Pakistan budget: Imran Khan's government presents its first budget with no new general sales taxes

Dubai: Deemed as ‘budget of masses’, Prime Minister Imran Khan’s government presented its first federal budget on Tuesday for the fiscal year 2019-20.

The Rs6 trillion (Dh147.32 billion) budget was announced in the National Assembly a day after Imran’s government released the latest round of bleak economic figures for the cash-strapped country, showing growth for the current fiscal year falling to 3.3 per cent - well below the 6.2 per cent target.

In the austerity-austerity-focused budget, salaries of ministers and advisors have been cut by 10 per cent while minimum wages have been increased.

The problem is not of [the arrests of] Nawaz Sharif or Asif Zardari. The question is which direction the country
is going in.

- Bilawal Zardari Bhutto, Chairman of the Pakistan Peoples Party

Hammad Azhar, Minister of State for Revenue, who presented the budget amidst protest from the opposition benches, admitted that there has been no increase in exports in the past five years.

Though the minister revealed that measures taken by the PTI-led government have resulted in remittances rising by $2bn, and Rs12bn decrease per month in circular debt in the energy sector, overseas Pakistanis were again ignored as no incentives were announced for them.

During his speech, opposition benches tore the copies of budget documents and chanted anti-government and anti-Imran slogans. They also protested against the arrest of opposition leaders, including former President Asif Ali Zardari and the PML-N leader Hamza Sharif ahead of the budget.

The PTI government’s budget registered a growth of 30 per cent against the revised budget of Rs5.385 trillion for current fiscal year. The minister said that total federal revenues have been estimated at Rs6.717 trillion which is 19 percent higher than the previous year's revenues of Rs 5.661 trillion. The collection of revenues by Federal Board of Revenue (FBR), he said, are estimated to be recorded at Rs5.555 trillion which are 12.6 percent of Gross Domestic Product (GDP).

He said that out of total revenue collections, an amount of Rs3.255 trillion would be distributed among the provinces under 7th National Finance Commission (NFC) Award which is 32 percent higher than the current year's share of Rs2.465 trillion. He said Net Federal Revenues for the upcoming fiscal year have been estimated at Rs3.46 trillion against the revenues of Rs3.07 trillion during current fiscal year which is 13 percent higher.

Similarly, he said the federal budget deficit would be Rs3.56 trillion whereas the provincial budget surplus is estimated to be at Rs423 billion for the year

Pakistan has struggled for decades to collect taxes with estimates suggesting that only around one percent of the 200-million strong population filed a return in 2018.

Pakistan's increasing economic woes also come as the country is facing possible sanctions from the Financial Action Task Force - a money-laundering monitor based in Paris - for failing to rein-in terror financing.

I don’t recall ever if any budget set such a high target. This would mean the most painful budget ever in
Pakistan’s history.

- Yousuf Naza, Former Citigroup Inc. banker and author of The Gathering Storm: Pakistan

To add to its troubles, the United States has also warned it will be watching closely to ensure Pakistan does not use IMF money to repay debts to China, which has poured billions into the country for infrastructure projects under its Belt and Road Initiative.

Prime Minister Imran Khan's government will want to mend public finances by boosting tax revenue to cut reliance on borrowings. The government last month said it targets to raise 5.5 trillion rupees ($36 billion) revenue next fiscal year from 4.4 trillion rupees in the year-ago period.

"I don't recall ever if any budget set such a high target," said Yousuf Nazar, a former Citigroup Inc. banker and author of The Gathering Storm: Pakistan. "This would mean the most painful budget ever in Pakistan's history."

"Under a tight IMF program as well as tough economic conditions, the fiscal space is expected to face severe tightening," said Samiullah Tariq, director research at Karachi-based Arif Habib Ltd.

Reaction to the budget, PPP chairman Bilawal Bhutto Zardari said that the federal government was trying to sweep a flood of inflation and rising prices under a shroud of so-called accountability and arrests.

"The problem is not of (the arrests of) Nawaz Sharif or Asif Zardari," Bilawal said at a joint session of opposition parliamentary parties. "The question is which direction the country is going in."

PML-N leader Khurram Dastagir speaking to reporters said Prime Minister Imran Khan did not know how to control inflation.

Dastagir said the government’s budget would be a ‘storm’ of inflation, adding it will contain a mountain of taxes.

“We will let them [government] present the budget and not will give them the opportunity to run,” said Dastagir.

Budget features

Total budget outlay Rs7,022bn—30% greater than previous year

Rs1,863 billion fixed for Public Sector Development Programme

Budget deficit to be Rs3,560 billion

Tax revenue target set at Rs5,822bn

FBR tax revenue target set at Rs5,555bn

Non-tax revenue target set at Rs894.5bn

Current expenditure set at Rs6,192bn

Development expenditure set at Rs843.4bn

Rs701bn earmarked for Federal PSDP

Rs1,152bn fixed for Defence Affairs and Services expenditures

Civil government expenditure to be Rs431bn

Higher education expenditure of Rs45bn

Government sets aside Rs271bn for subsidies

Inflation targets set at between 5 and 7 per cent

General sales tax on goods to remain at 17 percent

3% value added tax on import of mobile phones eliminated

Rs5,200 FED proposed on every 10,000 cigarettes

Sales tax on sugar proposed to be be increased to 17 percent

Rs40 billion subsidy to be given for electricity, gas

Development expenditure for tribal districts fixed at Rs152 billion

Rs45.5 billion allocated for Karachi’s development programme

Stipend through BISP scheme increased from Rs5,000 to Rs5,500

Govt aims to eliminate circular debt in coming years

The government has formed a new ministry to eliminate poverty, which will introduce programs for social safety. People benefiting from the Ehsaas program include the poor, orphaned, homeless, and disabled sectors of the population.

Ration card scheme being introduced. 80,000 people to benefit from this scheme with interest-free loans.

Taxes:

Minimum taxable income for salaried class to be Rs0.6mn per annum

11 progressive tax slabs ranging from 5 to 35 percent proposed for salaried class

Minimum taxable income for salaried class to be Rs0.4mn p.a.

Eight progressive tax slabs ranging from 5 to 35 percent proposed for non-salaried class

Non-filers no more restricted from purchasing property

Non-filers to be allowed to purchase property of over Rs5mn

Corporate tax to remain at 29 percent for next two years

Wages:

10 per cent increase in salaries for government employees from grade 1 to 16, including armed forces employees

5 per cent ad hoc relief for government employees from grade 17 to 20

No increase in salaries for civilian government employees from grade 21 to 22

Minimum wage set at Rs17,500

Pensions increased by 10 per cent

Ministers agree to voluntary 10 per cent cut in salaries

With inputs from agencies