ISLAMABAD: The first Rs3.6 trillion budget of the new government of Prime Minister Nawaz Sharif’s Pakistan Muslim League — a party of industrialists — presented within a week of assuming power after recent elections, appears more “business friendly” than “people friendly.”
The electorate that voted Sharif to power might not easily accept additional burden of price increases through the increase in General Sales Tax (GST) by one percent to 17 percent and that too with immediate effect instead of July 1 when the next fiscal year is going to start. Their reaction will set the tone of debate in the National Assembly.
The budget if approved in the current form may boost investment, revive growth and enable Pakistan to qualify for the International Monetary Fund loan facility. The man on the street, however, might find the year ahead more challenging as his real income declines because of the inflationary impact of the proposed indirect taxation.
The government in its first defining policy move proposed people to endure the pain of adjustments now, to enjoy gains of growth later. For economic stabilization the budget 2014 increases the GST to 17 percent and revises upward the income tax rates on salaries.
Corporate Pakistan, which has been reluctant to invest in the country all through the Pakistan People’s Party rule for past five years resulting in depressed three percent average growth, has been encouraged by revising downward the corporate tax rate by one percent from 35 to 34 percent with promise of decreasing it to 30 percent in four years.
The government looks keen to revive the big business confidence to induce them to move ahead with investment plans they have been holding back for better times. “For the big boys of business in Pakistan, the future has arrived,” commented an analyst.
The budget is a typical PML-N document reflecting its economic philosophy of unfettered market economy, it speaks of homework the party must have done long before assuming power. It has all those signature initiatives that are considered hallmarks of Sharif’s rule in Pakistan.
There are all kinds of low ticket initiatives for public consumption (youth internship, micro credit, income support, technical training, laptop distribution, etc) but the focus of the development budget would be on infrastructure projects (motorways and railways).
“The budget package if endorsed by parliament will infuse confidence in the private sector that already sees Sharif as champion of market economy. I will not be surprised if by the end of the fiscal Pakistan surpasses the growth target as public and private sector investment gain steam,” a senior business leader said on Thursday.
The government has proposed upward revision in GST from 16 to 17 percent on the floor of the assembly. It would make all products dearer by at least the same percentage, though the price spiral often enhance the impact of inflationary measures and lead to more than proportional rise in prices.
“The budget is in line with corporate sector expectations. It will improve the business environment as the government has respected IMF advice and is targeting to bring the deficit down from current 8.8 to 6.3 percent by the end of next fiscal, a reduction of exactly 2.5 percent suggested,” Sayem Ali, Standard Chartered spokesperson on economic policy, said commenting on the budget.
“Market will cheer cut in corporate tax rate. The GST revision will not affect companies as they will pass it on to consumers. All in all, the budget 2013 is a good news for the capital market,” he added.