New Budget more ‘Business Friendly’ than People FriendlyBy Afshan Subohi - Dawn Newspaper

Pakistan's budget presented (Credit: cnbc.com)

Pakistan’s budget presented (Credit: cnbc.com)

The first Rs3.6 trillion budget of Nawaz Sharif government, presented by Finance Minister Ishaq Dar in the national assembly within a week of the government formation, appears more ‘business friendly’ than people friendly.

The electorate that voted Nawaz Sharif to power might not easily accept additional burden of price increases through the increase in General Sales Tax (GST) by one per cent to 17 per cent. Their reaction will set the tone of debate in the National Assembly.

The budget, if approved in the current form, may boost investment, revive growth and enable Pakistan to qualify for the IMF loan facility as it meets pre-conditions of the key donor. The man on the street, however, might find the year ahead more challenging economically as his real income declines because of the inflationary impact of the taxation measures proposed.

The government in its first defining policy move proposed people to endure the pain of adjustments now, to enjoy gains of growth later. For economic stabilisation the budget 2014 increases the GST to 17 per cent and revises upward the income tax rates, among other measures that could hit the masses.

The corporate Pakistan, which has been reluctant to invest in the country all through Pakistan People’s Party (PPP) rule during past five years resulting in depressed three per cent average growth, has been cultivated by revising downward the corporate tax rate by one per cent from 35 to 34 per cent with promise of decreasing it to 30 per cent in four years. It will increase corporate profits by neat one per cent in the next fiscal.

The government looks keen to revive the confidence of the big business to induce them to move ahead with aggressive investment plans they have been holding back for better times. “For the big boys of business in Pakistan future has arrived,” commented an analyst.

The budget is a typical PML-N document reflecting its economic philosophy of an unfettered market economy, it speaks of homework the party must have done long before assuming power as the document does not seem to be prepared in haste. It has all those signature initiatives that are considered hallmarks of Sharif’s rule in Pakistan.

There are all kinds of low ticket initiatives for public consumption (youth internship, micro credit, income support, technical training, laptop distribution, etc) but the focus of the development budget would be on infrastructure projects (motorways and railways).

“The budget package if endorsed by the parliament will infuse confidence in the private sector that already see Nawaz Sharif as champion of market economy. I will not be surprised if by the end of the fiscal Pakistan surpasses the growth target as public and private sector investment gain steam” a senior business leader told Dawn.com over telephone.

FM Ishaq Dar proposed upward revision in GST from 16 to 17 per cent on the floor of the assembly. It would make all products dearer by at least the same percentage, though the price spiral often enhance the impact of inflationary measures and lead to more than proportional rise in prices.

He projected to chop circular debt of energy sector to reduce by as much as about half of current Rs500 billion in 60 days. It was, however, not clear thus far how he intends to do that.

The budget assumes to cover the revenue shortfall through foreign inflows. The details of sources of these inflows are not clear.

There seems to be meek effort to encourage documentation by introducing tax incentive of two per cent for firms dealing with registered suppliers and distributors.

“The budget is in line with corporate sector expectations. It will improve the business environment as the government has respected IMF’s advice and is targeting to bring the deficit down from current 8.8 to 6.3 per cent by the end of next fiscal year, a reduction of exactly 2.5 per cent suggested,” Sayem Ali, Standard Chartered spokesperson on economic policy said commenting on the budget.

“Market will cheer cut in corporate tax rate. The GST revision will not affect companies as they will pass it on to consumers. All in all the budget 2013 is a good news for the capital market,” he added.

Author is the business editor at Dawn

 

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