THE Finance Supplementary Bill, 2021, that has been popularly described as a ‘mini budget’ was introduced on Thursday by the government in the National Assembly to loud protests from the opposition ranks. The move is aimed at netting additional revenues to the tune of Rs343bn, or equal to 0.6pc of GDP, and can, in stark terms, be described as a tax on the people.
Though Finance Minister Shaukat Tarin has dismissed every suggestion of the new taxation measures being inflationary in nature, the withdrawal of the tax exemptions and the increase in the sales tax rate on a large number of goods — ranging from iodised salt to pharmaceutical ingredients to baby formula milk to cars and more — is going to push up headline prices going forward. This is the case despite the minister’s claim that the measures impacting the common people amounted to just Rs2bn.
However, it must be appreciated that the overall inflationary impact of most measures will be somewhat milder than what was generally being anticipated. While the negative inflationary effects of the bill cannot be overstated, the new fiscal measures were needed to put the country back on the path of stabilisation. These fiscal actions were also required to support the recent actions taken by the State Bank in order to contain money supply in the market to rein in inflation.
The passage of the bill along with the SBP Amendment Bill is one of the key conditions for the resumption of the $6bn IMF funding programme that the government had ditched in April last year in order to pursue rapid growth and in the hope of the world coming to its aid after the American withdrawal from neighbouring Afghanistan. The bill aims to not only narrow the fiscal gap to help the government achieve primary balance at the end of the present fiscal year as required by the IMF but also to reduce the import growth that has put extensive pressure on the nation’s balance-of-payment situation in the last seven months since June.
Pakistan’s return to the IMF programme will open up other avenues of multilateral dollars besides leading to the immediate release of the $1bn tranche from the IMF and assist the country in raising funds from the international bond market to meet its foreign payment obligations in the next six months and beyond. Both bills have been introduced in parliament amid strong pledges from the opposition parties — which have termed them anti-people and as undermining national sovereignty — to resist their passage. Will the opposition be able to block the passage of these bills? That remains to be seen.
The better path for both the government and opposition would be to sit together to take out the controversial parts from these bills that are harmful to the well-being of the common people or that in any way compromise the legislature’s authority over the central bank. Despite its inflationary impact, the mini budget does propose some good steps that will help advance documentation of the economy and improve tax revenue collection in the long term.
For example, a massive portion of the pharmaceutical sector stands undocumented. According to official data, only 453 out of 800 pharmaceutical manufacturers are registered with the drug regulator Drap. The input tax should also help curb the menace of spurious drugs in the market. Likewise, the extension of GST at the input stage for bakeries, restaurants, sweetmeat stores, flight food, poultry products, vegetable oil, cereals etc is a step forward in the documentation of the economy. Thus, a wholesale rejection will not serve anybody’s interests.