The following article has been published in Daily Nation, dated 1st June 2015
(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-06-01/page-9)
The cherished dream of budget
By: Omer Zaheer Meer
“I have a dream”. These were the famous words uttered at a junction of history which saw a drastic change in the United States of America. With the budget looming around the corner, this scribe too has a dream to share with the readers.
The dream starts with the federal budget of Islamic Republic of Pakistan having just been announced. There are widespread celebrations across the country, for many of the promised reforms have been delivered with path for a longer term change laid down. Pakistan Muslim League’s government has fulfilled its commitments despite some very challenging circumstances. Some of the major reforms and steps taken along-with their justifications, as outlined by the finance minister Mr. Ishaq Dar are detailed below.
Tax Facilitation: Several steps have been taken to reform the taxation system and structures. Firstly the computerized national identity card (CNIC) has been declared as the National Tax Number (NTN) and Sales Tax Registration Number (STRN) for all citizens. This has not only made it extremely easy for any Pakistani to start a business having both the NTN and STRN, hence promoting a culture of entrepreneurship but is also expected to help broaden the tiny existing tax base as the number of filers and ultimately taxpayers are forecasted to increase with the increasing documented nature of the businesses.
Corporate and Agricultural Exemptions: Furthermore exemptions on various businesses as well as the agricultural sector have been withdrawn. This is expected to generate substantial additional revenue as these sectors constitute 30 to 40 percent of national economy as per various studies. These sections have previously been out of the tax net without any substantial benefit to the GDP despite the relaxation. Therefore the Government has now decided to instead facilitate the farmers to increase the productivity as outlined below while ensuring the agricultural sector is brought within the tax-net.
Tax Volume over Margin: Moreover to make taxation less cumbersome and support the initiatives aimed at broadening of the tax base, the strategy of volume over margin has been pursued in that the tax rates have been drastically cut for both individuals and businesses to the lowest level in the entire region. This has not only positioned Pakistan as one of the most tax-attractive destinations in the region with substantial forecasted investments expected to create job opportunities in the country particularly in the power, agriculture and textile sectors but has also created an incentive for businesses and individuals to pay their due taxes, being less cumbersome than the cost of avoiding it with the threat of stringent possible penalties.
Free electricity & water for Agriculture: Another long-awaited major reform to turnaround the ailing economy in an agricultural country has also been taken. Keeping in view of the fact that the Indian Punjab’s output and productivity has been surpassing Pakistan’s and contributing materially to the Indian economic strategy, the Ministry of Finance has given its strategic vision to place Pakistan as the agricultural leader in the region. Water and electricity are declared free for agriculture for those farmers having small holdings or renting the land. The taxes raised from agricultural sector are mostly reserved to fund this initiative.
Further Agricultural Reforms: Furthermore a new body has been created to buy all crops from the farmers at the Government approved rates and supply them to various industries and markets, thereby ensuring the farmers will get their due while the stockists’ induced shortages and inflation can be stemmed out. Furthermore all seeds, fertilizers and other necessities can be brought through this body at discounted rates which has already listed all major quality suppliers in its approved lists. The volume of potential business has motivated suppliers to offer discounted rates in the hopes of additional business increasing their profitability and helping them expand, in turn creating more job opportunities.
HR development & Educational Reforms: To promote the culture of learning and human resource development, the listing criteria of stock exchanges now includes a requirement for the companies to annually spend atleast 1% of their total revenue on the education and/or professional trainings of their workers. Also, new non-corporate businesses spending more than 2% of their turnover on the education and training of their workers are offered tax rebates. These steps are topped up by an increased budgetary allocation of 5% to the education. The impact of this allocation is not very drastic post 18th amendment but is a strong signal and precedent for the provinces to pursue.
Further reforms to support HR development, Education & Entrepreneurship: Supporting the drive for education and entrepreneurship, Government has required all banking institutions to lend interest-free, atleast 5% of their total business to students and startups without any guarantees. To provide assurances to the banks, a fund has been launched backed by insurance to provide monthly returns to the banks to compensate for the loss of interest income while the fund along-with the insurance serves to act as a guarantee for abnormal bad debts in this sector.
Short-term Energy Reforms: Besides the CPEC and other energy projects, to address the severe energy shortage in the shorter term, the solar energy sector has been given a tax-break for five years with a requirement to cap margins at 15%, in order to ensure the benefits of the cost reduction will be passed on to the masses. This step is expected to assist in resolving the severe energy shortage problem in the shorter term as the cost of setting up solar energy systems has been one of the biggest hindrances in its widespread use despite Pakistan’s climate been extremely conducive for it. Furthermore windmill energy sector has also been extended the same favor to capitalize on its potential for cheap electricity generation with minimal initial investment and running costs.
It was here, that this writer woke up. The sadness on missing many more positive reforms engulfed me but the realization struck that this is the same sadness that engulfs every Pakistani post budget every year. Let’s hope and pray that this year will be different.
The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, CFA Charterholder, experienced fellow Chartered Certified Accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or email@example.com