Tax rolled back to mollify angry traders

ISLAMABAD: Finance Minister Miftah Ismail on Sunday announced the withdrawal of a fixed tax on small traders with electricity consumption of less than 150 units per month in a bid to calm angry traders who have been protesting after receiving additional charges of Rs3,000 in their electricity bills for the month of July.

In the federal budget 2022-23, the government, after consultations with trade bodies, had imposed a Rs3,000 per month ‘full and final’ tax on small traders to be collected through their electricity bills. The government had also guaranteed the traders that they wouldn’t be questioned by the authorities after paying the tax.

However, as recoveries began through electricity bills, various trade associations, particularly those in Karachi — the country’s largest business hub — launched protests.

“We will waive the tax on small shops [that consume] 100 to 150 [electricity] units,” he said at a news conference, adding that all other businesses including industries, banks and big traders will have to pay the tax.

Finance minister concedes helplessness in controlling inflation; hopes rupee would soon recover its lost value; blames Imran for economic disarray

Mr Ismail added that an annual tax of Rs36,000 was not a big ask for those earning Rs1.2 million, since it included both income tax and general sales tax.

The minister also announced that manufacturers failing to export at least 10 per cent of their produced goods next year will have to pay an additional 10pc tax as “the government cannot continue to run trade deficit like the $48bn left by the previous government.”

‘I’m helpless in front of inflation’

Mr Ismail also conceded his “helplessness” to control the inflation adding that “his hands were tied”.

“Controlling the inflation and increasing economic growth should be the top priorities of any finance minister but I concede that both have not been my priority. My priority is to avoid default,” said Mr Ismail. “Let me save the boat first and then I will also serve food.”

However, he added that despite falling reserves, there was surplus wheat after importing additional one million tonnes, while funds have been released for utility stores to sell flour at a subsidised rate of Rs40, sugar at Rs70 and vegetable ghee and oil at Rs300 per kg.

Talking about the measures to fix the trade imbalance, the minister said that imports in June stood at $7.7bn, but declined to $5bn in July as a result of steps like the import ban and slow processing of other imports.

He said the government would continue taking measures to reduce imports and convert the current account deficit, which stood at $17.5bn in the last fiscal year, into surplus.

Pressure on rupee to ease soon

The minister once again tried to calm the antsy forex market by expressing hope that the pressure on exchange rate would ease in two weeks and the rupee would regain its lost value as the government has managed to cut imports by more than 35pc in July (month-on-month).

While conceding that dollar had gone out of control post the July 17 by-polls in Punjab, Mr Ismail said he still believed the value of rupee was far greater than where it was currently standing.

“Fundamentals are in my favour, but speculation and sentiments also play a role,” he said.

The pressure on rupee would reduce as about $800 million paid by the State Bank for oil imports in June would shave down next month, he added.

The minister said that the Economic Coordination Committee had already approved the removal of ban on imports, except that on vehicles, mobile phones and home appliance, but the cabinet was yet to ratify the decision.

Mr Ismail also added that all but one pre condition set by the IMF for the resumption of loan programme have been of completed while the remaining one would be delivered by Monday morning.

Crictising the previous government for bringing the country on the brink of default, Mr Ismail said the PTI government, in is four years, could not match the tax-to-GDP ratio left behind by the PML-N government in 2018.

“We had left it [tax-to-GDP ratio] at 11.3pc and the PTI took it to 9pc,” said Mr Ismail, adding that despite former prime minister Imran Khan’s claim to increase tax collection, it actually reduced every year while he was in power.

He said Mr Khan and his finance minister Shaukat Tarin ran consecutive highest ever fiscal deficits of 9.1pc, 7.1pc, 8.1pc and 9.5pc of GDP in the past four years despite heavy burden of indirect taxation.

The power sector circular debt was increased form Rs1.1tr in 2018 to Rs2.5tr in 2022, while a circular debt of Rs1.4tr was created in the gas sector during the previous government’s rule, he claimed.

“They did not work in any area. But kept appearing on media making false statements and now they question who is responsible for this?”

Just a day ago, PTI chief Imran Khan had tweeted: “8 March 2022 when VoNC tabled $ was at Rs178. Today it has reached Rs 250. On 8 March 2022 inflation stood at 16.5%; today it has spiralled to 38%. Not only is this Imported govt made up of crooks but it is thoroughly incompetent too. Question is who is responsible for this mess?”

Mr Ismail reiterated that the PTI-led government violated the commitment given to the IMF in 2021 when it subsidised petroleum products in February.

Published in Dawn, August 1st, 2022