Economist Kaiser Bengali has warned that Pakistan would approach the International Monetary Fund for another bailout package after one year if the government does not reduce its expenses.
“They [government] say that we will have to again go before the IMF after three years if they kept on doing this [increasing expenses] then they will have to go to IMF after one year,” he said while appearing on Spotlight with Munizae Jahangir aired on Aaj News on Monday.
“The fundamental point is that the solution to fiscal crisis is not more taxes. It is more expenditure reduction.”
Several times, the government has called for taking measures to stop going to the Fund for a bailout package. Ministers have spoken about the austerity measures, but nothing concrete has so far being seen on reducing expenses.
He was responding to a question related to the incumbent government’s demand for taxing agriculture and property. PML-N Senator Afnanullah Khan and PTI Senator Humayun Mohmand were the other two guests on the show.
In his response, he said that the fiscal deficit would not be fixed by increasing taxes. “For this, we will have to reduce our expenses because the more you will increase tax, the economy will shrink,” Bengali said and added that the economy does not have the capacity to have electricity burden, further pay tax, and further buy expensive petrol.
“The economy does not have the capacity to have more taxes. The tax has to be lowered to boost the economy,” he said.
Bengali, who had joined the show via video link from Karachi, went on to add that the federal government was an “agent” in tax collection by provinces. He wondered how the government could blame provinces, which he described as “principle”.
According to the economist, the federal government was responsible for the circular debt, not the provinces. He explained that the tax base was necessary, saying: “If you have a large income base then your income tax will be high. If you have a large property base, your property tax will be high.”
While speaking about the agriculture sector, Bengali said that he was also of the view that agriculture should be further taxed but the data, available to him, showed that 80 per cent of farmers were small farmers who do not fall in the tax net. The rest are big landlords, which are in small numbers, he said.
“So the total number is very small. Even if you tax all of them fully, the total revenue will not be large. You will have tax, but the revenue will not be large because the number of taxpayers will not be large. The big landlords are not even 1,000,” he said.
Bengal, the former adviser to the Sindh chief minister on planning and development, said that the space for property tax was in Karachi, Lahore, Gujranwala, and Faisalabad.
“60 per cent of the properties in Karachi are katchi abadis from where you cannot generate property tax. 90% of properties in Hyderabad are so bad that the property tax cannot be generated,” he said and added that several people were hypothetically calling for taxing properties just because it was a big revenue source of revenue in the US.
“You impose a property tax on those which has a certain quality threshold. That’s the law.”
Bengali, who was Sindh’s representative on the seventh National Finance Commission Award, stated that around 55% share of divisible pool was with federal government before seventh NFC Award and 45% was with the provinces.
The seventh NFC almost reversed it and 57.5% is with provinces and 42.5% is with federal government, he said.
“The point is that the reversal of resource share was a reason that the concurrent list was abolished and around 40 subjects in the lists returned to the provinces and it is no more with federal government. It was a view that when subjects will end with federal government, their expenses will decrease and provinces expenses will increase. This was the reason for reversing ratio to fixing.”
He was of the view that the problem was not the NFC, but the fact that the federal government cut did not its expenses. “It did not shut those ministries, divisions, departments, whose functions returned to the provinces. It’s been 14 years and still, it is consuming the federal government’s resources. This is the problem.”
PML-N Senator Afnanullah was of the view that the 18th Constitutional Amendment cannot be rolled back as the kind of support required for it would not be available. He added that the Federal Board of Revenue should tax agriculture and real estate.
PTI’s Mohmand said his party was also in favour of taxing the two above mentioned sectors when it was in power. He added that the ministries were increasing so was the burden of salaries.
Mohmad claimed that the land reforms were inconclusive and called for taxing the two sectors. “Our decisions about power, there are companies which not generated not a single unit and took Rs28 billion.”
While agreeing with reducing expenses, PML-N leader Afnanullah said: “Pension has to be seen as 70% to 80% of it is of non-civilians. Work is under way and the service structure will change by next year.”
He expressed hope that it would create a fiscal gap. “We have to cut our expenses or else we will keep going to the IMF.”
PTI’s Mohmand stated that provinces should give their share in ending circular debt and take responsibility as electricity units were used in provinces.
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But Bengali disagreed with the opinion that provinces should pay for the circular debt.
“The reason for circular debt is capacity payments. The agreements were signed with power companies. We even pay for not producing electricity, so the electricity that was not produced and provinces did not use so how they should pay for it,” he said and added that there was no logic in asking provinces to pay for the electricity that was not even delivered to them.
When asked about the circular debt bill, he said: “This is 100% the federal government’s responsibility as it signed agreements. From 2001 to 2004, I was in the Social Policy Development Centre and these agreements were being signed at that time. We raised voices against these agreements and said these are disasters and don’t do this, but despite that they [government] deliberately did this.”
The economist stated that the cost-plus revenue, capacity payments, and dollarised payments were also a disaster.
