By all accounts, the federal budget 2021-22 is a bold and realistic step towards speeding up the process of sustainable economic development through a more efficient and balanced use of available resources. The third budget of the PTI government is expansionary, growth-oriented and adopts an inclusive approach to the development needs of all sectors of the economy.
Clearly, the stabilization phase is over and the economy is now in an upswing mode. To this end, the government has increased subsidies as well as incentives for big business, manufacturing, corporate market and agriculture sectors. As Finance Minister Shaukat Tarin put it: “The stabilisation phase is now over, and the budget 2021-22 will focus on inclusive and sustainable growth, fostering growth with investment.” The minister said the government had given an economic programme in the budget which addressed the needs of all segments of society, from agriculture to the industry and from services to the social sector, from labour to farmer to women to students, homeless, government servants, youths and the poor households.
To this end, the Public Sector Development Programme (PSDP) is projected at Rs900b next year against Rs650b this year which has now been cut by another Rs20b. To stimulate growth, the next year’s budget provides major concessions to the manufacturing sector, including automobile, textiles, the pharmaceutical industry, mobile phone and information technology, and even small and medium enterprises (SMEs) through a reduction in import duties on raw material and lower general sales. The minister also announced relief measures on setting up of cold storages for agriculture products and tax exemptions on Covid-related medical equipment, etc, for another six months. The finance minister also promised a minimum wage of Rs20,000 per month for private workers, an increase of 20pc.
The stock market will be perked up through a reduction in capital gain tax from 15pc to 12.5pc, while a series of withholding taxes have been removed, including those on banking transactions, stock exchange transactions, margin financing, air-travel services, debit and credit card-based international transactions and mineral exploration.
The amount of subsidies for the next year has been targeted at Rs682b, almost 226pc higher than the current year’s Rs209b, which was later revised to Rs430b. But this is mostly on account of payments to independent power producers and tariff differential subsidies. Of this, about 327pc increase has been projected for the power sector to Rs596b next year against Rs139.5b this year.
The budget envisages a substantial rise in revenue by as much as 24 percent, including Rs506b worth of additional measures. The additional revenues of Rs506b are based on Rs264b worth of policy measures and Rs242b of administrative measures. The budget has more than doubled subsidy allocations (226pc) but at the same time raised surcharges and levies on oil and gas, including a 36pc increase in petroleum levy. The government has also announced a 10pc increase in salaries and pensions at an additional cost of Rs160b. An additional revenue of Rs160b is projected to flow from petroleum levy on oil projects, which means petroleum prices would go up in the next fiscal year. The target for petroleum levy is Rs610b for the next year, up 35pc from the current year’s Rs450b, that would now touch Rs500b by June 30, 2021. It implies a substantial hike in petroleum prices. Another 260pc increase is expected in natural gas development surcharge to Rs36b next year, compared to just Rs10b this year. But, as experts have pointed out, the government’s revenue generation plan rests on weak ground, as it is based on massive reliance on indirect form of taxation.
A cut in administrative expenditure was widely expected but it has not come about. The federal expenditures are budgeted at Rs8.487tr for the next year against Rs7.34tr of revised estimates for the current year, showing an increase of 15pc. The current expenditure of the federal government would be around Rs7.5tr next year, up 14pc over the current year’s Rs6.56tr. The interest payments are projected at Rs3.06tr, compared to Rs2.85tr this year, an increase of 7pc. The pension bill, excluding the latest 10pc increase, is estimated at Rs480b, of which Rs260b goes to the military pensioners. The running of the entire civil government would cost Rs479b, down from Rs487b this year, while defence expenditure would go up to Rs1.37tr against Rs1.29tr this year, showing an increase of just 5.8pc.
Thankfully, no new taxes have been imposed on the salaried class. The tax compliance costs would be reduced, putting an end to profile updation every year despite submission of entire data as part of tax returns. The hallmark of the taxation side is reintroduction of the self-assessment scheme that was previously introduced by the Musharraf government.
What is there in the new budget for the common man? The finance minister admitted that the decades-old trickledown theory had not helped the poor and, therefore, the PTI government adopted the bottom-up approach to improve the economic lot of over 5 million low-income households in the next year. For the purpose, the government will provide Rs500,000 interest-free business loan to every household, Rs250,000 interest-free farming loan and Rs200,000 interest-free loan for tractors and machineries and Rs2m worth of low-interest loan for house building. Universal health coverage is to be ensured through the Sehat Card.