ISLAMABAD: Finance Minister Miftah Ismail Friday presented Rs9,502 billion budget for the next fiscal year with 4.9 percent deficit and stated that the real challenge for the government is to achieve growth without the current account deficit.
The finance minister said that he was presenting the first budget of the coalition government, therefore, it enjoys the backing of the majority of the people of the country and blamed the previous government’s policies as responsible for the suffering of the people consequent to the difficult decisions taken by the present government.
At the same time, Miftah lamented the absence of a congenial environment for investment and stated that the existing tax system instead of encouraging new business and entrepreneurship encourages investment in the non-productive sector of the real estate sector. This is an unpleasant aspect which creates hurdles in the economic development and becomes a reason for the artificial increase in the real estate sector’s prices depriving the ordinary people from owning their own house on the one hand while on the other hand, non-productive income fuels inflation and creates unrest in the country, he added.
The government also announced a 15 percent increase in government employees’ salaries and ad-hoc relief is being merged in the basic pay and decided to establish a pension fund with allocation of Rs10 billion in the first year.
Key highlights of budget 2022-23
He said that the previous government had a habit of changing their stance and also continued before the international lenders, and therefore, the International Monetary Fund (IMF) programme, which is to be completed in the current fiscal year, was suspended in February 2022 because those basic reforms which were to be completed in 2019 have not so far been completed.
The present government inherited a devastated economy and now facing a challenge to bring about improvement when inflation is historic, foreign exchange reserves are fast depleting, expensive borrowing and loadshedding are making the peoples’ life difficult.
He said the government has decided to tread a second path of taking difficult decisions for sustainable growth and “we have done it before and will do it again,” as economic stability is the government’s top priority.
He outlined the government’s approach of giving incentives to the poor instead of the rich and for moving on an inclusive and sustainable growth.
The strategy of growth would be based on an increase in exports of the IT and industrial sector and agriculture, productivity has to be increased and export competitiveness has to be increased.
He said that under the austerity measures, the government has decided to impose a ban on the purchase of vehicles, foreign trips unless necessary, and purchase of furniture and a cut in petrol by 40 percent.
The finance minister said although the government has decided to provide relief to the low-income group in difficult economic times but for the continuation of these interventions, special taxes on high earners have to be imposed to create fiscal space.
He said that for this purpose, tax on income or such items which are being used by the high-income group would be imposed.
He also stated that there are over Rs3 trillion tax leakages and to deal with them the prime minister has decided to establish a task force.
He said that the biggest challenge for the government is to achieve growth without the current account deficit and the next year five percent growth would be achieved with an increase in GDP and thus, the GDP size would be increased from Rs67 trillion in the current fiscal year to Rs79.3 trillion.
He said that inflation would be reduced to 11.5 percent in the next fiscal year. He said that the FBR tax from the existing 8.6 percent of the GDP would be increased to 9.2 percent of the GDP in the next fiscal year.
Overall, tax deficit would be reduced to 4.9 percent in the next fiscal year from 8.6 percent in the ongoing fiscal year and the primary deficit from 2.4 percent would be converted into positive by 0.19 percent in the next fiscal year, while the trade deficit would be reduced to $70 billion and exports $35 billion and as a result of this current account deficit 4.1 percent of the GDP would be reduced to 2.2 percent and remittances are projected at $33.2 billion for next fiscal year.
The federal outlay for the next fiscal year is projected at Rs9,502 billion with debt servicing of Rs3,950 billion, the PSDP Rs800 billion, whereas, Rs1,523 billion have been earmarked for defence, Rs550 billion for running civil government, Rs530 billion for pension and Rs699 billion for targeted subsidies while Rs1,241 billion have been allocated for grants including the BISP, Bait-ul-Mall and other departments.
The BISP allocation has been increased to Rs364 billion for the next fiscal year, Rs12 billion for the USC to provide subsidy on essential commodities with Rs5 billion additional for Ramazan Package.
The minister said that 90 million households in the next fiscal year would benefit from cash transfer under the BISP Kifalat Programme for which Rs267 billion have been allocated, Benazir Wazaif Programme would be expanded to 10 million children with the cost of Rs35 billion. The government has allocated Rs9 billion for undergraduate scholarship, Rs21.5 billion for the Benazir Nishonama Programme, and Rs6 billion for the deserving people in the Baitul Mal.
The government has allocated a subsidy of 570 billion for the power sector and Rs70 billion for the gas sector.
He said that for the HEC Rs65 billion have been allocated besides Rs44 billion have been earmarked for the development scheme. The minister announced that the student would be provided 0.1 million laptops on easy instalments and Rs21 billion have been allocated to increase the production of livestock. Young men and women will be provided interest-free loans up to Rs5,00,000. Pending Rs4.5 billion DLTL refunds would be cleared in this month as well as those of the pharmaceutical sector and sales tax refunds. Work on new investment strategy is in the programme and the dispute resolution mechanism would be reformed.
