Islamabad: People on the Streets denounce mini budget of Rs. 40 billion, and Islamabad Chamber of Commerce and Industry (ICCI) has warned that this new budget will not only destabilise tax structure but “will multiply poverty and unemployment too.”
In the backdrop of pre-conditions by the International Monetary Fund (IMF), Finance Minister Ishaq Dar on December 1 this year levied what is largely seen “mini budget” with five to 10% duty on import of 61 items while announcing increase in duty up to five percent on 289 items.
In addition, Dar levied one percent custom duty on thousands of items. But President ICCI Atif Ikram Sheikh predicted, “The mini budget will increase disparity in distribution of wealth which will result in increased poverty and unemployment.”
Sheikh said the new measure has increased government’s dependence on indirect taxation which was already tilted heavily on the wrong side.
In his chat with News Lens Pakistan, Izhar Abbasi 45, a cloth merchant in the congested Rawalpindi city, complained his business has received great setback since the government has imposed the news taxes.
“You know, transporters increase fare whenever the government announces new taxes and the ultimate burden shifts to common people,” he added.
Small traders have to sell their commodities with higher prices to adjust new taxes and again common buyers have to bear the brunt, he added.
When contacted, Dr. Anwar Shah, assistant professor, School of Economics Quaid-i-Azam University Islamabad and expert on economic affairs, told News Lens Pakistan that the government should impose direct taxes on wealthy people instead.
Likewise, he said the government should charge tax on the profit of firms. “The advantage of such taxes is that firm cannot pass on the burden to consumers,” Shah suggested.
President ICCI said the country is experiencing regressive tax system and almost 70% of taxes are collected through indirect taxation. “The Federal Board of Revenue (FBR) should enforce a proper direct taxation system to hold elite responsible to discharge national obligations and give some space to the poor class,” he proposed.
Sheikh said around 140 million mobile subscribers are paying around 34.5 percent of the whole tax revenue as tax despite the fact that earning of majority does not fall under the taxable incomes.
Amjad Hussain, a student of 10th class, said that it is really difficult to afford use of mobile because pay phone companies cut Rs. 25 as tax on loading a card of Rs. 100.
Sheikh went on to say out of 15 million rich and 25 million upper middle class nearly half a million file returns which is ample proof that there is something wrong with the system.
Dr. Murtaza Mughal, president Pakistan Economy Watch (PEC)— an independent forum on the world economy with a focus on Pakistan, said that imposition of additional taxes to show improved collection is not acceptable. “The system continues to support rich on the cost of poor widening the income gap,” he rued.
In the mini budget, the government introduced extra taxes of Rs. 40 billion with imposition of five to 10% duty on importing of as many as 61 items, the documents obtained by the News Lens Pakistan revealed. In addition, the government has increased duty on 289 other items by almost five percent.
One of the criterion for judging the fairness of taxes, Dr. Shah said is the ratio of direct to indirect taxes. In Pakistan, he said this ratio is about 25 to 75%.
“In other words, 25% of total collected tax is direct which shows that well-off people of the country do not pay taxes,” he said, adding on the other hand poor segment of society is taxed heavily through indirect taxes.
A senior official at the Finance Ministry wishing anonymity because he is not authorized to speak to media, said the government has to levy additional taxes following “pre-conditions by the IMF,” but he didn’t elaborate those pre-conditions.
The documents stated the measures to generate more revenue have to be introduced to meet shortfall of around Rs. 39. 8 billion to achieve target for 1st quarter of the current fiscal year.
In addition, the government has kept unchanged support price of wheat at Rs. 1,300 per 40 kilograms but it has imposed 30% regulatory duty on import of maize.
Bushra Begum, mother of five, living in Rawalpindi said that new taxes directly make impact on common people’s domestic budget. “After every budget, I have to pay extra money to vendors for buying grocery or garments for my kids.”
The documents revealed that new taxes would help produce Rs. 4.5 billion after levying five to 10% duty on as many as 61 items.
The documents revealed that 5% duty on import of 289 different items would help generate Rs. 4.5 billion.
But Muhammad Rizwan, 54, a trader in Islamabad, said,“The government should have imposed duty on luxury vehicles and other items being used by well-off segment of society.”
“This new tax has multiplied the miseries of poor people and underpaid salaried class,” he added.
But the official at the Finance Ministry reassured that as many as nine categories related to the budget of common people would exempt from what he said one percent duty.
That list includes agricultural machinery, raw materials, aviation sector, agriculture and pharmaceuticals, some vegetables, industrial items and industrial items of coalmine.
In addition, the official said that some exempted areas from one percent import duty comprise import of seeds, fertilizers, machinery for manufacturing of goods, raw materials of 25 sectors such as pesticides, leather industry, telecom sector, electric motors including sugar mills etc.
He said that Rs. 6.5 billion would be generated from Federal Excise Duty (FED) on locally manufacturing cigarettes. “The government will generate another Rs. 2.5 billion by imposing 10% raise in duty on import of old vehicles of over 1,000 cc but duty on 1000 cc and 800 cc old vehicles will remain unchanged at $6,000 and at $4,800 per car respectively,” he added.
The documents revealed that as many as 61 items that came under five to 10 % fresh duties include coconuts, almonds, brazil nuts and cashew nuts, live poultry, cherries, pineapples, preserved meat, frozen fish and fish meat, ground nuts, citrus fruit, tea and coffee essences, cocoa paste and cocoa butter, strawberries, peaches, apricots, pears, trunk and suit cases-brief cases, clothing accessories of leather, garments, jackets, overcoats, ties, scarves, mufflers, shawls, tarpaulins, tents, curtains, footwear, imitation jewelry, diapers, sanitary towels and watches.
Some 289 other items that came under 10 to 15 % regulatory duty are: cheese, all kinds of powdered cheese, butter, natural honey, yogurt, apples, dried litmus products, mangoes and frozen mangoes, pineapples, guavas, oranges, watermelons, sour cherries, strawberries, avocados, mango pulp, apricots, , blackberries, loganberries, raspberries, mulberries, pomegranates, persimmons, pine nut, apples, peaches, plums, chewing gum, white chocolate, chocolate preparation, vermicelli, malt extract, corn flakes, crisp bread, bulgur wheat, cucumbers, tomatoes, mixture of vegetables and other vegetables.
Sher Hassan, a roadside vendor, said, “Even the prices of eggs and yogurt jump and we cannot afford to have proper breakfast for our school going children.”
“New taxes make goods expensive for common people and drops purchasing power of money making people relatively weak,” Dr. Shah concluded.
