Imran govt presents Rs7 trillion budget

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budget
Pakistan's State Minister for Revenue Hammad Azhar presents the budget in the National Assembly.

Staff Report

The ruling Pakistan Tehreek-e-Insaf (PTI) on Tuesday presented a Rs7.02 trillion federal budget for the financial year 2019-20 –setting ambitious tax collection targets to stabilise the faltering economy.

The budget sets an ambitious Rs5,555bn target for the Federal Board of Revenue—a 25% increase or Rs1.12 trillion in additional taxes from the previous year.

The increased FBR revenue would be supported by a Rs346bn increase in direct and Rs773bn rise in indirect taxes from the previous budget, which would mean Rs407.7bn in additional sales tax revenue, Rs363bn increase in income tax collection, Rs265.5bn rise in customs duties, and a rise of Rs99bn in federal excise duties as compared to the previous year.

“A challenging target of Rs5,555bn FBR revenue collection will be combined with aggressive expenditure controls to reduce primary deficit to 0.6% of GDP,” said State Minister for Revenue Hammad Azhar while presenting the budget in the National Assembly.

He said the ambitious increase in tax revenue would be combined with “unprecedented reduction in expenditure” by both the civil administration and the military to bridge the widening gap between the government’s revenue and expenses.

“We have slashed the civil budget by five percent while the military budget will remain the same,” he added as he announced the details of the plan.

“The financial year 2019-2020 will be a year for economic stability. We will make some tough decisions and will try to save the poor public from the effects of those tough decisions.”

The government says the budgetary proposals are focused on economic stability and sustainable growth, with an emphasis on austerity, revenue generation, and uplift of downtrodden segments of society.

Aside from the slew of indirect taxes (and some exemptions) announced by Azhar, it is clear that apart from higher prices of some kitchen items and everyday goods, salaried Pakistanis will also have to brave a smaller pay cheque in the new fiscal year.

The income tax exemptions announced last year, which had generously excluded everyone with a salary of less than Rs1.2 million a year (Rs100,000 a month) from paying income taxes, have been scrapped.

Observing that the exemption had been “unprecedented and distortionary” — an election year windfall — the government has proposed reinstating taxes on everyone making a salary of more than Rs600,000 a year (or Rs50,000 a month). The limit for non-salaried individuals has been revised to Rs400,000.

It has also increased tax rates for both salaried and non-salaried persons.

The government has also wised up to the practice of people avoiding taxation and hiding undisclosed sources of income by declaring assets as ‘gifts’.

According to the new policy, all ‘gifts’ will now be considered ‘income from other sources’. The only exceptions that will be made will be for ‘genuine gift transactions’, i.e. on transactions between close family members and so on.

“Consequently any amount in cash or fair market value of any property including immovable property would be treated as gift,” the government says.

The PTI also failed to facilitate the employees with a meagre increase in salaries. The salaries of civilian employees from grade 1-16 have been increased by only 10 per cent while 5pc to BS-16 to BS-20. The BS-21, BS-22 officers have been ignored in this year’s increments. The minister announced an increase of 10pc for all the pensioners.

The minimum wage has also been increased to Rs 17,500.

The conveyance of disabled persons has been increased to Rs2,000 from Rs1,000 while special allowance of private secretaries attached with ministers and parliamentary secretaries has been increased to 25 per cent. The cabinet members have voluntarily agreed to 10pc cut in their salaries.

AMBITIOUS REVENUE TARGET:

The Rs5.5tr revenue target for the FBR, which is “almost impossible” to achieve, was set in the budget mainly on the direction of IMF, said experts. The revenue target, revised from Rs4tr, is being set without any reforms in the FBR, they said.

The gross revenue receipts are estimated at Rs6.717tr, showing an increase of 18.7 per cent over the budget estimates of the outgoing fiscal year.

After the share of provinces in gross revenue is transferred, the net review of the federal government has been estimated to be about Rs3.463tr for the next fiscal year. Tax to GDP ratio is estimated to be increased to 12.6pc.