The government has earmarked Rs800 billion public sector development programme (PSDP) for the next fiscal year with priorities to utilize maximum funds for the development of Baluchistan and less-development areas to bring them at par with other areas, therefore, Rs136 billion has been allocated in for special areas, AJK, and Gilgit Baltistan. Rs395 billion for infrastructure projects, Rs73 billion for electricity production, transmission and distribution with Rs12 billion for Mohmand dam’s early completion
The minister said that big water dam projects worth Rs100 billion included in the PSDP, Rs202 billion highways and motorways, ports, Rs70 billion, and power and water resources projects are interlinked for which a total of Rs183 billion have been allocated, social sector projects under SDGs and Rs40 billion for other social sector-related schemes. Rs51 billion for the HEC, Rs24 billion for health and Rs10 billion for climate change.
The government has earmarked Rs17 billion for providing laptops to the youth, skill training to the youth in the IT sector. Rs11 billion for innovative methods in the industrial and agriculture productivity and Rs5 billion for investment in value-added exports and Rs20 billion for K-4 Karachi.
The minister said that basic principles of tax policy this year are that dependence on direct taxes, income tax and value-added tax would be more, imposition of tax on non-productive assets and productive assets would be protected, and new taxes would be imposed especially on the wealthy class.
The government has decided to increase income tax exemption for salaried class from Rs0.6million to Rs1.2 million, business individual AOP from Rs0.4 million to Rs0.6 million and tax rate on profit against investment in Behbood Certificates, pensioner benefit, and Shuhada family accounts is being reduced from 10 per cent to five percent.
Fixed tax on small retailers’ to be collected along with electricity bills between Rs3,000 to Rs10,000 and it would be a final settlement and the FBR would not be allowed to ask any questions in this regard and on account of initial depreciation for industrial units 100 per cent adjustment is proposed in the first year, whereas, all the taxes at import stage on raw materials are being proposed to be made adjustable.
Solar panel imports and local supply is exempted from taxes. Tractor, agriculture equipment, wheat canola etc rice seeds sale tax is being withdrawn and welfare hospitals are exempted from sale tax on electricity and local supply.
The minister said that the changes in the alternate dispute resolution (ADR) are being made and urged all those whose cases are in the courts to withdraw their cases and the government would settle the tax issues with them.
He said that the customs duty is being abolished on agriculture machinery besides, custom duty and additional customs duty and regulatory duty on 400 tariff lines related to the manufacturing sector are being rationalized and duty on 350 items are being reduced as well as tariff structure on the thread for the textile sector has been rationalized and 30 pharmaceutical active ingredients are exempted from the customs duty.
All persons who have more than one immovable property exceeding Rs25 million situated in Pakistan be deemed to have received rent equal to five per cent of the fair market value of the immovable property and shall pay tax at the rate of one per cent of the market value of the property except one house of each individual.
Capital gain on all classes of assets is now proposed to be taxed at 15 per cent in case, the holding period of such property is one year or less.
The capital gain payable on such assets will reduce to zero after a holding period of six years, reducing tax liability by 2.5 per cent with each subsequent year.
Furthermore, the advance tax rate on the purchase and sale of property for filers is proposed to be enhanced to two per cent from the current one per cent.
Moreover, in order to discourage the undocumented economy, the advance tax rate for buyers of immovable property who are non-filers is proposed to be enhanced to five per cent. All persons inclusive of companies and associations of persons, earning annual income of Rs300 million or more, are proposed to pay two per cent tax. Advance tax on motor vehicles exceeding 1600cc is proposed to be increased.
Advance tax shall also be collected at the rate of two per cent of the value in cases of high-value hybrid and electric vehicles.
Additionally, the rate of tax for non-filers shall be enhanced to 200 per cent from the current 100 per cent.
Tax rate on banking companies is proposed to be enhanced to 45 per cent from the current 39 per cent inclusive of super tax. Advance withholding tax at the rate of one per cent for filers and two per cent for non-filers shall be collected from persons remitting money outside Pakistan through credit, debit, and prepaid cards.
He said that the FBR revenue collection for the ongoing fiscal year would remain at Rs6,000 billion with Rs3,512 billion share of the provinces, leaving net revenue of Rs3,803 billion for the federal government.
He said that the federal government non-tax collection would be Rs1,315 billion.
He said that the government’s total expenditure would be Rs9,118 billion including Rs550 billion PSDP and Rs3,144 billion debt servicing, etc.
Copyright Business Recorder, 2022
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