an the federal government meet its revenue target of Rs 12.9 trillion? For the budget 2024-25, it has committed itself to collecting Rs 3.6 trillion over and above the last year’s collection. The fiscal plan has three key assumptions: i) the Federal Board of Revenue collect 40 percent more taxes this year than the last year; ii) there will be a 65 percent increase in non-tax revenue; and iii) the provinces will generate surpluses from their share of the divisible pool that will amount to approximately 1 percent of the gross domestic product.

If the Internal Monetary Fund’s estimate of the GDP, $350 billion, is accepted, the provinces are expected to contribute $3.5 billion or Rs 977 billion.

If inflation declines to 12 percent, it will be half of what it was during the outgoing year.

Collecting another Rs 3.56 trillion seems to be a herculean task, especially on account of political instability that could easily turn into civil unrest given declining incomes and higher taxes resulting in fast depleting purchasing power.

Based on the revenue projections, it will be difficult to maintain fiscal sufficiency and social stability. The signs of a deeper malaise, called stagflation, are likely to grow deeper.

It is important that the tax burden of those already in the tax net has increased. Arthur Laffer, a US based economist, holds that there exists an optimal tax rate that maximises the government revenue. Rate increases beyond the point can actually lead to decreased revenue due to reduced economic activity and increased tax avoidance.

The traders, particularly retailers, however, have been let off rather easy. Under the mechanism proposed by the government only about 5 percent of them will be registered under the sales tax regime. The registration can be initiated by the provincial governments. A survey of the retail market can give one a basic understanding of the market.

There are more than 3,000 restaurants in Peshawar alone. None of them is registered for general sales tax, for actual real-time transactions. Political expediency dictated by considerations of constituency politics will protect them.

The Public Sector Development Programme, although slashed, is still huge. Economic payback of infrastructure projects typically takes several years. The benefits accrue at the cost of fiscal deficit bridged through debt. Governments need support in the parliament.

Based on these revenue projections, it will be difficult to maintain fiscal sufficiency and social stability. The signs of a deeper malaise, called stagflation, are likely to grow deeper.

There is a feeling that the additional taxes have not been levied on the elite. This is what is often called the “elite capture.”

The elite, consisting of decision-makers and those with priority access to them, should understand that the practice is no longer sustainable. The challenge for the poor is existential. The risk of civil unrest is real, particularly in the urban centres.

Privatisation

The government also has a portfolio on state enterprise privatization. Most of these are poorly performing corporations. The poor performance is mostly due to bad governance and political interference. It seems that the government is planning to sell the core functions of these enterprises while holding on to property assets. For the PIA, for instance, the proposition is to sell the aircraft and some lucrative routes and hot properties like Roosevelt Hotel in New York. Apparently some prospective buyers have been identified.

In the case of Steel Mills, a tentative plan has been shared apparently to get a feel of the public opinion on the subject. It says the real-estate could be converted into a housing colony. It is, however, unclear how the employees will be compensated.

Soon after the passage of the budget, the cabinet committee on state-owned enterprises disbanded boards of the electricity distribution companies to facilitate privatisation, except in Sindh, where the provincial government did not allow it. This exemption has implications for the process.

The government has informed the IMF that three of the power distribution companies will be offered for privatisation in the first phase. The rationale of making an exception in Sindh’s case is suspect and hard to defend.

There is a middle course on privatisation. A fraction of the shares along with management could be privatised early and rest of the shares afterwards. If the transactions are going to involve international investors, the regulatory oversight will have to be improved.

The privatisation of PTCL is an example of monumental failure in this regard. The buyer showed interest in running the cellular phone setup (U-fone) and the data backbone on which all other service providers depend.

The writer is a senior journalist. He tweets @tahirdhindsa. He can be reached at tahridhindsa@gmail.com