EDITORIAL: The federal finance minister, Ishaq Dar, while presenting the budget for fiscal year 2023-24 yesterday declared at the outset that this is not a typical election year budget because of the challenges facing the national economy.
According to him, this budget aims to nudge the economy from the stabilization mode towards the growth mode. This shift in modes is indeed a tall order in view of the fact that we are saddled with an extremely difficult internal and external environment.
On the domestic front, we face not only a fractured polity but also battles for turf within and between constitutional institutions, an unprecedentedly high inflation that has crippled the poor and lower middle classes and resulted in erosion of people’s incomes with more than 10 percent of the citizenry being added to the millions living below the poverty line.
On the external front, the geopolitical events like the war in Ukraine that has resulted in diversion of resources from almost all the G-20 countries to support the war effort there/and the shifting global alignments present an extremely unfavourable climate where even our friends who had always been forthcoming in our hour of need have been reticent or less forthcoming to help us out.
In other words, there is a very apparent ‘donor fatigue’ and we are increasingly being viewed as perpetual seekers of financial aid and help. In such a situation, resort to the oft-practiced populist budget that would trigger fiscal stimulus in an election year to provide relief to the people was a non-starter and would have been suicidal.
The total outlay of the budget is stated to be 14,460 billion rupees. Tax revenue is estimated at 9,200 billion rupees and non-tax revenue at 2,963 billion rupees, giving gross revenue receipts of 12,163 billion rupees.
After adjusting for share of the provinces under the National Financial Commission award, which is 5,276 billion rupees, the net revenue receipts of the federal government will be of 6,887 billion rupees.
Interest payments alone amount to 7,303 billion rupees, outstripping the federal government’s net revenue by 416 billion rupees.
The guiding principles of the budget according to the finance minister are: No increase in duties on import of essential items, trade facilitation and ease of doing business, encouraging industrialization and investment, incentivizing agriculture, promoting energy efficiency and conservation and promotion of IT (information technology) and IT-related services.
The salient features of the revenue measures are: (1) Rationalisation of Super Tax of 4 percent that was imposed in finance act 2023, to be applicable on all persons across the board on income above 150 million rupees with insertion of additional three new income slabs of rupees 350 million to 400 million, above rupees 400 million to 500 million and above rupees 500 million to be taxed at 6, 8 and 10 percent, respectively. (2) Re-imposition of 0.6 percent advance adjustable withholding tax on “non-active taxpayers list (ATL)”. (3) One percent increase in withholding tax rates on supply of goods other than sale of rice, cotton seed or edible oils, on rendering services including service subject to concessionary tax rate of 3 percent but excluding electronic and print media advertising services and on execution of contracts excluding sportspersons. (4) 0.5 percent increase in withholding tax rate on commercial importers of some goods. (5) Re-imposition of 10 percent final withholding tax on issuance of Bonus Shares by a company and 20 percent on non-ATL shareholder. (6) Increase in withholding tax rate from 1 percent to 5 percent on payment to non-resident through debit or credit card and from 2 to 10 percent for non-ATL person. (7) Imposition of an adjustable advance tax at rupees 200,000 at the time of issuance of work permit/visa on employment of foreign domestic helper and (8) Imposition of additional tax at the rate not exceeding 50 percent on income, profit and gains of a person or class of persons on account of extraordinary gains due to exogenous factors. The imposition of additional tax on extraordinary gains is designed to tax gains made by banks in their treasury operations during the period of flux in the forex market that attracted allegations of wrongdoings by some banks. This measure would also hit the oil and petroleum companies and also any other that function under a regime of government administered prices and an increase in rates results in hefty inventory gains for them. The applicability of this tax has been proposed with retrospective effect (preceding 5 tax years from tax year 2023 and onwards). This retroactive imposition would, in all probability, be challenged in courts but without retrospectively, this impost would be shorn of its bite and would lose bulk of its collection potential.
The finance minister was indeed between a rock and a hard place while making this budget. With elections about to be held within months, the coalition government of nearly a dozen parties with divergent views and priorities, the prime minister and his finance minister were hard pressed to present a populist budget whereas the economic data suggested differently. The result is that the budget is by and large a tame document that willfully neglects some of the burning issues that plague the economy and need to be addressed if the country has to emerge out of the fiscal strait jacket that it is in at present.
A country’s budget is supposed to be much more than a presentation of a statement of income and expenditure; it is, in fact, the single most important economic policy document to shape and move the economy in a desired direction. Unfortunately this budget does not do this.
There is no word on the State-Owned Enterprises (SOEs) that continue to haemorrhage the exchequer or for that matter the energy sector reforms that beg immediate attention of the government. Not only did the budget require to address these compelling issues, it was also expected spell out concrete plans with time-lines to deal with these major contributors to fiscal imbalance in an effective and meaningful manner.
Clocking current surplus by curbing imports is a self-defeating exercise and would only lead add to our economic infirmity.
It is heartening to note that the word ‘agriculture’ has received the highest mention in finance minister’s budget speech. His optimism is not misplaced, so to speak, for this sector can produce the desired results in the shortest possible time to fuel the economic activity in a big way.
A 3.5 percent economic growth target for fiscal year 2023-24, therefore, appears achievable. Last but not least, it increasingly appears that this budget can at best be described as a “work in progress” document to tide over the soon to emerge interval between this government and the next to be elected later this year.
Copyright Business Recorder, 2023
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