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Budget 1992-93 - shape of things to come.

The Government has decided to present the budget for 1992-93 on May 14; while normally the budget is presented in the first week of June What are compulsions for presenting the budget much ahead of schedule? Apparently, the serious resource constraint seems to be the main reason for this. For, new taxes and levies are applicable from the date of the presentation of the bill. If the budget for the next fiscal year is presented at an earlier date, the Government would be able to impose new taxes from May 14. This would put additional burden on the business/ industrial class and bring greater hardship to the common man.

The economic scene is pretty grim. The budgetary deficit for the current fiscal year is estimated at Rs. 15 billion against the original estimate of Rs. 6.5 billion. This coupled with the external borrowing of Rs. 48 billion, comes to Rs. 63 billion. The increase in the budgetary deficit has been attributed to additional allocation of Rs. 6 billion for defence and a shortfall of Rs. 3 billion in revenue collection.

While the 1991-92 budget had estimated the overall deficit at Rs. 55 billion or 5.5 percent of GDP, it has swollen to Rs. 63 billion or 6.3 per cent of GDP. This is the official estimate, independent observers think that the deficit will rise to 8.5 or 9 per cent of GDP by the year's end. While the allocation for defence in 1991-92 was Rs. 70 billion, revenue collection had been estimated at Rs. 150 billion. External assistance was likely to stand at Rs. 26 billion while Rs. 22 billion were expected to be mobilised through private sources. This probably implies utilisation of one billion dollars of private foreign currency accounts as pointed out by former finance minister Dr. Mahbub-ul-Haq. While the Government claims a shortfall of Rs. 3 billion in revenue collection, private sources put it at Rs. 20 billion or more.

It surpasses one's comprehension how in this situation, the Government will resist the temptation of imposing new taxes. It is good that the Prime Minister has directed the authorities of the Ministry of Finance to contain the increase in current expenditure to 10 to 15 per cent of this year's nondevelopment expenditure. It means that non-development budget in next year would go up from Rs. 191.6 billion to Rs. 220 billion. Will it be able to meet the enhanced demand from debt and defence obligations? According to a report, the next year's defence budget will be of the order of Rs. 85 billion in view of the country's security concerns as also to offset inflationary impact. The debt servicing liability is expected to increase by over 12 per cent while the annual increase in the wage bill of the Government employees would also claim a solid chunk of non-development expenditure. The revenue collection can hardly suffice to meet enhanced expenditure under these heads and the Government will have to come up with heavy taxation proposals or resort to unbridled deficit financing. ADP is being funded through local and external borrowings for a number of years. Following the suspension of US aid the Government is leaning heavily on costly borrowing from commercial sources, the rhetoric of self-reliance notwithstanding. The CBR in his address to the FPCCI has already said that 20.5 per cent more allocation will be made for defence, while debt servicing and administration next year will also record a quantum jump which is an indirect admission that a galloping inflation of 20 per cent is gripping the economy.

According to a newspaper report, the Government is contemplating imposition of fixed tax on traders. In the rural areas, traders with an annual income of Rs. 50,000 to Rs. 70,000 and in urban areas businessmen having an annual income of Rs. 80,000 to Rs. one lakh will be liable to pay this tax. At present, the tax is realised from small traders of urban and rural areas who are paying Rs. 600 and Rs. 900 respectively. Now the net will be widened to trap the higher income group.

It is a pity that all the pious resolutions at the time of the presentation of the budget have been flouted with impunity. None of the Government organisations has adopted zero-based budgeting system nor has the 10 per cent funds from the current year's allocation been surrendered. This is in flagrant violation of the Prime Minister's clear instructions. Nawaz Sharif is rightly incensed over the failure of the Government departments to strictly adhere to the instructions as a result of which pressures have mounted on the economy. This speaks volumes about poor economic management. The decision-makers are now faced with the dilemma how to overcome the funding difficulties in the coming budget. According to some sources, there has been a shortfall of no less than Rs. 22 billion in revenue collection in the first half of the current fiscal year. Surprisingly enough, even supplementary grants were released to some Ministries in violation of the clear instructions of the Prime Minister. The priorities of the next budget have already been announced by the Prime Minister. These include building of roads and highways, installation of telecommunication facilities, construction of ports and expansion of shipping. Besides, speedy expansion of power generation capacity an launching of a self-employment scheme figure high on the priority list.

