FeaturedNationalVOLUME 14 ISSUE # 22

Budgeting on ambitions

The Pakistan Tehreek-i-Insaf (PT) government has set ambitious tax revenue targets to stabilise a faltering economy in its first budget. Besides raising taxes for the salaried class, the government has increased taxes on cooking oil, ghee, sugar, soft drinks, liquefied natural gas (LNG) and cement, which will hit the common man hard.

 

Announcing a Rs7,022 billion austerity budget for the fiscal year 2019-20, the government has set a Rs5,555b target for the Federal Board of Revenue — a 25pc or Rs1.12 trillion increase in additional taxes from the previous year. An 8pc sales tax on sugar has been increased by up to 17pc, after which the price of sugar has jumped by more than Rs3.5 a kg. The duty on cooking oil, ghee and drinks with sugar has also been increased to 17pc. The federal excise duty on cement has also been jacked up from Rs1.5 per kg to Rs2 per kg. Inflation is already projected to be in the range of 11pc and 13pc on average in the next year, according to budget documents, which would further aggravate problems for the common people.

 

The budget envisages no major change in the overall fiscal deficit during 2019-20, which could be record Rs3.15t or 7.2pc of GDP, despite a massive Rs1.405 trillion tax plan. The PTI government’s first full-year budget proposed a ferocious array of taxes on almost all sectors of the economy, in line with a staff-level agreement with the International Monetary Fund (IMF) for a bailout package, with maximum focus on recoveries from income tax and sales tax. Income tax payers will bear a significant brunt of the new revenue effort set to unroll with the arrival of the new fiscal year on July 1. The government has increased income tax rates to a maximum of 35pc from 25pc at present and reduced by half the taxable income bracket to Rs50,000 per month for salaried and Rs33,333 per month for non-salaried classes. From the head of income tax alone, the government is aiming to raise Rs258b additional revenue in the next year. Another key decision is the removal of the zero-rating facility to five export-oriented sectors, including textiles, and imposition of normal 17pc GST despite strong opposition from the industry. In return, the government has promised speedy refund claims against actual exports. From sales taxes, the government is expecting to raise Rs250b incremental revenue, via GST rate adjustments in various areas and elimination of zero-rating.

 

The government has lifted a bar on the sale and purchase of movable and immovable assets for tax non-filers, which was considered a move for the documentation of the economy when it was first introduced. Facilitation has been offered on the import of machinery and equipment for industrialisation, including in the tribal region, which has been merged with Khyber Pakhtunkhwa. The government hopes the difficulties arising out of budgetary measures, including inflation, would subside over six months to a year period as the State Bank of Pakistan acts independently through monetary policy tools that point towards further hikes in interest rates, which could bring long-term benefits to the nation through effective documentation of the economy and expansion in the tax base.

 

The budget promised a 10pc increase in net pension, 10pc ad hoc relief on running basic salaries for grade 1-16 employees of the civil government and equivalent army personnel and 5pc for grade 17-20 officers. The officers in grade 21 and above in civil and equivalent armed forces officers had agreed not to get any increase, while members of the federal cabinet volunteered 10pc pay cuts as a symbolic gesture of solidarity with the citizens who had sacrificed greater shares of personal incomes for the stabilisation of the government’s fiscal accounts. The government has also announced a 5pc or Rs23b cut in civilian expenditure from revised estimates of Rs460b. According to estimates, the next year’s overall deficit would be 7.1pc of GDP or Rs3.137t, compared to 7.2pc of GDP during the outgoing year. The budget documents, however, put the deficit number at Rs3.151tr or 7.2pc of GDP. The budget sets an ambitious revenue target of Rs5.555t for the Federal Board of Revenue (FBR) that missed its Rs4.435t target during the outgoing year by a record margin. The budget has revised FBR’s collection target to Rs4.15t. Yet, the government hopes the tax-to-GDP ratio will increase to 12.6pc, with all the aggressive campaign from the last year’s 12pc.

 

The government also aims to reduce imports and increase exports to reduce external deficit to $6.5b next year from $13b during the outgoing fiscal year. It would be achieved by supporting exports through revised duty structure on raw material and intermediate goods, improved tax refunds, competitive electricity and gas rates and redoing free trade agreements. The government has also promised Rs190b allocation for social protection through the food ration card scheme for one million deserving people, besides special nutritious food for infants and mothers, interest-free loans to the poor and stipends to six million women through mobile phones. The budget has promised Rs100b loans to the youth under the Kamyab Jawan Programme. The federal and provincial governments would also provide for a Rs280b agriculture support programme for the next five years.

 

Experts say the budget is ambitious and risky, and with the real GDP growth rate projected to fall further to 2.4pc by the next year, the situation could turn even more dismal for the common people as the new fiscal year unfolds. At a time of rising prices and falling job opportunities, the government has made a decision to rely extensively on income tax increases to meet its ambitious target of Rs568b in fresh revenues, besides raising nearly Rs1t from existing measures. The budget is modelled along the theme of industrialization for job creation, austerity and shared prosperity. Unfortunately, the country has not registered impressive GDP growth rates in 2019 and the outlook is not promising in the next year. Rising national debt, a slowing global economy, and poor or under-performing organisations are preventing Pakistan from making progress. The PTI government will have to prioritize better and improved planning and budgeting, and deliver the much-needed services to citizens, because it has no option of failure.

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