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A non-stop journey of price hike

  1. KSE: The changing trends
  2. Tax immunity to FCAs & FEBCs to continue
  3. HUBCO's 'parked receivables'
  4. A non-stop journey to price hike
  5. Taxes, assessees and tax collecting personnel

Governments eye only poor masses for revenue generation

From Shamim Ahmed Rizvi, Islamabad
Aug 30 - Sep 05, 1999

With an all-around price increase, the poor masses are going to experience further hike in prices as the federal government in the recent past announced the levy of 15 per cent general sales tax on few items including petroleum products, electricity, gas, fertilizers, food items and medicines. The prices of gas have been increased by about 5 per cent and further increase in the prices of petrol and petroleum products by 10 to 12 per cent is likely during the next couple of weeks.

The Finance Minister has already made it known after his meetings with the IMF officials in Washington recently, that the prices of gas, electricity and petrol would increase by almost 40 per cent — about 15 per cent on account of cost, 15 per cent because of GST and about 10 to 12 per cent on account of restructuring of utilities.

Gas and electricity are strategic items encompassing the whole gamut of the economy. A large increase in their prices is expected to send shock wave throughout the country. The finance minister had promised that the full impact of the GST would be diluted through adjustments in the central excise duty (CED) and surcharges but the exact extent of those adjustments yet to be worked out. It would have been better if the levy of GST and the changes in CED and surcharges had been announced simultaneously.

As far as the prices of POL products are concerned, this would be the third increase within 14 months which began with a drastic rise of 25 per cent immediately after the May, 1998 nuclear explosions. The second price rise of 10.58 per cent came before the June budget. Rate per litre is expected to rise by Rs. 3 soon, increasing the woes of the common consumer while the officials would get their quantum of petrol, specified or otherwise free at any price.

This third rise within 14 months is coming in the name of world crude oil price touching $ 20 a barrel. When the first rise of 25 per cent came that was meant to meet the financial crisis following the nuclear explosions. The financial crisis has eased, say the officials, but that has not been reflected in POL prices. The second rise of 10.58 per cent was meant to boost revenue further. The coming rise is also designed to increase the revenues so that the budget deficit would not exceed 3.3 per cent of the GDP as stipulated by the IMF.

Increase in POL prices has a multiplier effect on prices as a whole. Power rates go up soon after furnace oil price rises. Transport cost would shoot up and express themselves in terms of higher freight rates and fares. Foodgrains, vegetables and fruits then would become more costly.

For a1l the pressure being exerted by the IMF to raise the POL prices by 15 per cent, it was earlier said that the IMF package was, in fact, a "home grown package" and would not be imposed on the common people by the IMF. What we need now is not a homegrown package, but the one rigorously imposed by the IMF. But the IMF could argue the government had agreed to that prior to the signing of the ESAF, EFF agreement for obtaining $1.6 billion in over three years.

The IMF demands that regardless of any other consideration the agreed 3.3 per cent budget deficit target should be achieved this year. And if the farmlords will not pay Rs 10 to 12 billion as agricultural income tax and the retailers will not pay more than a paltry sum as sales tax instead of 15 per cent it wants, more revenues have to come as enhanced petroleum prices, even that means a 60 per cent rise within 14 months.

If we have to pay higher POL prices because of the rise in world price of oil we are not benefiting by the sharp fall in palm oil prices, The government is grabbing the difference between the old high price and the new low prices.

The government had, last year, estimated Rs. 43.4 billion collection as revenues from petroleum surcharge but collected Rs. 73.2 billion because of the decline in the prices. The government has also now increased the price of gas for two major fertilizer companies—Engro and Fauji Fertilizers—by 70 per cent. That means they will soon raise the prices of their products which would result in higher food prices. One was appalled to hear the finance minister in his interview on PTV that there would be no rise in the prices of commodities on which GST has been imposed at the rate of 15 per cent as other levies such as 2 1/2 per cent central excise duty or surcharges to this extent (whichever applicable) has been withdrawn. The difference of 2 1/2 per cent was expected be absorbed by the traders out of their profits. Being a Pakistani and living in Pakistan the worthy finance minister is expected to know that it has never happened in our country. When the government is not prepared to follow this fair method. (Take the example of 25 per cent increase in the prices of petroleum products to meet the emergency, caused by economic sanctions after nuclear blast. Sanctions have been lifted but this increase has not been withdrawn) How they expect the traders community to be so fair and honourable gentlemen. The ground reality is that prices in general have begun to rise including those on which no fresh levy has been imposed like Atta & rice making squeeze on the consumer still more acute. There is an across the board increase in prices from 10 to 15 per cent making it quite clear that the rate of inflation will again be in 2 digits during the fiscal year 1999-2000. Only IMF is not be blamed for this fresh price hike. Being a lending agency IMF is fully justified in striving to increase revenue generation in order to ensure that Pakistan is in a position to pay back the borrowed money. They have suggested various options to government of Pakistan to increase their revenues. The central issue is; how can the government break the logjam of tax revenues around Rs 300 billion annually unless it taxes the feudal lords properly and the retailers are made to pay proper taxes, including the sales tax? The feudal lords who pack the national and provincial assemblies are too powerful and beat any move to collect more tax from them. Agricultural income tax should properly be a federal subject, and if a constitutional amendment is needed for that purpose, that should be enacted. The retailers need a firm approach on the part of the government. They should not be allowed to get away with their protests and hartals (strikes). They should be brought to the tax books properly and made to pay full taxes. Of course, all that would need a clean, efficient and alert tax machinery devoid of the common failures. The government has been too slow in making a headway in that direction because of the large number of corrupt taxation officials.

With all the measures being taken to increase revenues, the government is only adding to the miseries of common people. The middle and low income groups remain the hardest hit by increased cost of living. The bad shape of economy, closure of numerous factories and businesses have added to rising unemployment. In these circumstances, instead of increasing the burden on the people, the government should seek other means to generate additional funds. This can be done by austerity drive, cutting down administrative expenses, plugging the leakage and checking wastage, corruption and thefts of resources and temporarily curtailing the high perks and allowances of big bosses and imposing financial discipline in its organizations. Taxing already overtaxed is not the only way out.