Tax on banking sector enhanced to 42% from 39%, says Miftah while announcing budget proposals

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Finance Minister Miftah Ismail unveiled on Friday the federal budget with a total outlay of Rs9.5 trillion in the National Assembly, targeting economic growth of at least 5% during fiscal year 2022-23.

The budget comes at a time when Pakistan’s economy remains engulfed in a balance of payments' crisis, and engaged in talks with the International Monetary Fund (IMF) over revival of the stalled Extended Fund Facility (EFF).

Income tax measures

Miftah says income tax threshold (per year) has been increased from Rs600,000 to Rs1.2 million.

This proposal effectively means there will be no income tax on individuals earning up to Rs100,000 a month.

Windfall gain tax on banking sector

The banking sector will now face a taxation rate of 42%, up from the current 39%, says Miftah.

"This includes the super tax amount. This could fetch around Rs15 billion to Rs20 billion in taxes."

Income from Behbood certificates, which has been subject to final tax of 10%, now cut to 5%.

A fixed income and sales tax system has been proposed for small retailers. Under this, taxes will be collected with electricity bills.

The amount of tax shall be Rs3,000 to Rs10,000, says Miftah.

Finance minister announces major allocations

Rs3,950 billion allocated for debt servicing (domestic and external) in FY23

Rs1,523 billion for defence expenditure

Rs550 billion for civilian administration

Rs530 billion for pension expenditure

Rs699 billion allocated as subsidies

Rs1,242 billion as grants

Rs65 billion for Higher Education Commission (HEC) and Rs44 billion for its development

Rs17 billion allocated to the IT sector

Miftah says this is aimed at promoting the sector, and increasing earnings.

Withholding tax abolished on film distributors

Finance minister says this, along with other measures, will help promote the film and culture industry.

Miftah says Rs364 billion has been allocated for the Benazir Income Support Programme (BISP), whereas Rs12 billion has been allocated for subsidies to be offered at Utility Stores Corporation.

FBR's tax revenue target has been raised to Rs7,004 billion, which includes provincial allocation of Rs4,100 billion, Miftah says.

Inflation target for FY23 set at 11.5%

Inflation has been high, but for next year, the target has been set at 11.5%, he says.

Austerity measures

"To control expenditure, the government will not purchase automobiles and furniture (except for development projects), whereas employees' petrol quota has been cut by 40%," he says.

Will establish a pension fund

An amount of Rs10 billion will be allocated for this pension fund, he says.

Cash subsidy announced for low-income groups

Miftah says a family with household income of less than Rs40,000 will be given a transfer of Rs2,000.

The poor-income group needs to be supported, he says.

"This group buys goods that are produced in the country. We need to support them for inclusive, sustainable growth."

"Bringing economic stability is our top priority. The basic problem of our economy is that a growth rate of 3-4% doesn't help our growing population, whereas a growth rate of 5-6% leads to a current account deficit."

Mistakes by the previous govt

The minister begins his speech by pointing out "mistakes by the previous government".

"Each year, the budget was presented by a different person," he says.

Miftah says due to the past government, the IMF programme, which should have ended this year, got suspended in February, and basic reforms that should have taken place in 2019 were not implemented.

This is a developing story, and will be updated accordingly