KARACHI: Despite the government estimating a surplus profit from the State Bank of Pakistan (SBP) at a record Rs2.5 trillion (roughly $9 billion) during the ongoing fiscal year 2024-25, it lacked ‘fiscal space’ to afford giving taxation relief, said a former finance minister and business magnate, highlighting the burgeoning needs of the government that continues to ignore the expenditure aspect of its budget.
Islamabad budgeted a 157% increase in surplus profit from the SBP in FY25 after its revised estimates showed an amount of Rs972.2 billion in the previous year as record high interest rates and free-flowing borrowing spree enabled massive earnings for the country’s central bank.
The surplus profit comes after the central bank accounts for an amount equivalent to 20% of its overall distributable earnings to the general reserve account — until the sum of the capital and general reserves equal eight percent of SBP’s total monetary liabilities — and post transferring earnings to the special reserve accounts created for any of its specific, identified liability, contingency or expected diminution in the value of its assets, according to the SBP Act.
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The annual budget statement shows the amount under the non-tax revenue receipts – which is not part of the divisible pool – and highlights the escalating expenditure of a government that resorted to increase taxation on packaged milk, salaried earners, and other formal sectors.
“Imagine if the SBP’s profit were lower,” Dr Miftah Ismail, a two-time finance minister, told Business Recorder.
“The government would then have imposed even more taxes.”
Ismail pointed out that it was the expenditure side of things that Islamabad needed to look towards.
“Instead, the government should have looked at containing expenditure. The current expenditure, even excluding interest payments, is up 24%. The PSDP allocation is up even more.”
Business magnate Arif Habib, who had before the budget announcement stated that the government would have some room as the SBP was set to post a record profit, also said fiscal burden distribution has been “unfair”.
“This incremental profit (of the SBP) has gone towards reducing the budget deficit,” the chief executive of Arif Habib Group told Business Recorder.
“But the distribution of fiscal burden has been unfair. The petroleum development levy has increased. The salaried group has faced higher taxation. This is a tough environment.
“Some exemptions like the one extended to the ex-FATA/PATA industries – worth around Rs70 billion – are roughly the same amount of taxation on the salaried class.”
Ismail said extending exemptions to ex-FATA/PATA industrialists is a result of “political pressure”. “The public there will not benefit from this. It will just be the industrialists.”
The federal government’s budget, which envisions 40% higher tax revenue and a nearly 64% increase in non-tax revenue, had already been termed ambitious by Fitch Ratings last month.
Copyright Business Recorder, 2024