Mini budget up the inflation by 35 percent- trader say

The business community and economic experts, reacting to imposition of surcharge on income tax, raise in excise duty and withdrawal of GST exemption on agri inputs, have said the price-hike would further jump by 30 to 35 percent due to this anti-public decision.
The Customs Department has stopped the entry of all consignment at ports and demanding sales tax, as the items in Chapter 29, 34 and 39, which were earlier exempted from sales tax, have now been included in the tax net, traders said and added that after the sales tax imposition the income tax would also be levied on them.
The 18 percent sales tax has been imposed on zero-rated items while their income tax has been raised to 7 percent from 6, besides excise duty of 2.5 percent, which would lead to around 30 to 35 percent inflation for consumer goods, said Khawaja Khawar Rasheed, a business leader of the FPCCI. He said the government finally implemented the 15 percent flood surcharge on income of corporates and individuals initially for the remaining 3 month period of the current fiscal year.
Experts said the preliminary impressions suggest that the new tax would curb FY11 earnings growth by 1.5 percent to 19.5 percent from 21 percent earlier. On individual companies, this new taxation measure would erode profits on an average by 2 percent, they added. Umer Bin Ayaz, an economy expert, said the government has also withdrawn sales tax exemptions and implemented 2.5 percent special excise duty and has increased the applicable tax of sugar. All these measure are likely to generate additional tax revenue of Rs53b as per official estimates, along with planned expenditure cuts of around Rs67b.
Jamshaid Iqbal Cheema, an agri expert and Chairman Pakistan Agricultural Scientists Association said that govt had assured them to impose tax on agri income but instead of that it has imposed tax on agri inputs, which result into reduction in yielding of crop. He said when crop production is decreased by 10 percent then its price is jumped by 30 percent.
He said that the taxation on agriculture sector has always been negligible and the share of federal tax collection from agriculture sector has been only 0.12 percent of GDP in 2003-2004. He pointed out that the low share indicated that the entire value-added chain in the agriculture sector is nearly tax-exempted.Noted economist Dr Ashfaq Hassan Khan declared this step of the government as positive but said that it was too late, which reflected the inefficiency of the economic managers of the present government. He argued that although agriculture’s share in national income exceeds 23 percent, revenue raised from the sector is negligible. With limited tax potential of many subsistence farmers, the land revenue system needs to be replaced by agricultural income tax for any significant increase in revenues from this sector. Besides these additional revenue generation measures, the government also announced fiscal austerity measures which include: Petroleum entitlement, stationary and travelling allowances to be cut by 50 percent for the remaining part of the year. A complete freeze on purchase of durable goods and hiring of the human resource, have also been announced, he said.
He said that initial impressions suggest a negative to neutral impact on the stock market and an inflationary pressure from the macro view point. Nevertheless, in the medium to long-term he viewed these measures as positive for the economy.
The LCCI former president Aftab Vohra said that the trade bodies of the country have been proposing the imposition of the agricultural income tax for a long time. He said the industrial sector is paying huge amount of direct taxes whereas the big landlords are paying nothing. He siaed the fuedals who are paying nothing should be forced to pay income tax, sales tax and excise duty.
Muzzammil Aslam, an economist, observed that with these measures, the government is expected to contain the deficit by an incremental Rs120b, including Rs53b through taxes and Rs67b through curtailed expenditures. LCCI President Shahzad Ali Malik said that the decision would bring a tsunami of inflation that would be entering into a new phenomenon. He said that it was very unfortunate that the "Mini budget" was announced at a time when the government was bridging the resource gap by printing new notes worth over Rs 2 billion daily.
"As the incomes are stagnant or declining since the last three years and the average increase in energy tariffs has been very high, even one or two per cent increase in taxes would create a Dooms Day scenario."
Our staff reporters from Karachi and Hyderabad add: Pakistan Leather Garments Manufacturers and Exporters Association Chairman Fawad Ijaz Khan has said the recent hike in the excise duty, sales tax, power tariff and the imposition of surcharge on income tax will shoot up the cost of production of the leather garments sector.
In a statement, Chairman PLEGMEA stated that we should not have any objection on the levy of sales tax on local sales of finish items fall under five zero-rated sectors because the sales tax throughout the world is levied on local sales.
However, under the new presidential ordinance a supplier will not charge sales tax if he sells his products to manufacturers or exporters.
He stated that a large number of commercial importers and local raw material suppliers will now have to pay sales tax on the import of leather, chemicals and accessories of garments. Such importers/suppliers will charge sales tax on their sales.
Meanwhile, Sindh Chamber of Agriculture President Dr Syed Nadeem Qamar and other members have strongly condemned the imposition of taxes thorough Presidential Ordinance and demanded the government to withdraw the ordinance under which the taxes on income, imports, agriculture and domestic sales have been imposed by the government.
They observed that the move to withdraw the subsidy on agriculture inputs and engineering items through the Ordinance would adversely affect the agriculture sector.
The inputs and item including fertilizers, pesticides, tractors, plant machinery, equipments, implements and parts are essentially required for accelerated agriculture development, they said and added that the businessmen are applying all their efforts to exploit and they do not want to see the prosperity of agriculture, country and agriculture-friendly government for their own interests.
The business have already increased the rates of fertilizers with justification, they said and added that the withdrawal of subsidy will further slow down the agriculture development which needs to be accelerated to improve the economy of the country.
The agriculture sector has badly been damaged by floods and received overall loss of 50 percent, they said and urged that under present circumstances, the agriculture needs very wisely provision of incentives, but inappropriate, adverse and unfavourable policies such as withdrawal of subsidy will deteriorate the progress of agriculture sector and economy of the country.


Spell Bounder

I'm journalist in Pakistan,And working in this field about 20 years.