Mini budget: Fact and fantasy

Mini budget: Fact and fantasy

Dr. Abid Qayyum Salihry

The bad news is withdrawal of subsidy from sale tax in various sector while good news is that it will not affect prices, rather the mini budget shall only impact luxury items. The prices of daily basic and edible items will not be affected due to mini budget 2021 despite analysis of various experts regarding inflation.
To understand the mini budget 2021 it is worth discussing the background before analyzing financial bill. In most of modern economy sale taxes are imposed on supply chain including services sector in multiple ways while latter on it is returned or adjusted in levied taxes. The multidimensional taxes lead to documentation of economy while industry can achieve benefit from the system after filing of tax returns.
To increase tax-net various governments in the decade 1980s had introduced such taxes like Sale Tax Act(STA) 1990 had replaced STA 1951 in which General Sale Tax (GST) was imposed on different sectors. In which some sector were excluded from GST to facilitate them, some sectors were declared zero taxes rate (meaning no output tax levied but input tax was refunded to suppliers) which had complicated the processes of returning taxes and irregularities were faced.
To streamline the process Pakistan Peoples Party led government in 2011-12 tried to bring reforms in GST (RGST) on the directives of International Monetary Fund (IMF) but it was failed and the process was suspended prematurely. After ten years the incumbent Pakistan Tehreek-e-Insaf government had took concrete steps upon the direction of IMF. The immunity shall be withdrawn after passing of mini budget from national assembly and equal GST will be imposed on every sectors which can be refunded or adjusted. This step will remove the flaws from previous processes.
The daily use and edible items including fruits, oil, vegetable, flour, wheat, pulses, milk, fish and meat shall be excluded from the imposition of equal GST planned in the Mini Budget 2021. Likewise educational books, stationary, imported parts of laptop, computers and machinery items for economic zones, fertilisers, pesticides and special clothing items for it and cinematographic equipment shall also be charged at low rate of GST.
Mini Budget 2021 has effect worth Rs,343 billion of which Rs. 160 billion amnesty from pharmaceutical industry, Rs. 112 billion machinery and Rs. 71 billion from various other sectors quashed.
The effect of amnesty or adjustment from pharmaceutical and machinery shall have zero effect and will help in reducing prices of medicine. Contrary to common perception medicine was exempt from GST before and therefore tax paid by manufacturers on packing materials was non refundable. In the mini budget now the Rs. 35 billion worth of input tax that consumers were bearing will now be refundable. Similarly raw material for preparation of medicine will have GST levied but will be refundable. Bringing this industry in the GST system will help in document economy better and therefore Rs.530 billion worth of undocumented supplies will come under the tax net. In addition to increasing revenue this act will curb the supply of fictitious medicine, tax evasion and stoppage of malpractice will be encouraged. Similar to medicine, exemption of tax on machinery will be adjustable and will not affect consumers. Looking at various other items sales tax exemption worth Rs.36 billion has been quashed including luxury items, branded meat, fish, poultry etc. users of such items are usually financially upper-class but even middle-class use them who will be affected by the increase. Apart from this tax exemption worth Rs.31 billion has been taken back from business items. The most magnificent thing in the Mini Budget is that establishing procedure international standard to include real estate in the tax net which will lead to transparency in the business.
The State Bank of Pakistan (SBP) Bill shall lead to administrative and operational autonomy of the bank but it is necessary to amend the bill from stopping government to obtain loan from SBP but liability shall be put on SBP to provide loans in emergency while emergency will to be define in the amended bill.
We must not reject Mini Budget 2021 on the ground that it is prepared on the directives of IMF but it is necessary for Pakistan to expand its tax net and documentation of economy which will lead to increase in direct taxation while causing downing indirect taxation which is obtain from every citizen equally.

The post Mini budget: Fact and fantasy appeared first on The Frontier Post.