FeaturedNationalVolume 14 Issue # 04

Budget blues

The Pakistan Tehreek-i-Insaf (PTI) government has lifted restrictions on non-tax filers on purchase of real estate and automobiles in a supplementary budget. Hiking tax on luxury items and imported vehicles, the government claimed it wanted to protect the common man from any additional burden. However, it has hiked electricity and gas prices, which have increased rates of all essentials and edibles.

 

Harsh measures were expected by the new government after fiscal deficits have reached an alarming level. However, it could have increased tax on luxury items and vehicles used by rich people to generate extra revenue and avoided power and gas price hikes, which have put a huge burden on the common man, who have pinned high hopes on the government after it had made tall claims of relief in its election campaign. The government, at least, should have delayed the hike for a few months to avoid the impression that it has no plan for relief to the people and would continue to take harsh measures to generate funds to run the affairs of the country, like the past governments. As a result, prices of all daily-use items have increased. Prices of roti and naan are also expected to increase after a hike in gas prices.

 

The government has increased natural gas rates by an average of 46 per cent, as determined by the Oil and Gas Regulatory Authority (OGRA) in June, and ordered steps to control the annual Rs50 billion gas theft. The regulator had proposed up to a 186 per cent increase in the rates for poorest categories of domestic and commercial consumers, while the prescribed rates for other categories – industrial, cement, CNG, power and commercial – have been jacked up by 27 to 31 per cent. The OGRA had determined the gas price for domestic and commercial consumers using less than 100 cubic metres per month at Rs294.55 per unit (180pc increase from Rs105.15 per unit), while the second slab using up to 300 cubic metres per month (both commercial and residential) would be charged Rs589.09 per unit instead of Rs210.31. The prescribed price for the third domestic slab of more than 300 cubic metres per month would be jacked up by 26.4pc and charged at Rs664.52 per unit instead of Rs525.76 while the same consumption in the commercial category would be charged at Rs797.42 per unit instead of Rs631 per unit, with an increase of 26.4pc.

 

All other categories in larger commercial enterprises, ice factories, industry, captive power, CNG stations, cement plants, fertilizer plants, public sector power houses and independent power plants would face a 26.4pc increase. The highest rate of Rs930 per unit will be applied to cement factories instead of the existing rate of Rs736. The Sui Southern Gas Company (SSGP) and Sui Northern Gas Pipelines (SNGP) had requested the government to implement the gas price hike, determined by the regulator, to bridge their deficits and improve cash flows. The SNGP had explained that it was purchasing natural gas from about 40 producers at an average rate of Rs629 per MBTU (Million British Thermal Unit) and selling at Rs399 per unit, with a net loss of about Rs230 per unit. SNGP’s receivables stood at Rs165 billion as of August 20, 2018, compared to Rs171 billion payables. The receivables of SSGCL stood at Rs203.567bn against its payables of Rs148.786bn. Ideally, the previous government should have increased the prices but it left the matter for the next government on political grounds as it did not want to take the burden on its shoulders ahead of the general election.

 

In another blow to the people, the Economic Coordination Committee (ECC) of the Cabinet, headed by Minister for Finance Asad Umar, approved a Rs2 per unit hike in electricity prices to contain rising circular debt of the power sector, which has swelled to over Rs1.3 trillion in the last five years after payment of Rs480 billion in 2013. The step will not only inflate the bill but also jack up prices of all daily-use items.

 

Earlier, the government partially reversed income tax relaxations and reduced development allocations in its new budgetary proposals. A key reversal on the revenue side was elimination of the restriction on non-tax filers on purchase of real estate and automobiles. In the last budget of the PML-N government, a ban had been imposed on non-filers of tax returns to purchase new cars and property. The finance minister claimed that the ban was being removed because it was interfering in the ability of overseas Pakistanis to do business and invest in Pakistan. Even with such a massive fiscal adjustment described by the minister as “bypass surgery”, the target for fiscal deficit for financial year 2018-19 was put at 5.1pc instead of 4.9pc, set in the budget passed by parliament in May this year. Reforms will follow in about a month to put the economy on the road to recovery. The minister said the supplementary budget for the current year had become inevitable because of the severe economic crisis and an “unrealistic” budget announced by the former Pakistan Muslim League-Nawaz (PML-N) government. In the budget, revenue collection had been overstated by Rs350b and expenditures were understated by Rs250b and Rs286b projected as cash surplus from the provinces was also unlikely to materialise when they jointly posted a Rs18bn deficit last year despite similar anticipated surpluses.

 

The combined Rs890bn impact of the three unrealistic targets would actually take the fiscal deficit to Rs2.78 trillion at the end of the year, or 7.2pc of Gross Domestic Product (GDP), instead of Rs1.89tr reflected in the budget books. The revenue target has been scaled down by Rs45b to Rs4.39tr. The development programme has been capped at Rs725bn, down from Rs1030b in the original budget, compared to actual expenditure of Rs661bn last year. Pakistan’s current account deficit has climbed to $18.1b last year from $2.5b at the end of 2012-13. External debt touched $95b last year instead of $60b five years ago and yet foreign exchange reserves are falling rapidly and cover just 6-7 months of imports.

 

Undoubtedly, the country is facing a serious financial crisis but increasing prices of electricity and gas is no solution. They directly affect the life of the common man. The government will have to check theft to overcome the losses and look for other means and ways to increase revenue. The people have pinned high hopes on the new government but it has started with harsh measures, which will add to their problems. All past governments hiked prices of electricity, gas and fuel to increase revenue but it overburdened the common people. The new government will have to think out-of-the box to increase revenue, without putting extra burden on the common man. It will be a real test for the government which promised to bring about change in the country.

 

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