Dar faced his moment of truth while winding up the budget debate in the National Assembly on Saturday. Having been under heavy fire for many of the budget proposals, Dar had to appear simultaneously conciliatory and firm. He proposed amendments to placate the agitated salaried class and lend legitimacy to the hasty implementation steps of the government, notably the General Sales Tax (GST) increase of one percent that has been struck down by the Supreme Court. Dar argued that rescheduling or a moratorium on the IMF loan was not available and failure to meet repayments would be a default. He revealed the IMF’s regret at having advanced such a large loan whose repayment was proving difficult. He said foreign inflows were required to repay the huge loans obtained by the previous government but these inflows had to be on suitable terms. This year, $ 3 billion of the IMF’s $ 7.6 billion Standby Facility had to be paid. Whereas engagement was required with the IMF and other key financial institutions, Dar insisted that the one percent increase in GST from 16 to 17 percent would have to be retained to meet the essential tax collection target of Rs 2.475 trillion. The GST rate, he assured, could be reduced in the future if the revenue target was met in fiscal 2013-14. Further, he argued that the previous government had incurred Rs 600 billion additional expenditure, which had to be regularised through supplementary grants. Not only that, the finance minister reminded the house, the circular debt in the energy sector of Rs 503 billion too had to be cleared as the first step towards resolving the energy crisis and load shedding. In addition, a reduction in the budget deficit of Rs 2 trillion and tax shortfall of Rs 374 billion last year had to be met. The concessions Dar has made are: the tax liability for those with an annual income of Rs 2.5 million or less will remain unchanged; zero GST rating on stationery items, milk, dairy products and bicycles has been restored; exemption from income tax for non-profit educational institutions stands; the rate of additional GST on supply to unregistered persons has been reduced from two percent to one percent; rental income will be taxed as withholding tax adjustable against final tax liability in two slabs of 10 and 15 percent, reduced from the proposed six slabs going up to 17,5 percent, and teachers and researchers’ rebate on tax has been reduced to 40 percent from 75 percent rather than doing away with it altogether. On the other hand, withholding tax on mobile phones has been increased from 10 to 15 percent. Despite Dar’s clarificatory arguments and justifications for the increase in GST, which may or may not be retrospectively validated from June 13 by parliament, Leader of the Opposition from the PPP Khursheed Shah was dismayed at the retention of the increased GST rate. As has already been in evidence despite the Supreme Court striking down the increase before parliament has passed the Finance Bill, there has been a sympathetic price rise across the board since the budget. Khursheed Shah anticipates a flood of price hikes if the GST increase is passed. These views reflect not only the criticism from the opposition on the provisions of the budget, they strike a popular chord with citizens subjected to the fresh round of price rises and inflation being heaped upon their already straitened financial circumstances. This in essence is the dilemma not only for Mr Dar but any government in today’s Pakistan: how to reconcile the contradictory pulls of financial and budgetary government solvency, including huge debt repayments and defence expenditure, against the need to provide relief to the people whose back has been broken by inflation, unemployment and the energy deficit over the last five years.