Finance Minister Miftah Ismail on Sunday announced a series of measures to overcome anger among traders, especially those from Karachi, who have been calling for demonstrations to protest the imposition of a fixed tax in their electricity bills.
“The prime minister has called me and instructed me to ensure that small traders are completely satisfied with the new tax law. This I shall do tomorrow [Aug. 1]. In order to satisfy the small traders we will: A) Exempt shops with bills of less than 150 units from this tax. B) We will charge Rs. 3000 even to those shopkeepers who are not registered with FBR. C) The tax paid will be full and final. D) No tax notice will be issued to shops nor will FBR officers visit their shops,” he wrote in a post on Twitter.
The incumbent government had, in the federal budget for 2022-23, imposed a Rs. 3,000/month fixed tax on small traders through their electricity bills. As reiterated by Ismail on Sunday, the budget had noted that traders wouldn’t be questioned by any authorities after paying the tax. However, as recoveries commenced from the month of July, various trade bodies protested, threatening to shutter markets if the taxes were not withdrawn.
Addressing a press conference on Sunday afternoon, the finance minister said that while the tax would be waived on small shops consuming less than 150 units of electricity per month, it would continue to apply on all other businesses including industries, banks and big traders. He noted that the tax came to Rs. 36,000 annually—comprising income and general sales taxes—adding this was not a major demand from those earning Rs. 1.2 million.
On export-oriented industries, Ismail said that any manufacturer who did not export at least 10 percent of their produced goods next year would have to pay an additional 10 percent tax. “The government cannot continue to run trade deficit like the $48 billion left by the previous government,” he said, adding the ruling coalition was working to fix the trade imbalance, having reduced imports from $7.7 billion in June to around $5 billion in July through an import ban and other measures. The ultimate aim, he said, was to reduce the current account deficit and transform it into surplus.
The finance minister regretted that he was “helpless” to control rampant inflation, stressing his hands were tied due to the country’s economic situation. “Controlling inflation and increasing economic growth should be the top priorities of any finance minister but I concede that both have not been my priority. My priority is to avoid default,” he said. “Let me save the boat first and then I will also serve food,” he added.
Nevertheless, he said, the government was working to reduce prices of essential commodities such as wheat, noting one million tons had been imported to achieve surplus. Similarly, he said, funds have been released for Utility Stores to sell flour at a subsidized rate of Rs. 40/kg, sugar at Rs. 70/kg and vegetable ghee and oil at Rs. 300/kg.
Criticizing the ousted PTI-led government for bringing the country to the brink of default, the minister said it hadn’t, during four years in power, even been able to match the tax-to-GDP ratio left behind by the PMLN government in 2018. “We had left it [tax-to-GDP ratio] at 11.3 percent and the PTI took it to 9 percent,” he said, noting this was despite former prime minister Imran Khan’s claims of having increased tax collection. He said Khan and his various finance ministers—Asad Umar, Hafeez Shaikh, Hammad Azhar, Shaukat Tarin—had operated fiscal deficits of 9.1%, 7.1%, 8.1% and 9.5% of GDP in the past four years despite a heavy burden of indirect taxation.
He also accused the PTI-led government of making “false statements” about reducing the circular debt, noting it had actually increased from Rs. 1.1 trillion in 2018 to Rs. 2.5 trillion in 2022, adding the former rulers had also left behind a circular debt of Rs. 1.4 trillion in the gas sector. “They did not work in any area, but kept appearing on media making false statements and now they question who is responsible for this?” he said.
Reiterating claims that pressure on the rupee against the U.S. dollar would ease within two weeks, Ismail said the national currency would regain its value as the current downward slide was linked to speculation and political uncertainty rather than economic fundamentals.
According to the minister, about $800 million paid by the State Bank for oil imports in June would reduce next month, which would reduce burden on the rupee. He said the Economic Coordination Committee had already approved the removal of a ban on most imports, except vehicles, mobile phones and home appliances, but stressed the cabinet had yet to ratify the decision. To a question, he said the government had fulfilled all except one prior conditions set by the IMF for the resumption of a suspended Extended Fund Facility, adding the remaining one would be delivered by Monday (today).