Budget 2020-2021: Reality Check (Part I)

Budget 2020-2021: Reality Check (Part I)

Hassnain Javed

June 25, 2020

Some facts and realities are certainly unpleasant to observe however, they exist in a way, which cannot be ignored. Pakistan’s economic budget is one such example garnished with top quality ingredients as expensive as saffron but the main ingredients of the budget lack the true essence. The budget presentation started with the 18th amendment violation as all the provinces have the right to decide the distribution and allocation of the given budget. Since Pakistan gain independence, for the first time, ever amount of development funds allocation for every province was announced during the budget presentation. The Federal government does not possess the right to intervene in the provincial budget distribution, prioritization of funds allocation as respective provinces can self-generate the funds with given resources when and where required. Especially after the 18th amendment, the provincial governments have the right to have foreign loans, introduce taxes, and can generate funds through other means such as by having public-private partnerships. It is a pity that the opposition leaders did not notice this violation and put forth the argument against it.

Moreover, the Federal government has set the target of approximately Rs.3800 billion tax revenue collection for the fiscal year 2020-21 whereas the tax revenue collection for the past fiscal year was approximately Rs.2900 billion, and this tax revenue collection was done in Corona free days. As Pakistan experienced, evident of COVID19 by the end of March 2020, that is the tenth month of the fiscal year 2019-2020. Pakistan was having a full spree of PSL matches by the mid of March 2020. It is important to understand, first, ten months’ data is used for presenting fiscal year data.

However, now the global dynamics have experienced a massive shift due to the COVID19 pandemic. In the given budget of Pakistan for 2020-21, it is said to be tax-free. I wonder how they will cope with the given target and fill the Rs.900 billion budget deficit. Now, what will happen it will lead to default the target. Although, the serving government has promised me the IMF to introduce Rs.900 billion new taxes to fill the gap. The question arises from where Rs.900 taxes will be generated. Thus, a counter-argument that arose upon deep analysis is the increase of given tax rates for instance the tax of cold beverages was initially 13% but now it has increased to 25%. Similarly, the tax on tobacco was initially 65% but now it has risen to 100%. Thus, the traditional formula of squeezing the given lemons in the market. Nevertheless, in the given circumstances it is not very desirable to fulfill the given target by increasing the given tax rates.

In the past three months, Pakistan’s unemployed workforce has also risen by 4 million. The agricultural growth has been presented as 2.8% but the real trick to show growth in this sector is by including livestock, which contributes almost 52% of the agriculture growth

Besides this, it seems to talk of billions and having a cart of snacks. According, to the State Bank official figures Pakistan’s economy, have undergone -0.5% negative growth second time since its independence that indicates the economy is shrinking. Pakistan experienced negative growth for the first time in 1951. At the time of independence, a lot many people have migrated from Punjab and Karachi to India whereas Parses and influential Hindu’s owned most of the properties and assets in Karachi and Sikhs were operating businesses in Punjab. Therefore, after the partition between India and Pakistan in the 1950s there was the establishment of resettlement commission. Although, there was the selling of properties in peanuts the proceedings were transferred to India and vice-versa. It explains that during a short period there was a flight of money from Pakistan reserves to India in specific that led to negative growth. Now, after 70 years, Pakistan has experienced negative growth and it should not be entitled to COVID19. Indeed, the worsening of the Pakistan economy has started much earlier as the private industrial sector has paid back more loans rather than issuing new loans. Here, one needs to pause and think, how, when, and where the money is transferred from Pakistan that has ultimately caused negative growth. It is much important to ponder on this matter as Pakistan has undergone much worse situations in the past for instance after nuclear experiments international sanctions were imposed besides that there was 1.45% growth. Therefore, it is a certain heavy amount of money transferred from Pakistan by the people sitting right and left to the power poles.

In the past three months, Pakistan’s unemployed workforce has also risen by 4 million. The agricultural growth has been presented as 2.8% but the real trick to show growth in this sector is by including livestock, which contributes almost 52% of the agriculture growth. However, real-time growth in agriculture is much less. According to estimates by the private sector, there is approximately 5% negative growth in the agriculture sector in the fiscal year 2019-2020. Moreover, there is no direct tax on the agriculture sector in specific although farmers do pay income taxes it is not considered as direct tax from the agriculture sector. Now, for the fiscal year 2020-2021, the government has set the target of 2.8% in the agriculture sector, 0.1% in the industrial sector that pays the tax, 0.7% growth in the manufacturing sector, -2.5% growth in the corporate sector that primarily provides the employment. It implies that the government has further planned to shut more factories in the fiscal year 2020-2021. Likewise, to present overall growth in the industrial sector government has introduced construction as a new component and given it a status of the industry. This newly introduce sector will show a growth of 3.4% that will overall present growth in the industrial sector. It is an easy formula to create a lose-win situation indeed none less than hoodwinked.

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