Shaukat Tarin’s Logic on Mini Budget

Federal Minister for Finance and Revenue, Shaukat Tarin, has ruled out the speculations, being expressed by many, that the supplementary finance bill will cause an increase in inflation.

Addressing a press conference, jointly with Minister of State for Information and Broadcasting, Farrukh Habib, Tarin said the government had proposed to withdraw tax exemptions of Rs. 343 billion out of which Rs. 272 billion taxes were refundable or adjustable.

The minister said that proposed new taxes only amounted to Rs. 71 billion, out of which Rs. 69 billion taxes were on luxury imported items such as imported fish, high-end bakery items, imported cheese, and imported bicycles.

“We have proposed removal of only Rs. 2 billion tax exemptions on the items that can be related to the common man which would have a negligible impact on inflation,” the minister said. 

“The International Monetary Fund (IMF) had asked us to impose Rs. 700 billion in new taxes but we negotiated and brought it down to just Rs. 343 billion,” he explained. 

Giving a breakdown of the tax exemptions being withdrawn, the minister said the Rs. 112 billion tax exemptions on machinery and Rs. 160 billion tax exemptions on the pharmaceutical sector would be refundable or adjustable.

What experts say about Tarin’s Claim?

Renowned tax practitioner Ashfaq Tola has termed Finance Minister Shaukat Tarin’s claim that the mini budget would have no adverse impact on poor as ‘joke of the year’.

Responding to a query whether he agrees with the claim of the finance minister that the mini budget would not affect the common man, he restricted his response to four words: “Joke of the year!”

Dr Ikramul Haq, another leading tax expert, said the claim of the finance minister is baseless as both the rich and the poor people consume bakery items and packets of spices which have registered an increase of sales tax in the mini budget. Also, he said, the sales tax exemption has either been withdrawn or its rate has been increased that would trigger production cost of manufactured goods, which would again be utilized by the common man.

Regarding refund of 17 percent general sales tax on the material for medicines, he said the history of refunds payment is very shaky and the manufacturers prefer to fleece consumers by adding to the price. Therefore, the mini budget would also lead to increase in the cost of medicines. However, he has agreed that prices of some essential kitchen items would remain the same, as there is no sales tax on flour and rice. So far as sugar is concerned, he said, the import of sugar and pluses are concerned, they are already subject to deduction of sales tax therefore it is not part of the mini budget.

Another tax practitioner Muhammad Shahid Baig said the incidence of indirect tax is ultimately passed on to the end consumers and all the intermediaries are absolved form the liability, therefore it is incorrect to say that consumers would not be affected by enhancing indirect taxes.

A tax consultant of the Punjab government, requesting anonymity, termed it a misinformation on the part of the government machinery as any change in sales tax would directly be proportionate to the change in commodity prices. He added that the government was trying to sell reduction of rate in sales tax on medicines whereas it has triggered inflation by withdrawing exemptions on hundreds of daily use items. Also, he said, increase of withholding tax on mobile and phone users from 10 to 15 percent would also impact the common man.

According to him, the construction services and the services of property agents have been zero rated in Islamabad capital territory obviously on the pressure of builders’ mafia. He said the government would claim that it would give boost to the construction sector but as a matter of fact no impact would be passed on to the common man in the shape of low cost houses.

The Secretary general Pakistan Tax Bar Association lamented that the finance minister is neither a financial nor a tax expert and he has no idea how policies impact the common man. He added that there was no strategic vision in policy making, as tax exemption on the import of electric vehicles has been withdrawn before their imports.