Reducing economic anomalies – Newspaper

Overwhelmed by money worries average Pakistani families were pleasantly surprised less by the little relief the budget promises them in the times of crushing economic distress and more by taxing the elite.

The budget seems to remove economic anomalies by enhancing the share of direct taxes, broadening the net, simplifying the tax system by chopping the number of

tax slabs from 12 to seven and by promising to improve the performance of the tax machinery.

The proposed budget increased the limit of taxable income from Rs0.6 million to Rs1.2m, letting not just the poor earning under Rs60,000 out of the tax net but a very big segment of the lower middle salaried class, earning in the band or Rs60,000 to Rs100,000 per month, not liable to income tax.

The 10 per cent tax on the profit of the Behbood Scheme (for retirees and senior citizens) of the government’s National Saving is scaled down to 5pc. The pensions of government retirees were revised up by 5pc at the top of an earlier upward revision of 10pc announced two months back in the inaugural speech of Prime Minister Shahbaz Sharif whereas the salaries of all civil servants were increased by 15pc and their adhoc allowances merged in basic salary.

Middle-income groups are more pleased with measures that tax the rich than the ‘relief’ provided

This was in addition to grants on some basic edibles provided in utility stores and higher allocations for strengthening and expanding the social security net for poorest households struggling to survive on income under Rs40,000 per month.

There are several definitions of the middle class in Pakistan. Individuals earning in the band of Rs60,000 to Rs200,000 are assumed to be in the middle-income group. According to the World Bank, any person who makes $300 (Rs60,000 in Pakistan at the exchange rate of roughly Rs200 to a dollar) a month on an average over a year qualifies for the middle-class group. The upper limit is set at $900 (Rs180,000 in Pakistan) a month.

For convenience, we have applied this definition for a single-earner five-member family of two adults and three children. The supplementary income by other members of such families is rarely stable or enough to pull the unit up the social ladder.

“Tax reduction and rise in salaries will provide solace to low salaried employees but it is certainly not sufficient when prices are rising steeply and private employers are less inclined to raise salaries. Frankly, I did not expect any relief as we hear the political leaders moaning about the resource crunch 24/7 on the TV.

“But for once it’s not just the working masses forced into making sacrifices for national interests but the lucky ones rolling in wealth have also been asked to chip in,” commented a senior teacher of a government school in Karachi.

Given the International Monetary Fund’s demand for higher resource mobilisation, the government has set the target for tax collection at Rs7 trillion. It has imposed an additional 2pc tax where income exceeds Rs300 million and tax on banking firms has been increased from 39pc to 42pc, including 3pc super tax.

Disgusted by monstrously huge shining vehicles speeding past their rickety overloaded motorbikes, feeling mocked by rich seen spending more than their monthly income casually on a single meal, barred from entering gated rich localities; it’s not hard to tell what ordinary Pakistanis loathe more: poverty or inequality

The tax credit for mutual fund investment has been withdrawn and duty on big cars and price mobile phones has been increased. Multiple property holders will be liable to pay tax on their holdings other than the living residence and the wealthy holding offshore assets will be liable to pay 1pc of the value of their foreign assets in taxes. An advance withholding tax has been imposed on persons sending remittances abroad.

Besides attempting to increase the share of direct taxes, the government has also attempted to broaden the tax net by introducing a flat tax on 2.5m retailers to be charged with their electricity bills.

“Poverty is a big issue in Pakistan but it is inequality that generates tension between classes and regions. If poverty is a human rights issue, inequality is the country’s most sensitive political issue. Sadly instead of addressing the worsening income disparity, successive governments stopped tracking and reporting it in the economic survey,” observed a closer watcher.

“Disgusted by monstrously huge shining vehicles speeding past their rickety overloaded motorbikes, feeling mocked by rich seen spending more than their monthly income casually on a single meal, barred from entering gated rich localities; it’s not hard to tell what ordinary Pakistanis loathe more: poverty or inequality,” he added.—ASH

Published in Dawn, The Business and Finance Weekly, June 13th, 2022

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