Pakistan's draft finance bill approval a challenging task: Report

Islamabad [Pakistan], December 28 : Approval of the draft finance bill envisaging not only the withdrawal of sales tax exemptions amounting to 330 billion rupees and granting autonomy to the State Bank of Pakistan (SBP) from the Cabinet and then the Parliament is going to be a challenging task, as per the editorial piece in Business Recorder.
In an editorial piece, Business Recorder said that the bill concerning SBP has been pending since November 21 when the IMF uploaded the Staff Level Agreement on the sixth review under the 6 billion dollar Extended Fund Facility (EFF) programme.
It is going to be a "challenging task premised on three existing disturbing facts", an editorial in Business Recorder said.
First, the government is defining withdrawal of exemptions as an attempt to bring sales tax to the standard 17 percent on all items claiming that only the well-off people will be affected. This definition may need a revisit after cabinet approval as reports indicate that raw materials (including on pharmaceuticals) as well as baby food items are included in the draft proposal submitted by the Federal Board of Revenue.
Second, the year-on-year trend of the Sensitive Price Index (SPI) for the week ending 23 December 2021 released by the Pakistan Bureau of Statistics was 19.83 percent based on the prevailing assumption that any attempt to raise taxes would fuel inflation further makes resistance from within the cabinet a certainty, especially from coalition partners as well as those who joined the Pakistan Tehrik-i-Insaaf (PTI) just before or after the 2018 elections. This challenge may be compounded in parliament.
Finally, the component of the SPI that witnessed a major increase were Electricity (83.95%) and LPG (71.18%), (administered prices) and Cooking Oil 5 litre (59.93%), Vegetable Ghee 1 Kg (56.77%), and Vegetable Ghee 2.5 Kg (54.70%) reflective of not only their international prices but also the rupee depreciation. The government has already announced that it will further raise utilities tariffs, to achieve full cost recovery, rather than through improving sector efficiencies by implementing structural reforms.
Any attempt to derail the approval of the bill in the cabinet and its passage in parliament at the present moment will be doing a grave disservice to the country's already ailing economic health though one would hope that the government is forced to, reduce the unprecedented rise in current expenditure - to 7.5 trillion rupees in the current year against less than 4 trillion rupees inherited by the Khan administration.
Secondly, while the objective of free/cheap credit to farmers, small and medium enterprises and exporters can be supported for long-term growth (premised on the banking sector's windfall profits made possible by procuring secure Pakistan Investment Bonds at rates well above the discount rate) yet at present, this massive injection of cash will almost certainly be inflationary.
In addition, in the past such schemes failed as with no collateral required, the borrowers did not repay the amount which in turn led to the reluctance of banks to meet the government's stipulated credit targets.