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Business Recorder
2 days ago
- Business
- Business Recorder
Gallup poll: surge in business confidence
EDITORIAL: Prime Minister Shehbaz Sharif has expressed satisfaction at the Gallup poll survey's conclusion that business confidence is at a four-year high — a surge directly attributable to his administration's handling of the economy. This is no mean achievement especially considering that the incumbent economic team leaders, like their predecessors, have repeatedly noted that private sector is the engine of growth. The score was marginally negative in the second quarter of 2025 but marked the highest level of confidence since the fourth quarter of 2021 which the Survey noted, 'suggests a moderate easing of political and economic uncertainty from the perspective of the business community.' In this context, it is relevant to point out that perhaps the comparison is unfair given that in 2021 the country (as well as the global economy) was in the midst of a recurring Covid-19 onset with severe implications on economic activity. However, it is noteworthy that the Monetary Policy Statements for the past year projected an uptick in output with the 31 July 2025 Statement reiterating this claim: 'high-frequency economic indicators are depicting a gradual economic recovery. This is reflected in notable y/y growth in automobile sales, fertilizer offtake, credit to private sector, imports of intermediate goods and machinery, and purchasing manager's index in recent months. This improvement in high frequency indicators has now also started to reflect in LSM data, which showed y/y increase in both April and May after five months of contraction.' And yet the Finance Division's July Economic Update and Outlook, a monthly exercise, shows Large-Scale Manufacturing (LSM) July-May 2025 growth rate at negative 1.21 percent against 0.86 percent in the comparable period the year before — data that unambiguously challenges the claim of a four-year high. As noted in the MPS for end July the rise in sales in a number of products was, as per independent economists, rooted in higher sales and a consequent reduction in inventories rather than an uptick in output. Be that as it may, it is relevant to note the five major findings noted by the Gallup poll: (i) forward looking confidence of the business community has plateaued and long standing challenges including inflation, energy reliability and governance remain central to the country's business climate; (ii) 55 percent of businesses in the second quarter of 2024 (October to December 2024) found themselves worse off relative to the first quarter of 2024 (July-September 2024) — an observation that is baffling given that the survey was conducted 23 July to 27 July 2024 or well before the start of the second quarter of 2025 and does not include the May and April LSM data that the MPS stated as indicative of an upward trend; (iii) around one in five businesses (22 percent) reported having to pay a bribe in the past six months which is a decline of 4 percent in the first quarter of 2025. And concerning is the fact that more manufacturers reported having paid a bribe (25 percent) compared to service providers (20 percent); (iv) 43 percent of businesses surveyed claimed that their workforce had decreased in the second quarter of 2025, a 9 percent further reduction from the first quarter data — a concerning statistic for the government; and (v) around 85 percent did not consider last year's budget as a good budget while reports backed by anecdotal surveys indicate that the numbers who do not consider 2025 budget a good one has probably risen given that the incentives — monetary, fiscal and utility tariffs — have been withdrawn as per the conditions agreed with the International Monetary Fund which is generating considerable criticism within the business community. To conclude, granted that surveys have an experimenter bias and the questions simply support that bias yet the economy is clearly not out of the woods yet and the private sector continues to struggle with the IMF insisting on full-cost recovery of state utility companies, ending all incentives, including setting up economic zones, and implementing severely contractionary fiscal and monetary policies that are anti-growth. Copyright Business Recorder, 2025
Business Recorder
05-05-2025
- Business
- Business Recorder
Sudden tax recovery
EDITORIAL: The President has issued an ordinance empowering the Federal Board of Revenue (FBR) to immediately/suddenly recover taxes from taxpayers' moveable/immovable assets and seal their business premises after a decision of the high court without further notice. In addition, the ordinance allows the posting of inland revenue officers on business premises to monitor production and services. The objective of the ordinance is fairly obvious: to minimise the shortfall of 704 billion rupees during the first eight months of the current year (with analysts projecting a one trillion rupee shortfall by the end of the current year) from what was targeted in the budget, a target agreed with the International Monetary Fund (IMF) team under the ongoing 7 billion dollar Extended Fund Facility programme. It is no doubt being argued in the corridors of power that this would facilitate reaching the second staff-level agreement, a necessary prerequisite for the release of the second tranche, and reduce the need to set an even more unrealistic revenue target in next year's budget. While acknowledging that there is a parallel illegal economy operating in this country with a large number of businesses refusing to file their returns due to a trust deficit sourced to the penchant for FBR officials to be extremely susceptible to bribes this latest ordinance has raised concerns amongst the business community pertaining to the status of ongoing/pending appeals given that the ordinance undermines their legal rights, with the additional fear that private sector units may face scrutiny from provincial and federal officials who are not directly accountable to the FBR. This should be a source of serious concern for our Finance Ministry officials who, in their April report titled Economic Update and Outlook admitted that 'Large-Scale Manufacturing (LSM) remains under pressure, with output declining by 1.9 percent during Jul-Feb FY2025, compared to a 0.4 percent contraction last year. In February, LSM registered a month-on-month decline of 5.9 percent and a year-on-year decrease of 3.5 percent.' Business Recorder has urged several administrations, past and present, to undertake reforms in the tax structure by shifting the onus of raising revenue from existing taxpayers to those who remain outside the tax net, including the rich farmers, the real estate operatives, the traders, and the aarthis, the middlemen, who raise prices of perishables at will to maximise their windfall profits. While the provincial governments have legislated the levy of agricultural income tax, as per the IMF condition, which stipulates the tax due to the income of the landlord, yet serious doubts about its implementation remain particularly the process by which the exact income of the landlord will be determined. The heavy reliance on indirect taxes remains and in the current year the government raised taxes on not only the salaried, which led to a decline in the quality of life of the lower middle to middle income earners, but began raising the tax imposed in the sales tax mode, on products and services, an indirect tax, dishonestly credited under direct taxes (ability to pay) by the FBR and in the budget documents. This explains why the poverty levels are rivalling that of sub-Saharan Africa at 42.4 percent as per the World Bank. To conclude, delays in taking action are symptomatic of our administrations to the detriment of the general public. The deferral of all reforms (other than to trim the intransigent energy sector circular debt by borrowing from banks and passing on the interest payable to the consumers — an action that was taken in June 2013 which led to raising tariffs and is reportedly under serious consideration at present) is the root cause of the current fragility of the economy. One year after it took over the reins of administration, structural reforms are still awaited and the burden of sustained inefficiency in all areas of government operations is being borne by the general public indicated by the persistent raise in current expenditure. Last year it was raised by 21 percent and one can only hope next year it would be kept at the current year's level though ideally it should be reduced by one to two trillion rupees to match not only the revenue shortfall this year but also to accommodate higher outlay for Benazir Income Support Programme with the objective of reducing our disturbingly high poverty levels. Copyright Business Recorder, 2025
