KARACHI: Pakistan’s Finance Minister Miftah Ismail on Friday presented Rs9.52 trillion ($47 billion) federal budget for fiscal year (FY) 2022-23, allocating around 40 percent to service the South Asian country’s foreign and domestic debts.
Grappling with a widening current account deficit, currency depreciation and record inflation, the Pakistani government targets 5 percent GDP growth in FY23 that is lower than the 5.97 percent of the outgoing year.
The budget is aimed at fiscal consolidation to convince the International Monetary Fund (IMF) to release the much-needed bailout payments for the cash-strapped South Asian nation of 220 million.
“The total expenditures of the federal government will be Rs9,502 billion ($47 billion) out of which the debt servicing would be Rs3,950 billion ($19.5 billion), while for the next year, the PSDP (Public Sector Development Program) would be Rs800 billion ($3.9 billion),” Ismail said, while presenting the budget in the lower house of Pakistan parliament, the National Assembly.
“For the defense of the country, Rs1.5 trillion ($7.4 billion) and for Civil administration’s expenditures Rs550 billion ($2.7 billion) have been earmarked, and for payments of pension Rs530 billion ($2.6 billion) have been allocated.”
During his speech, Ismail said Budget 2022-23 was a “growth budget,” based on a well-thought-out strategy to boost economic growth, control inflation and increase revenue generation.
The finance minister said the government had set an inflation target of 11.5 percent and a tax-to-GDP ratio of 9.2 percent. The fiscal deficit target has been set for 4.9 percent of the GDP, while the export target has been set at $35 billion.
He said the government would provide targeted subsidies to protect the marginalized segments of the country in the next fiscal year.
“To facilitate the public, a targeted subsidy of Rs699 billion ($3.4 billion) has been allocated, while in the form of grants, Rs1242 billion ($6.2 billion) have been included in BISP (Benazir Income Support Program) and Bait-ul-Mal [semi-autonomous charity organization].”
The Federal Board of Revenue’s (FBR) revenue collection has been estimated at Rs7 trillion ($34.6 billion) for the next fiscal year.
“This includes Rs4.1 trillion ($20.3 billion) share of provinces. The net revenue with the federal government will be Rs4,904 billion ($24.2 billion). The non-tax revenue will be Rs2 trillion ($9.8 billion),” Ismail said.
The country has raised the tax rate on banking companies from 39 percent to 42 percent, including 3 percent “Super Tax,” which is expected to raise Rs15-20 billion ($74.2-$98 million) in revenue, according to the budget.
The capital gains tax on the sale of immovable property has been increased to 15 percent, if sold within one year. This rate will become zero over the period of six years. Withholding tax on filers and non-filers on the acquisition of property has been increased to 2 percent and 5 percent, respectively.
The finance minister announced that immovable property, meant to park money and valued above Rs25 million ($0.127 million), would be subject to a deemed tax. The income for such deemed tax would be 5 percent of the fair value of such property, he added.
“The major part of the wealth of rich people is parked in the real estate sector in Pakistan. This is a double-faceted menace. It leads to the accumulation of unproductive assets and raises the prices of housing for the poor and lower-income groups,” finance minister said.
“We intend to correct this imbalance. Therefore, all persons who have more than one immovable property exceeding Rs25 million situated in Pakistan shall be deemed to have received rent equal to 5 percent of the fair market value of the immovable property and shall pay tax at the rate of 1 percent of the fair market value of the said property. However, one house of each individual will be excluded.”
The government has decided to impose an advance tax of 1 percent on foreign transactions through debit/credit cards, which would be 2 percent for non-filers.
Speaking of the relief measures, the finance minister announced a 15 percent increase in salaries of government employees, along with the merger of ad hoc allowances.
He said the tax exemption slab for salaried class has also been increased from Rs600,000 ($2,968) to Rs1.2 million ($5,937).
“This step will benefit the salaried class and enhance business activities and consumption. The slab for business individuals and associations of persons has been also been increased from Rs 400,000 to Rs 600,000,” Ismail said.
“Prime Minister Shehbaz Sharif wants to provide maximum relief to the people of the country, particularly those who are unable to bear the burden of rising inflation.”
He also announced tax exemption on the import and local supply of solar panels, saying soft loans from banks would be arranged to purchase solar panels for people with less than 200 units of power consumption.
Financial experts, however, believe the Rs7 trillion revenue generation target, which is 17 percent higher than the target in FY22, would be hard to achieve, owing to the slow economic growth.
“It will be a challenge to achieve this target due to economic slowdown and lower collection from oil sales. Please note that tax collection (sales tax, duties, petroleum levy) from oil is roughly around 22 percent of total tax collection,” Muhammad Sohail, the chief executive of Topline Securities, a brokerage house, told Arab News.
“Budget FY23 is an attempt to satisfy the IMF on key matters relating to revenue collection, subsidy reductions and attainment of fiscal discipline.”
The IMF and Pakistani officials concluded talks last month, with the fund asking for bailout program objectives, including fiscal consolidation, to be put back on track.
It is unclear when the global lender plans to consider clearing the release of over $900 million of the latest tranche of the $6 billion, 39-month program Pakistan entered in 2019.
One of the key steps, a removal of costly fuel subsidies, has already been implemented by the government, with fuel prices being raised by 40 percent.
Economists say they were not expecting an “expansionary budget” under the current situation.
“The budget under the present circumstances couldn’t be expansionary. Debt servicing and defense alone take the largest chunk. The net tax and non-tax income of the federal government is too inadequate to meet current expenses, what to speak of the development outlay,” Dr. Ikram ul Haq, a Lahore-based economist, said.
“The twin menaces of fiscal deficit, coupled with current account and trade deficits, are hard to counter in the coming days, given the high inflation and the unsustainable debt burden.”
Industrialists and traders say the budget is contrary to the expectation of a tougher one.
“The budget is not a difficult one as was expected. The government of the few months has presented a good budget,” said Zubair Motiwala, chairman of Businessmen Group at the Karachi Chamber of Commerce and Industry (KCCI).
“We are thankful for removing duty on solar panels. The decision of a dispute resolution mechanism is a welcoming step it was our persistent demand. The decision of tax adjustment on industrial raw material is also a good one.”
The federal government has allocated Rs24 billion for health sector and Rs17 billion for imparting training in the information technology (IT) sector, providing youth with laptops, improving network and promoting IT exports.
Irfan Iqbal Shaikh, president of the Pakistan Chamber of Commerce and Industry (FPCCI), said presenting the budget in the current situation was a “daunting task.”
“The FPCCI had given proposals for the budget and many have been accommodated in the budget. The GDP target of 5 percent for the next fiscal year is a right move,” he said.