It may be recalled here that only recently the Prime Minister had proclaimed that social sector will receive the foremost attention in the coming budget and massive allocations will be made for education, health, safe drinking water etc. He had also claimed that the country was moving towards self-reliance which inter-alia meant reduced reliance on foreign aid. Time and again, need for heavy investment in the country's defence has been underlined by the Prime Minister. All these priorities are quite in place and nobody can question their significance in our scheme of things. But will the performance match the promise? It is a million dollar question. So far there has been a divergence between t e two leaving a big credibility gap.

According to the CBR Chairman's statement, the defence expenditure is to go up by 20.5 per cent, administrative expenses will double and debt servicing will rise by 12.2 per cent. How will the Government manage to meet all these expenses? Probably more taxes are the answer but will the people accept them? Will it be feasible to burden the masses with extra heavy taxes in a politically charged atmosphere? The Government is not prepared to impose tax on farm income due to the pressure of the feudal lobby. Other pressure groups are also working overtime to force the government to reduce or withdraw taxes. Indirect taxes on the poor consumer are thus the obvious choice. Besides, the axe is likely to fall on development expenditure, reducing the Government's tall claims to mere prattle.

Prime Minister Nawaiz Sharif is reported to have rejected the proposals for the imposition of new taxes. But if wishes were horses, the beggars would ride. While a political Government would not understandably like to earn the displeasure of the people by burdening them with extra taxes, the budget-makers have a limited choice. What other means can they devise to meet the serious resource constraint? Their problem has increased with the steady decline in the flow of foreign aid. Domestic resource mobilisation is also inelastic. The only option therefore is to raise taxes. No wonder, therefore, that the business community is looking forward to a loaded budget. it is another matter that will kill the goose that lays golden eggs. The investment climate is already murky despite liberal incentives package given by the Nawaz Sharif Government due mainly to volatile law and order situation. More taxes will simply scare away the prospective investors.

High tax rate constitutes a serious bottleneck in the way of investment. it is also responsible for low saving rate, one of the lowest in the region. The answer probably lies in plugging the gaping holes and better tax collection. An effective check on tax evasion and broadening of the tax base can go a long way in obviating the need for additional taxation on those already heavily taxed.

Why does the Government not bring agricultural income in tax net?. For the last 43 years, the feudal lords have been enjoying tax holiday despite an income bonanza. Big landlords are the greatest beneficiaries of support prices and subsidies. Yet they are not contributing their share to the national revenue and are instead contributing to inflation by indulging in conspicuous consumption. The rural scene presents extreme contrasts of unparalleled affluence and extreme indigence. This clearly underlines the need for radical land reforms instead of the cosmetic ones of Ayub era to ensure social equity and justice and bring about an enchanting green revolution in the country.

The public is already overtaxed. The businessmen/ industrialists, salaried class and wage earners are all overburdened with taxes. Why not levy fixed income tax on professionals like doctors, engineers etc. who are evading tax in millions? The common man's cost of living has gone sky high not only because of high tax structure but also due to enhanced rate of electricity, gas, water, telephone etc. Now enhancement of railway fare is on the anvil. While officially the inflation rate is placed at 12 percent, independent observers put it at 20 percent. This has dealt a mortal blow to the poor for whom it is well nigh impossible to make both ends meet. For, the brunt of indirect taxes is also borne by the indigent.

The country is already faced with an endemic unemployment problem due to investment slow-down. The privatisation policy may add to this problem as more people are likely to be laid off. In the situation, any increase in taxes will prove the proverbial last straw. The problem should be tackled by drastically cutting down the expenses.

While defence expenditure should be increased in proportion to the level of increase in the Indian defence budget, the salaries of the bureaucrats need to be frozen. The Prime Minister should also scrupulously avoid making impromptu grants to sectors or districts during his visit. In short, our salvation lies in better economic management rather than additional taxes.
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Title Annotation:Pakistan national budget
Author:Jabir, Rafique
Publication:Economic Review
Date:Apr 1, 1992
Previous Article:By-elections in Sindh.
Next Article:Pre-budget proposals - 1992-93.

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