The Finance Minister frequently reminds everybody about the need to collect greater revenues to fill the government’s coffers. But there are obviously difficulties in pushing taxation measures, specially direct taxes, far, because one danger of such stepped up taxation in any setting is its likely adverse effects on investment and entrepreneurial activities. Steep rises in indirect taxes can quite contribute to inflation and lead to a fall in demand as purchasing power is eroded.
Therefore, the challenge for the government is as much extending the tax net to garner additional revenues and, more significantly, to adopt policy and enforcement measures to whittle down the black economy. Reports have appeared prominently in newspapers recently about the formidable size of the black economy. No revenue is derived from the activities or earnings of the black economy. If the clandestine economy can be reduced in size, the same would mean expansion of the formal economy and the consequent enlargement of the government’s taxation base.
The economy can only expand from additional investments which in turn can raise the level of the GDP to contribute to wider employment and earning opportunities. But as long as entrepreneurs feel that they will not risk their funds in new enterprises out of a fear that they will not get a reasonable return from their investments for different reasons, the law and order being prominent among them, the desired rise in investments will not occur to take care of the economy’s myriad problems and the taxation activities will continue to lag behind in such a state of insufficient growth of the economy.
The way the major exporters see it, the government should turn its attention greater to capacity building in support of the exporters. The lifeline of the country’s export trade, ports, remain in some difficulties,still, by some inefficiencies that include inadequate handling capacities, high port charges, surcharges, port closure, disruption of port activities, etc., that both negatively impact on exporters’ cost of operations and timely delivery to their clients. There is also the pressing necessity to build capacities in other areas such as roads, telecommunications, power supply, etc. The government should pay very serious attention to such capacity building to attract more investments into export-oriented industries to increase export earnings although government’s attention to these areas have been greater than in the past.
The government so far has done a commendable job, no doubt, in improving certain macro economic fundamentals. The foreign currency reserve is now notably bigger than ever before, the budget deficit has been narrowed, reckless borrowing by the government has declined and there appears to be more care in scrutinizing the value of Annual Development Projects (ADP) before these are approved . But these macro economic successes have not been enough to get the economy moving or growing at the faster rate.
The common man has grievances about the government’s economic policies which he perceives as not improving his purchasing power substantially while market prices of essential goods and services are rising. Common people complain about their having less purchasing power which in turn has squeezed demand for many products of local industries and also that of services. Thus, productivity decline in many industries and services, less than the needed amount of investments to create jobs and earnings and higher inflationary trends, have created the negative mix of less earnings and higher costs of living for the poor or the non affluent in the population in the backdrop of insufficient employment opportunities for them. Thus, the government’s claim of better economic management is not getting reflected in a sense of fuller well-being of the common man .
The government in a market economy is not expected to engage directly in economic activities. However, it has a major role to play as a facilitator of new investments through its various policies in the realm of taxation, finance, creation of utilities, reforms of various sectors, maintenance of law and order and other supportive conditions. Successfully presiding over of these areas means major contribution towards improving the overall investment climate. The government needs to better and better realize the importance and need of its more dynamic and positive role in these areas.