The latest Gallup Pakistan Business Confidence Index report should be an eye opener for the government. The report confirms that due to gross economic mismanagement by the incumbent government and heavy taxation the business community is in a depressed mood and economic activities are shrinking.

Covering 454 small, medium and large businesses from over 30 districts in the country in the second quarter of 2024, the Gallup survey reveals that a majority of businessmen are of the opinion that the present PML-N-led government has proved itself incompetent and is a worse manager of the economy than its predecessor. While assuming the reins of power, the PML-N and its allies made loud claims about their past experience and promised to control and reverse the downhill decline of the economy and usher in a new era of progress for the country. But perhaps they underestimated           the enormity of the challenge and are now at a loss what to do.

On top of the unaffordable and exorbitant energy prices, the tax-heavy budget has made it a target of increasing public fury and anger. The PML-N has been in the power corridors for long and should know what the public needs. Yet, it has been implementing tough structural reforms and imposing new taxes on poor people. What is more irksome is the fact that it has not reduced its own expenditures. While most Pakistanis are facing the worst inflation, unemployment and tax burdens in the country’s history, the government has given its employees higher salaries and more perks and privileges. This means that middle- and lower-income classes will have to pay extra taxes to support their extravaganza and keep the IMF lifeline satisfied.

Due to high energy prices, businesses are in deep trouble. High utility costs and high taxes have already rendered far too many of them unviable, while export industries have become uncompetitive in the international markets. Now they will have to pay even more taxes and tariff heads just because the government will not cut its own excesses nor tax high earning sectors that are politically powerful – feudal lords and trading classes.

Last week, the Finance Minister tried vainly to calm the jittery domestic market saying that the government is successfully engaged in dialogue with three friendly countries – China, Saudi Arabia and the United Arab Emirates – to roll over the existing 12 billion-dollar debt for the duration of Extended Fund Facility IMF programme and is also hopeful of some accommodation in servicing the CPEC debt. But this is hardly of any comfort to the people and business community of Pakistan as the government, instead of slashing its own expenses, raised the current expenditure in the budget 2024-25 by over 20 percent, including a 20 to 25 percent raise in salaries of government employees. The daunting challenge for the government in general and the Finance Minister in particular is the growing discontent and anger in the general public suffering the worst form of  stagflation whereby the domestic and external rupee erosion coupled with lower job opportunities is raising the poverty levels even higher than the prevailing 45 percent.

According to experts, a multitude of taxation measures introduced in the FY25 budget have broken the back of the economy. The government, in collaboration with the International Monetary Fund (IMF), has imposed excessively high taxes on both salaried and non-salaried individuals, exporters, and various sectors through turnover taxes on almost every transaction, changing the character of tax on income and making it more akin to sales tax except for input to output adjustment in the VAT mode. Some of these tax rates are unjustifiable and could further erode the trust and social contract between taxpayers and the state.

It is clear that the government has no road map to put the economy on the growth path. As of now the economy has reached a breaking point. Businesses are closing down and people cannot afford to pay their utility bills. It will be more difficult for them to survive when the EFF’s harsh conditions are enforced and life becomes more expensive. Needless to say, the time has come for the government to devise emergency support measures to stop industries from closing down which will result in further widespread unemployment and growing poverty.

The real problem is the profligacy of the government machinery and an unsustainable federal administrative and fiscal structure which favours the rich at the cost of the poor. Without addressing this root problem, no way forward is possible.