Inflation: Pakistan, an emerging economy or a sinking Titanic?

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To meet the terms and conditions of the International Monitoring Fund (IMF) next program, the current government decided to impose more taxes on the public. Mini budget was presented in the National Assembly (NA) on Dec 30, 2021. On this occasion, during the NA session there was a protest by the opposition in front of the NA Speaker’s desk and copies of the mini budget were torn-off.

The Pakistan Tehreek-e-Insaf (PTI) government presented mini-budget in the National Assembly, sales tax exemption and/ or reduced tax rate on 150 items will be abolished, tax ratio will be augmented up to 17% on the aforesaid 150 items and a boost of PKR 343 billion in revenues is expected after the decision.

Tax will be raised up to 17 percent on mobile phones, silver, gold, oil seeds, machinery for mining, retail items, packed and sachet items, foreign gifts, goods received as assistance in natural catastrophes, goods dispatched via postal mail, imported animals and chickens, agricultural seeds, plants, agricultural tools and chemicals, poultry sector machinery, multimedia, electric batteries, duty free shops, above 1800cc cars, imported electric cars, business to business money transaction, raw material for medicine, bakery items, food chains, caterers, hotels, mega restaurants, imported vegetables, packed spices, dairy products, electric switches, branded chicken meat, processed milk, packed yogurt, cheese, and butter, machinery for dairy products and 10 percent tax on flour mills.

The mini-budget presented by Finance Minister Shaukat Tareen has been sharply criticized by the opposition. The opposition believes that a mini budget will introduce a new wave of inflation in the country.

Member National Assembly (MNA) Khawaja Asif while speaking in the NA session said, “State Bank of Pakistan is now working as a tax collection tool of the IMF. By silencing the people, economic sovereignty is being sold. Inflation is being amplified by revoking the tax exemptions in different sectors. For God’s sake, do not sell Pakistan, please have mercy on Pakistan. Wheat and sugar mafia is allowed to plunder the country. I am raising the voice of 220 million people. It seems that ‘East India Company’ is ruling Pakistan. Pakistan’s Economic surrender is worse than 1971 surrender- in 1971 Indo-Pak war more than 92 thousand Pakistani soldiers surrendered -. We are ashamed, what is happening in the parliament”.  

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On the eve of the mini budget session, during the opposition protest there was an exchange of harsh words in the parliament. Members of the opposition and government were furious with each other. One-woman parliamentarian Ms. Shagufta Jumani (of opposition) slapped another female parliamentarian Ms. Ghazala Saifi (of government). “I was attacked by Pakistan People Party MNA Ms. Shagufta Jumani; my hand was twisted badly, causing my finger to break”, Ms. Ghazala Saifi PTI MNA told the media.     

However, the Finance Minister has ruled out the possibility of the poor man being affected by this budget. He said, “The exemption was abolished on imported goods which were not used by the poor. Only PKR 2 billion additional tax is being imposed, it is not a huge amount”.

Mr. Tareen also defended the mini-budget at a press conference in Islamabad. He said the government had not taken any step that would impose a burden on the poor. Shaukat Tareen, in his defense of the proposed budget, said that the tax exemptions were on imported goods, which have now been withdrawn, and that “poor people do not use these goods”.

Talking about the Finance Minister’s claim that the poor will not be affected by the mini budget, Eat News talked to tax and economy expert Dr. Ikram-ul-Haq. He said that the Finance Minister’s argument is not true, that a mini budget will produce more inflation in Pakistan.

Dr. Ikram said that sales tax exemption on imported raw materials has been abolished or the rate of sales tax on them has been increased which will make raw materials more expensive which will lead to increase in their production cost.

 

He said that 17% General Sales Tax (GST) has been proposed on import of raw materials for medicines and the government says that it will be refundable but if we look at the history of refunds in Pakistan, it will take a long time to refund. He said that the sales tax imposed by the government would make medicines more expensive in the country and it would also affect the poor.

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The government decisions regarding revenue generation and imposing more taxes on the public has made the life of common man miserable than ever. Middle class in Pakistan is not able to feed their family properly due to high inflation and low employment.

The Eat News team conducted a general public survey in the local market (Faizabad). Shopkeepers and vendors were concerned about the inflation ratio in the country. They believe that it is almost impossible for them to feed their families properly and respectfully.

Muhammad Rehan, 28 years old vender who sells fruits on cart, was very disappointed from the government decisions regarding more taxes. He said, “I get up early in the morning and go to the main fruit market to purchase fruits. I spent all my day selling the fruit items but customers are very low in numbers. People want to bargain but I purchase fruit at an expensive price, how can I sell it at low cost”.

Sajjid Naqvi has a mobile accessories shop at Faizabad, he said, “I have a rented shop, I have to pay a huge amount as rent. People are hungry; they are not able to buy their day-to-day food items, now they are least interested in electronic gadgets and their accessories. My sales are dropping day by day, I am worried about my family, and it is difficult for me to live a respectful life”.

Saba Qamar, 31 years old working lady at a bus counter, during her interview she said, “due to the economic crunch, the company has imposed a cut on my salary. On one hand I am facing financial issues, on the other hand inflation has made my life more difficult than ever.  These issues are increasing my anxiety”.

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To table a mini-budget in parliament is part of the IMF’s demands, which, if met, could lead to Pakistan receiving a 1 billion dollar installment of the IMF program. As per IMF requirement, for the next installment of the program, Pakistan must take some precautionary measures, including a State Bank of Pakistan sovereignty bill and an additional tax of PKR 400 billion.

The government had set a target of Rs. 5800 billion tax collection in the federal budget but the IMF has demanded from Pakistan that the tax revenue in the country this year should be Rs. 6200 billion.

 

Moreover, on the eve of the New Year the government has increased the price of petroleum products. It means the items/ commodities, which were not under the umbrella of mini budget; their prices will also increase due to rise in petrol price.

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Muhammad Farhan Niazi is a correspondent for Eat News in Pakistan and is an experienced senior producer with a demonstrated history of working in the media production industry. Skilled in feature and news writing, non-linear editing, radio, multimedia journalism, Online journalism, film production, and sound. Strong media and communication professional graduated from University of Peshawar.

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Eat News is a Taiwanese digital media, analyzes current events and issues through column articles, videos, visual aid, and exclusive interviews.
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