PTI’s failure on fiscal front – By Dr Ikramul Haq

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“The FBR contributes around 80% of the total revenues of the federal government; therefore, any miscalculation or misstargeting can severely cripple the budget, not just of the federal but the provincial governments as well”-Budget 2020-21: Highlights & Commentary, Pakistan Institute of Development Economic (PIDE)

According to FBR Year Book 2018-19, its collection in fiscal year (FY) 2018-19 was Rs. 3828.5 billion against original target of Rs. 4435 billion, revised downward first to Rs. 4398 billion and finally to Rs. 4150 billion, showing minus 0.4% growth compared to FY 2017-18. For current FY, target originally agreed with International Monetary Fund (IMF) was Rs. 5555 billion. Even prior to Covid-19 outbreak, Federal Board of Revenue (FBR) was far behind, thus, it was revised to Rs. 5238 billion after first review of IMF under $6 billion Extended Fund Facility (EFF) programme. Later, further reduced to Rs. 4,803 billion on the eve of incomplete second review held prior to Covid-19 outbreak, and after pandemic, finally to Rs. 3908 billion. FBR’s target for next FY 2020-21 is fixed at Rs. 4963 billion (27% increase), grossly overstated, as highlighted by PIDE in above quoted study and earlier in Budget 2020-21 & FBR’s target, Daily Times, June 14, 2020.

The Government of Pakistan Tehreek-i-Insaf (PTI) since assumption of power in August 2018, with the help of coalition partners, followed a faulty/flawed fiscal policy. Contrary to its election promises, it failed to undertake much-needed/long-delayed fundamental structural reforms and restructuring of FBR that could have yielded required revenue to overcome fiscal deficit and would have made Pakistan self-reliant.

The PTI Government, even prior to Covid-19 epidemic, due to wrong policies had been pushing the country into stagflation leading to recession, high inflation and unemployment, closing down of industries/businesses, job losses, high interest rates and extremely low growth. It created utter disappointment and deep despair in the public. The reasons for economic sluggishness and lack of investment, among many others, remain excessive taxes and highhandedness of FBR. The PTI Government is using Covid-19 endemic as a face-saving device, but the facts remain that from the very beginning its fiscal policy was a disaster.
The ex-Finance Minister, Assad Umar, while presenting the Finance Supplementary (Amendment) Bill 2018 on September 18, 2018 in the National Assembly showed the traditional bureaucratic approach to balance the books. He failed to include the key areas of Theme-3-‘Revatilise Economic Growth-part of First 100 Days Plan of PTI after forming Federal Government, unveiled during the election campaign.

The PTI Government lacked a roadmap to fulfill the election promise of collecting Rs. 8 trillion. On the contrary, FBR’s target was reduced by Rs.169 billion, reduction of 3.5% over the original target. The shortfall of Rs. 606.5 billion in collection led to historic high fiscal deficit of 8.9% of GDP leading to unprecedented indebtedness! The PTI Government had nine months for initiating reforms for revenue mobilisation-both tax and non-tax-but its economic managers did not bother to implement even its own tax reform agenda unveiled/promised during election campaign. The speech of Prime Minister in Parliament on June 25, 2020 could not explain/justify it, though he admitted failure his failure to reform FBR! This had nothing to do with Covis-19 endemic’s toll as rightly confessed by the Premier.
In the Finance Supplementary (Second Amendment) Bill of 2019 presented on January 23, 2019 once again no steps were announced for making FBR efficient, simplify taxes, making them fair, low-rate and broad-based to harness the real potential, drastically reduce wasteful expenditure and accelerate growth.

In budgets for fiscal year (FY) 2019-20, presented on June 11, 2019, and for FY 2020-21, on June 12, 2020, burden on businesses and common citizens increased manifold by enhancing indirect taxes, while extending asset-whitening/amnesties/exemptions/waivers/immunities to the rich and mighty. Before coming to power, PTI labelled tax amnesties as “immoral” and “unlawful” and a “slap on the face of honest taxpayers”. In its two years in power, the PTI Government incurred ‘tax expenditure’ (forgoing) of Rs. 1149.95 billion in FY 2019-20 and Rs. 972.4 billion in FY 208-19 (total of Rs. 2122.35 billion (shown in Annex II of relevant Economic Surveys), but ignoring impact of asset-whitening schemes of 2018 and 2019 and many other items which FBR in ‘Statement of Estimated Tax Expenditure of Federal Government’ says could not be quantified for lack of data! The total tax forgoing, according to independent estimates, was not less than Rs. 3 trillion.

FBR admitted before the Standing Committee on Finance & Taxation of National Assembly on November 7, 2019 that governments of Pakistan Muslim League (Nawaz) and PTI in their amnesty schemes of 2018 and 2019, respectively, extended benefit of Rs. 61.4 billion to 191 billionaires, caught concealing undeclared/untaxed offshore assets. FBR revealed that definite information was available against them under Automatic Exchange of Information (AEOI) initiative of the Organisation for Economic Cooperation and Development (OECD), yet amnesties were given keeping their names “confidential”. It belies tall claims of accountability and transparency of Prime Minister, Imran Khan.

The World Bank in an appraisal paper related to Pakistan Raises Revenue (PRR) has termed “vested interests lobbying for tax exemptions, internal tensions and wariness of change among the FBR staff, and potential disputes affecting provinces’ readiness to collaborate with the FBR as high-risk factors” for tax reforms. It says Pakistan has a complex tax system of over 70 unique taxes and at least 37 government agencies administering these taxes.

In ‘Raising Rs. 8 trillion’, Daily Times, November 12, 2017, the issue of fragmentation of taxes and multiple collection agencies hindering growth and as impediment in tapping actual tax potential was highlighted, but the PTI Government ignored it. The World Bank also did not acknowledge it in its appraisal paper and other studies! The PTI Government despite having concrete proposals/roadmap how to generate adequate revenues at federal and provincial levels enabling Pakistan to overcome monstrous fiscal deficit, get rid of loans, pay back exiting ones, achieve rapid economic growth and provide social services to all citizens, failed to implement the same and result is before everybody.

There is still time for the Prime Minister to realize that the iniquitous prescriptions of World Bank/IMF of high taxes, complicated laws and enormous cost of doing business will not solve our fiscal woes. These will bring more miseries as economy in recession may collapse due to economic toll of Covid-19 endemic. The viable solution is simple/low-rate taxes, cut in wasteful expenditure, get rid of loss-bearing public sector enterprises, improve efficiency and productivity. State lands, situated in the heart of cities, should be leased out for business and commercial ventures. It will generate substantial funds, rapid growth and new jobs. For progressing, Pakistan must end anti-growth/anti-business taxes, dismantle all elitist structures and empower masses at grass root level by implementing Article 140A in letter and spirit ensuring social service delivery and prosperity for masses. No other plan will work, including the recent $ 500-million loan from World Bank for Pakistan Raises Revenue Project.

The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)