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| Tax, Income, Inflation, and Subsidy: What five things will a common Pakistani look at in the budget? |
It's that time of year in Pakistan when the government prepares its expenditure and revenue estimates, i.e. the budget, for the upcoming fiscal year. It is an estimate of how much revenue a country expects to earn in the next year and how it will spend that revenue.
These estimates are also made a part of the budget which decides how much will be spent to provide inflation relief to the common man.
But the problem is also that the internal and external loans taken by the government have to be returned and installments of some have to be paid. Pakistan already has very little foreign exchange, especially the US dollar. For this, he will have to take new loans and then they will also have installments.
Pakistan's government is keen to sign a loan agreement with the International Monetary Fund (IMF) from which it expects to receive around $2 billion. This agreement will also pave the way for getting loans from other institutions and countries.
Therefore, an agreement with the IMF is necessary. And that's why the government would like to work with the IMF to make a budget according to their terms. In such a case, the government cannot be guilty of extravagance.
Therefore, when the government's pocket is tight, then it will try to collect more money in the form of taxes at the local level. But the problem is that many people in Pakistan do not pay taxes.
The government also knows this. So she takes another route. It increases the tax on things that you have to buy and use as much as you want. The disadvantage of this is that the prices of essential commodities for the common man increase further.
Usually, when governments are nearing the end of their term and have to make budgets, they cut taxes, announce relief schemes, give subsidies, or increase existing subsidies to please the common man. are, etc., etc.
But this time things are different. The government cannot reduce the tax rate much even if it wants to. Otherwise, there will be no spending money and it will be difficult for him to get a loan just because the spending money is not being fulfilled.
In such a case, the common man must be concerned about the budget of the next financial year, but is there anything happy about it? Economists believe that for this the common man has to keep an eye on these five things in the budget.
Is the budget in line with IMF targets or not?
In the current economic conditions of Pakistan, economists believe that it is very important for the government to have a loan agreement with the IMF. And it seems that this is not possible without accepting the conditions of the IMF.
In simple words, the IMF's conditions regarding the budget are the summary that the government should not include any subsidy or scheme in the budget which is not viable. That is, money for this has to be taken out of some other necessary expenses.
Or the government should not give equal or generous tax exemptions to each class, otherwise, it will not have enough money to meet the basic expenses and repay the debt.
Economist Dr. Sajid Amin is associated with the 'Sustainable Development and Policy Institute' in Islamabad and keeps a close eye on Pakistan's economy. In his opinion, 'I will consider such a budget that the government of Pakistan will make in collaboration with the IMF as a good budget.'
Ali Hasnain is an Associate Professor of Economics at Limz University, Lahore. He also agrees that 'Pakistan's current predicament has the benefit of full cooperation with the IMF and other creditors.'
Dr. Sajid Amin says that if this does not happen and the government prepares an 'empty' budget today keeping the elections in sight, the common man will have to suffer the consequences after six months.
"For the time being, the common man may feel good, but going forward, when the value of the rupee falls further in the country, inflation will increase, the country will default and the common man will have to bear the brunt of it."
Because currently, Pakistan has no plans A, B, or C. Dr. Sajid Amin believes that after the events of May 9, it seems that the current government will not present an 'election budget' or a high-risk budget.
Now he may have hoped that if he gets the government again, he may have to go to the IMF again. All the generous decisions they make in this budget should not be withdrawn at this time. Therefore, she will try for a balanced budget.
Ali Hasnain, an economist from Lahore, says that cooperation from the IMF and other lending institutions will "benefit a common Pakistani by reforming borrowing and repayment procedures over the next five years." '
How much will I be taxed?
Another important thing that a common man would need to look at in the present scenario is who is being taxed and how much.
Economist Dr. Sajid Amin says that it seems that the tax rate already applied should be increased, but it is necessary to see how much tax is being paid on which class and which class is getting concessions.
"If the rich man is being taxed as much as the poor man, I think it will be a bad budget. If the poor man gets more exemptions and the rich man less, then it will be a good budget.
Similarly, they believe that if the tax on the corporate i.e. business class, real estate, or landlords is high, then it is a common occurrence. There will be good news for Dami. Even in the price of petrol, if the petroleum levy is not targeted, then it is of no use to the common man.
