Preparing for next budget

AS the budget-making season starts, representatives of trade and industry have become active
seeking tax concessions and incentives from a cash-strapped government to secure a better future
in the given difficult business environment.
Some seek support because they are in distress which may be because of their own acts of
omission and commission or due to external shocks. Many complain that they are denied even a
playing field because of fiscal anomalies which stifle their business growth. And some recall the
infant industry argument where the country has domestic advantage and needs an initial push.
Then there are traditional industries losing foreign markets because of global slowdown and
what they call not so globally competitive domestic business environment.
And last and more important is the segment whose businesses have thrived on rent-seeking with
the successive governments always obliging. There is subsidy on production, exports, R&D etc
for well-established traditional industries losing their share of the international market, not
keeping pace with productivity and quality comparable to international standards, and satisfied in
manufacturing low value-added goods and services.

The tax relief system has to be anchored on the need of many rather than on the interest of
a few

Of course security and energy shortages are stated to be the key culprits, an argument not so
convincing when things are seen in the overall context. Crutches provided by the government for
prolonged period of time have led to inefficiency.
Of course one cannot reject all claims and the government can find many demands justified for
support but with one condition. The relief should be for a limited period and should be
withdrawn at the first available opportunity. And not so prudent revenue-oriented policy should
be reviewed to impart a generally pro-business instance not for traditional industries but the
emerging segment of the new economy.
The government has to respond to the market dynamics and its tax policies should not be stuck in
the past. It is the market dynamics which sets the course of economic development and state
policies must respond accordingly. In these critical times, many traditional industries have failed
to adopt new ideas and latest technologies and keep pace with the changing market scenario.
They are the losers and cannot be the winners and no amount of government support will help
them at least in the long-term.
The present economic trends indicate the gradual emergence of a dynamic new economy driven
by new ideas and latest technologies with a future while traditional industries are trying to

survive on props. And the new economy is changing the mode of production and distribution and
the mix of capital, technology and human resource employed in all economic activities. And no
less important is the fact that: the cost of investment in latest technologies is much lower than the
traditional ones. The quality of human resource needed is much superior. The role of the new
economy, currently subdued, has to be enlarged at the fastest possible speed.

If the rent-seeking culture is not eliminated from the dominant segment of the economy, the
common taxpayers money will go down the drain instead of being employed for
sustainable socio-economic development

If the rent-seeking culture is not eliminated from the dominant segment of the economy, the
common taxpayers money will go down the drain instead of being employed for sustainable
socio-economic development. Pakistans economic progress has lost much of its earlier links
with social progress. That is so evident from widening disparities in household and regional
incomes and skewed distribution of national assets and wealth. The quality of economic growth
is poor, not inclusive despite so much rhetoric about it and does not measure the common mans
standard of living.
Some economists have recently suggested that the countrys economic performance should be
judged by changes in per capita income rather than rate of economic growth. The key issue is
how to make taxation system equitable and socially acceptable rather than expanding the
withholding tax net to non-eligible citizens and provide relief to those who make millions and
billions and systemically escape tax obligations. The tax relief system has to be anchored on the
need of many rather than on the interest of a few.