How experts view the upcoming budget announcement

The government will unveil the budget for fiscal year 2023-24 shortly. This is what experts are saying ahead of the announcement.

Business Recorder Head of Research Ali Khizar said the government wants to retain the International Monetary Fund (IMF) programme on one hand and appease the public on the other ahead of likely elections.

“Therefore, the government is trying to give a populist budget,” he said. “It is likely to expand pension, salaries and development expenditure while also aspiring to keep a primary fiscal balance to secure IMF tranche.”

Additional levies on taxed class

The taxpaying segment will see more imposition of taxes such as Super Tax, tax on bonus shares, dividend tax and the corporate sector will see an unfriendly budget, he said.

On the other hand, the real estate, agriculture and retail segment will see a drop in taxes.

Speaking to Business Recorder, Arif Habib Limited Head of Research Tahir Abbas stated this budget will be tough given the difficult economic situation of Pakistan.

“The government wants to increase tax revenue rapidly because the collection target for next fiscal year is Rs2 trillion higher than the outgoing fiscal year,” he said. “New taxes will be imposed to attain this target and some of it will be covered through nominal growth in existing taxes.”

The government will also take some populist measures because Pakistan will go for polls post budget, he said.

On the flip side, the government will try to please IMF so that Pakistan secures the next deal to resolve its economic woes, the expert said.

IGI Securities Head of Research Saad Khan told Business Recorder that this budget “will be a tough navigation for the government”.

“The government wants to boost the economy, while it has little space for funding and also wants to appease the IMF.”

The budget will decide whether the IMF extends funding to Pakistan or not, he said.

“The market views this budget as difficult especially for the banking sector because the government is likely to enhance the Super Tax to 10%,” he said. “Concerning factors are targets for revenue generation, which could hardly be achieved looking at the high inflation.”

From Rs9 trillion, the IMF is likely to raise FBR tax target to over Rs10 trillion and the market will react negatively to this, the expert said.

“The removal of some subsidies is also on the cards,” he said. “Transaction costs can increase for non-filers which will in turn enhance the cost of doing business and improve documentation. This is a positive thing.”

Good news is expected for IT and agriculture sector, said Khan, adding that the services sector including banking and real estate will be impacted negatively.

Austerity measures are likely to continue until Pakistan’s revenues improve, he said.

Regarding the Public Sector Development Programme (PSDP), the expert saw was of the view that funding to it will increase.

IT sector isn’t expecting anything in the budget

Meanwhile, Muhammad Zohaib Khan, Chairman of Pakistan Software Houses Association (P@SHA), told Business Recorder that the government may choose to continue the 0.25% tax regime, which may not be enough to boost exports.

“I have seen this year’s numbers and I am telling you we may not even cross the previous year’s $2.6 billion mark,” said Zohaib.

“Only freelancers can alone bring up to $2 billion to the country if they are allowed to retain 100% dollar receipts in their accounts. Right now, most of the IT sector is keeping their dollar receipts abroad. They should be allowed 50% of their money to take abroad for payments and expenses.

“IT industry wants legally-covered consistency in fiscal, financial, taxation, exports, HR and infrastructure policies for a period of 10 – 15 years; as only then can we bring FDI in the country coupled with long-term private-sector investments in the IT industry; enhance exports rapidly & sustainably; expand the pool of skilled IT professionals and establish joint ventures with the international players.”

Tax on agriculture

Renowned economist Kaiser Bengali said that collecting tax from agriculture has a constitutional hitch –it as it is a provincial subject – hence FBR cannot collect it.

“This flaw in the constitution also creates a tax shelter to a person having agricultural land and he can operate factories on the side as well,” he said. “If the sector is brought under the FBR after amendment in the constitution, the amount collected would not be large enough to address the budget deficit problem.”

“From economic justice point of view, everyone, whether it be a factory owner or a farmer, should pay taxes equitably.”

However, 80% of the farmers are small farmers who would be exempted anyway and less than 5% farmers would be paying tax hence the total amount will not be large enough.

Secondly, there are only 5% farmers who would pay high-end tax, which would not aggregate into a significant amount for the government, the economist said.

He added that provincial authorities do collect taxes from the agriculture sector but the produce in unit (PIU), on the basis of which taxes are calculated, are understated. PIU is a unit that is assigned to land on its productivity.