Dr. Sajid Amin believes that even now if the government includes the same industry in the tax exemption, which it has been exempting for the last 70 years, it will not benefit the common man either.
How much tax will have to be paid on income?
In taxes, it will also be necessary for the common man to see how much tax is being applied to his income. That is, how much tax he will have to pay on the salary he is getting or what he is earning.
In the opinion of Dr. Sajid Amin, 'here too, the government should see that it applies more income tax on people with high income and reduce its burden on people with low income and give them exemptions.'
Economist Ali Hasnain from Lahore also agrees with Dr. Sajid Amin and former Finance Minister of Pakistan Dr. Hafeez Pasha that it will be necessary to introduce a revenue system in Pakistan.
This includes steps like increasing the corporate income tax rate on corporate banks, reducing the sales tax on food items, and protecting small consumers from the burden of rising electricity and gas prices.
What will happen to inflation?
Experts think that this will also depend on the success or failure of the ninth review between Pakistan and the IMF. Economist Ali Hasnain, speaking to the BBC, refers to a recent article by Dr. Hafeez Pasha, a respected economist in Pakistan.
He said that Dr. Hafeez Pasha agrees that the success of the IMF's prediction of the inflation rate in Pakistan returning to 16% by June 2024 is also due to the restoration of the IMF program and external financing. connected with.'
Therefore, in his opinion, it will be necessary for Pakistan to set up a budget according to the terms of the IMF. In this way, common Pakistan will benefit from medium and long-term reforms and it will be possible to reduce inflation gradually.
"Pakistan will need to sign a new three-year agreement with the IMF after June to ensure external financing."
At the same time, he also says that according to Dr. Hafeez Pasha, the various causes of inflation in Pakistan include floods, natural disasters, as well as the increase in commodity prices in the world market.
However, commodity prices are gradually decreasing in the global market. Due to this, there may be chances of a reduction in inflation.
How much tax do I have to pay on my necessities?
Economist Sajid Amin says that the government gets about 60 percent of its tax revenue from these direct or indirect taxes. These are taxes that are levied on goods that people consume.
When they buy something, the applicable General Sales Tax i.e. GST or Indirect Tax is deducted and goes to the government. The government increased GST from 17% to 18% last year.
Economist Sajid Amin says that the burden of this increase had to be borne by the common man as these were all his consumables.
They believe that if the government increases the rate of indirect tax in the budget of the next financial year, it will have to take care to save the common man from its burden.
"If the government increases this tax, it should increase the tax on luxury items from 18 to 20 percent, but reduce it from 18 to 17 percent on items used by the common man, such as basic food items. If brought, it will be a good budget.'
Which categories and products are subsidized?
When some of the basic necessities become so expensive that it becomes difficult for the common man to access them, the government subsidizes these goods to help him. With this subsidy, the government itself pays part of the cost of the item.
Governments budget separately for such subsidies. At present, the common man in Pakistan is facing the worst inflation in history. In such a case, he will be looking at the government, especially in the budget and how much the government gives subsidies.
He will also see that existing subsidies are not reduced or eliminated or increased.
Economists believe that it would be extremely difficult for the government to provide more products or larger subsidies to sectors in a budget created with the IMF.
However, Dakar Sajid Amin says that if the government gives subsidies in the fields of petroleum products or agriculture, etc., then this subsidy should not be applied equally to all but should be 'targeted'.
This means that people with low income or small farmers should get the benefit of the subsidy more and even if the high earners or big farmers do not get it, the common man will benefit.
Sajid Amin says that the government should include especially small and medium businesses when giving subsidies.
How much has my salary, and pension increased?
Experts believe that even if the salaries and pensions of government employees are increased at the current level of inflation in Pakistan, they will not get much relief.
Dr. Sajid Amin says that the government will not particularly want to increase its expenses in this budget. However, it should try to bring as many poor people as possible into the social safety net, i.e. save more people from falling below the poverty line.
"If the government increases the salaries and pensions of government employees, it will be interesting for a common man to see if he is targeted or not." A uniform increment for each grade of employee will not be beneficial.
He says it would be better if the rate of increase was higher for employees in grade 11 and below and lower for employees above grade 18.