Like the previous budgets, the government, instead of reducing inequalities and burden of taxes on the poor, continued indirect taxes as 60 per cent of the revenue generating source in the next budget, ultimately burdening the poverty-hit people.
The budget speech delivered by Finance Minister Ishaq Dar in the National Assembly was certainly not driven by considerations of human and social development. Not once did he mention that income inequality, job creation, access to affordable factors of production (including energy) is a serious issue in Pakistan.
Reacting to Budget 2017-18, Dr Waqar of SDPI said that unfortunately, the plethora of indirect taxes and withholding taxes (also collected in indirect tax mode) continue to accentuate income and consumption inequalities. This year again, over 60pc of revenues is envisaged to be from indirect taxes.
According to him, a rational budget formulation process should aim to reduce inequalities through phasing out federal excise duty, simplification of general sales tax (GST) regime and reduction in GST rates, lowering of customs duties faced on inputs and finished goods used by the poor. Recent works of literature on tax incidence also suggest that reducing indirect tax has a pro-poor impact if relief is provided on consumption of food, fuel, cooking oil, bread, milk, fruits, tea, sugar, and vegetables.
Those items on which taxes have been reduced in the next budget largely do not include the list of commodities consumed by the poor. Sales Tax/FED has been increased on steel, textile, leather, carpets, surgical/sports goods, imported fabrics, locally produced coal, cement, and cigarettes which ultimately affect the poor consumers. On the other hand, sales tax/FED/extra tax/withholding income tax have been decreased on poultry machinery, combined harvester, diesel engine, imported seed, LED lights, mobile phones, telecommunication services, lubricating oils and mobile phone subscribers which may not help the poor people.
He was of the view that with the coming of general sales tax on services (imposed by provincial governments), there are also issues of double taxation faced by small and medium enterprises.
The proposed federal budget did not address how this double taxation could be avoided.
Apart from this tax, Small and Medium Enterprises (SMEs) are facing over 50 taxes, surcharges, and levies annually. Only a consolidation or merger of several taxes can render a reduction in the cost of doing business. The Tax Reforms Commission (TRC) of 2014 had noted the rising number of cases regarding fake invoices, under-invoicing, and illegal adjustments. The federal government was asked to lay down an appropriate procedure to deal with all such irregularities.
“We observe in the proposed Finance Act that tax administration reforms, as per the direction provided by TRC, seem to be missing. The TRC had also directed that overall the share of indirect taxes should be reduced and the tax-base broadening measures should be expediently implemented so that a greater share of revenue could come from direct taxes,” he said, adding that unfortunately this has not happened and even most of the direct taxes are also being collected through withholding measures, which are in the indirect tax mode.
