Editorial : More taxes - Thursday, March 17, 2011

Source : http://www.dawn.com/2011/03/17/more-taxes.html

THE fresh tax measures announced by our cash-starved government to boost its revenues during the remaining three and a half months of the current fiscal have surprised no one. Some measures like a 15 per cent flood surcharge on incomes are temporary and scheduled not to last beyond June 30. Others like a 2.5 per cent special excise duty on imports and sales tax on sugar, domestic sales of the five major export-oriented industries and agricultural inputs are likely to remain longer. It was also not surprising to see the politically belea-guered government of Prime Minister Gilani circumvent parliament and implement new taxes of Rs53bn by promulgating ordinances. This may not be unconstitutional, but it certainly is not desirable. Apparently, the government’s failure to build political consensus in parliament on the controversial but important RGST led it to take this step. Had it chosen to take the fresh package to parliament, the opposition would have blocked the move. Even treasury supporters might have found it difficult to digest the new package.
Together, the additional taxes and expenditure reductions are expected to provide a cushion of Rs120bn to the government and help it restrict fiscal deficit to less than 5.5 per cent of GDP from the projected eight per cent or above. It will also help it to reduce its borrowings from the central bank and ease pressure on interest rates. Moreover, the implementation of the new measures will pave the way for the partial release of the currently blocked official capital flows from international donors and lenders. It would, therefore, be safe to assume that the government has at least stalled an economic meltdown.
Simultaneously, the government has announced fresh budget cuts of Rs67bn to make the new tax measures more ‘palatable’ to taxpayers. Development spending has again been scaled down, fresh recruitments banned and non-salary expenditure halved. But this will hardly appease the opposition. While it is necessary to boost tax revenues to protect the economy from collapse, the new measures cannot be described as equitable and fair. They will further burden the salaried class that has been asked to pay additional taxes of Rs20bn. No effort has been made to broaden the tax base and make the system equitable by removing exemptions given to the rich growers and property and stocks speculators. The government must realise that fire-fighting measures cannot help it prop up the economy or improve its public rating. It will continue to lose public support and the economy will continue to be un-stable until all segments of society are made to pay their due share of taxes.

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