Interestingly, as per officials at the finance ministry, the federal government will ultimately be a loser in the case of revenue generation, as it has to pay Balochistan as per the allocation of budget. Constitutionally, the Centre bears the reduction in revenue generation in the case of Balochistan.

In line with the 18th Amendment, the government has proposed to pay Rs3,255bn to provinces via the 7th NFC award, 32pc higher than the last year.

The provincial share in federal taxes is estimated at Rs3,254.5bn during the next fiscal year, which is 25.7 per cent higher than the budget estimates for the outgoing year.

END OF ZERO RATING REGIME:

Despite the major exporting sectors’ demand for continuing the existing zero-rating regime on selected sectors, the government, while meeting the IMF demands, has ended the facility, which will further kill exports. Almost 65 per cent exporting sector is now liable to pay 17pc duties.

Despite the government’s earlier claims of facilitating exports, the ruling party could not incentivise the exports in a bid to meet the IMF conditions pertaining to the removal of subsidies.

Azhar, however, claimed that providing zero-rating for textile, leather, carpets sports goods and surgical goods is proposed to be rescinded to plug leakages. All items will not be subject to 17pc sales tax.

Despite the campaign and demand of the auto sector, the government did not remove the Federal Excise Duty (FED) on sale of vehicles.

The government announced that cars up to 1000CC will see a federal excise duty of 2.5 per cent, while cars with over 2000CC in capacity will face 7.5pc in FED. The government during the last supplementary budget had imposed 10pc FED on sales of vehicles.

SALES TAX:

The government also proposed to increase the sales tax on sugar from 8pc to 17 per cent which would ultimately be passed on to the consumers with the effect of Rs3.65 per kilogramme.

Sugary drinks will also see an increased tax duty of 13.2pc versus the previous figure of 11.25pc, with at least 17pc sales tax on semi-processed and cooked products of chicken, mutton, beef and fish.

It has also been proposed that sales tax on bakeries and restaurants be reduced from the existing 17pc to 7.5pc. The minister recommended a uniform tax rate of 10pc on milk, cream, dry milk and unflavoured milk.

CURRENT EXPENDITURE:

The incumbent government has claimed that it will cut the expenses from Rs460bn to Rs437bn. However, experts say that the claims are contrary to the ground realities. The introduction of a new ministry for poverty alleviation and some other initiatives announced under the budget would ultimately increase the government expenses.

INCENTIVES AND SUBSIDIES:

Azhar said the government was providing incentives and subsidies for the promotion of the industrial sector in order to create employment opportunities for the youth.

The steps include energy subsidies of Rs40bn and Rs40bn package for the export sector. He said the government will maintain the long-term trade financing facility for the industrial sector. He said the government is starting Rs280bn five-year programme for the uplift of the agriculture sector.

Rs44.8bn will be provided to increase the per acre yield of wheat, rice, sugarcane and cotton. On agriculture tube wells, Rs6.85 per unit subsidy will be given to the farmers.

The federal and Balochistan government have started a joint scheme with a ratio of 40:60 for the farmers of Balochistan, he said, adding that under this scheme, monthly bill of Rs10,000 is received from the farmers while the remaining burden of 75,000 rupees is being borne by both the governments.

The budget envisages increase from Rs64.80/kg to 74.04/kg in the rates of CNG for dealers of value region I. In region II, rates have been increased from Rs57.60 per kg to Rs69.57 per kg.

The government has proposed to impose 17pc sales tax on marble industry. It has been recommended that the FED on cooking oil/ghee be increased to 17pc. The FED on cement should be increased from existing Rs1.2 per kg to Rs2 per kg.

A tax rebate has been proposed for those employers who will provide jobs to fresh graduates. It has been proposed that the tax rate for companies should be fixed at 29pc for the next two years.

He said the federal government will provide 152 billion for the development of tribal districts merged recently with Khyber Pakhtunkhwa. He said there is also a ten-year government program for tribal districts for which the federal government will provide Rs48bn.

Azhar said employment creation is an important priority area of the government, adding that at least 28 industries will benefit from the housing programme launched by the government.