Budgets in Pakistan have rarely been dependable exercises as rarely have ever any of the targets and figures presented in the budget have come true as much as fairy tales have. The economic survey presented by the finance minister was an example of this since nearly all targets for fiscal year 2022-23 were missed. GDP which was projected to grow at 5% only grew by .3%, barely missing recession territory. The agriculture and services sector grew by 1.55% and .86% respectively whilst industrial growth was negative 3% against targets of 3.9%, 5.1% and 5.9% respectively. The tax to GDP ratio also fell to 6.6% compared to 10.1% in the preceding year. Inflation was 29.2% whilst targeted inflation was 11.5% for the outgoing fiscal year. Exports and remittances both showed declines of 12% and 13% respectively for the outgoing fiscal year causing a loss of more than 7 billion dollars though a 75% decline in the current account deficit compared to last year due to administrative controls and fall in commodity prices was witnessed. Tax collection grew by 16.1% to more than 6210 billion but given inflation was touching 30% this growth is a regression in real terms. It is fair to say from these examples that the previous fiscal year did not go as per plan for the coalition government. The incumbent setup blamed the previous government, floods, sharp rise in commodity prices and large debt repayments as reasons for this dismal performance. It promised to address these challenges in the upcoming budget whose details we will now examine.
A total outlay of 14.46 trillion has been proposed by the federal government for fiscal year 2023 to 24. This figure will be composed of 3.1 trillion bank loans, 6.9 trillion federal receipts (Tax and non-tax such as SBP profits), 2.5 trillion net foreign receipts, 1.9 trillion non-bank borrowing and 15 billion receipts from privatization of state assets. With regards to expenses 914 billion is to be used for the running of civil government and as emergency provisions, 1.09 trillion for development spending , 7.3 trillion on debt servicing, 1.5 trillion as grants to provinces, 1.8 trillion on defense, 1.1 trillion on subsidies and 714 billion on military and civil pensions. The government announced that pensions will be increased by 17.5%, pay of grade 1 to 16 employees by 35% and grade 17 to 22 by 30%. Inflation was projected at 21%, GDP growth at 3.5%, current account deficit at 6 billion dollars and tax to GDP ratio is projected at 8.7%. Around 22.7 billion have been earmarked for health sector and 97 billion for education which is a paltry amount however post 18th amendment education and health are a provincial subject and hence a large part of funding is to come from provinces.
The government has increased credit line to agricultural sector from 1.8 trillion to 2.25 trillion and earmarked 30 billion for solarizing 50,000 tube wells. Duties and taxes on machinery related to agriculture as well as seeds have also been removed. A further 10 billion has also been budgeted for agricultural loans and 6 billion for subsidy on urea. All these measures show that the government is focusing on boosting growth in agriculture to ensure food security and reduce food imports. To ensure access to cheaper food subsidy has been announced on wheat, ghee, pulses and rice as well though accessibility of said items at reduced rates to a large portion of the population via utility stores remains a challenge. Allocation for Benazir income support program has also been increased from 400 billion to 450 billion which is a good step since targeted subsidies via such programs have been supported by multilateral institutions such as the IMF as well. To help boost IT exports and earn foreign exchange the government has waived off the requirement for filing tax returns for those freelancers who earn more than two thousand dollars a month. IT and software related imports of all kinds up to 50,000 dollars have also been given tax exemption. 10 billion has also been set aside for provision of 100,000 laptops for students in order to enable lower middle class students to earn via freelancing.
With regards to taxes 0.6% tax has been imposed on cash withdrawals via ATM above 50,000 on non-filers which will increase cash in circulation leading to greater inflation. 10% tax on issuance of bonus shares has also been levied on companies listed in Pakistan stock exchange as well as increase in sales tax on leather and textile retail sales from 12 to 15%. General sales tax has also been increased from 17 to 18% whilst 25% tax has been imposed on import of luxury items. Tax on carbonated drinks has also gone up from 13 to 20% whilst 10% tax has been levied on juice syrups. Super tax which was imposed via supplementary bill last year has also been formalized on those whose annual income exceeds 150 million per annum. The withholding tax rate on payments to non-residents using debit/credit or prepaid cards will also increase from 1pc to 5pc for filers, and from 2pc to 10pc for non-filers. An additional tax of up to 50pc may be charged on the income of a person or group due to extraordinary gains (Exchange rate gains by banks and exporters) from outside factors. Remittance of 100,000 USD will be allowed as well without asking for proof of income and advance tax on property will be waived off for property bought via foreign remittance.
Whether we achieve budget targets unlike last year remains to be seen but given Pakistan’s precarious economic situation this budget was of immense importance especially since clinching an IMF program is reliant upon it. It is not an ideal budget but whether it was an acceptable one will become clearer in the year ahead.
