Revival of IMF programme eyed: Budget to have steps to promote fiscal austerity, stabilisation: experts

KARACHI: Pakistan is eyeing revival of an IMF programme and it is likely that the upcoming budget will have measures that promote fiscal austerity and stabilisation, experts said.

It is likely to impose new taxation measures of Rs 400-450 billion in FY23 budget, they added.

The government is expected to announce Federal Budget for the fiscal year 2022-23 (FY23) on June 10, 2022. The budget outlay for FY23 is estimated at Rs 9-9.5 trillion (11.5 percent to 12 percent of GDP) as against budget of Rs 8.5 trillion (12.7 percent of GDP) for FY22.

“The government is likely to set tax revenue collection target of Rs 7.25 trillion for FY23 (9.2 percent of GDP), which is up 19 percent from the revised target of Rs 6.1 trillion (9 percent of GDP) for FY22,” a research report of Topline Securities said. It is likely to impose new taxation measures of Rs 400-450 billion in FY23 budget, it added.

The current expenditure target is likely to be set at 12 percent of GDP in FY23 or Rs 8 trillion which is around 11 percent higher than what was budgeted in FY22. Similarly, government is likely to set aside Rs 3.5-Rs3.9 trillion (4.5 percent-5.0 percent of GDP) for markup payment for FY23 budget and Rs 1.6 trillion is likely to be set aside for Defense expenditure which is 2.1 percent of GDP, the report said.

For FY23, Federal Public Sector Development (PSDP) is budgeted at Rs 800 billion versus Rs 466 billion disbursed in the first 10 months of FY22 and revised budgeted amount of Rs 603 billion for FY22. Consolidated PSDP (Federal and Provincial) is anticipated to clock in at Rs 1.4 trillion (1.8 percent of GDP) in FY23, as against Rs 1.2 trillion in FY22, the report said.

According to the research report, few taxation measures that are under consideration includes increase in super tax for Banking Sector and re-imposition of super tax on highly profitable companies; increase in tax rate for individuals earning high salaries; reduction in tax concessions and exemptions for various sectors; increase in regulatory duties on luxury items; luxury tax on immovable property and vehicles, and increase in taxes for non-filers.

With economic slowdown, tax revenue target of Rs 7.25 trillion will be challenging to achieve in FY23, the report said. However, it will depend on the amount of new taxes to be imposed in Budget FY23.

“Upcoming budget is likely to be Neutral for Stock Market as we do not anticipate any change in Capital Gain Tax (CGT) rate of 12.5 percent and tax rate of 15 percent on dividend income,” the report said adding that the budget is likely to be Neutral to Positive for sectors including Technology and Communication, Fertilizer, Insurance and Chemical Sectors. On other hand, it is likely to be Neutral to Negative for sectors including IPPs, Autos, Banks, Oil and Gas Exploration, Cement, Textile, OMCs, Tobacco, Steel and Pharmaceuticals.

“We believe that negatives relating to imposition of new taxes on listed sector are already priced in as valuations remain cheap,” the report said. Market participants are keen to see the overall balance of payment situation and focus remain on the IMF and other dollar inflows along with trend of international commodity prices, it added.

Pakistan market is currently trading at a 2022 PE of 4x versus last 5-year average PE of 7x.

Copyright Business Recorder, 2022