- Federal budget with the disbursement of Rs9.5tr presented
- Salaries of government employees increased by 15 percent, with no taxes on those earning up to Rs100,000/month
- Proposed subsidies for sugar and wheat flour
- Taxes will be increased on cars over 1,600cc
- Pensioners tax reduced to 5pc from 10pc
- Advance withholding of taxes to be collected from those who send remittances abroad
- Tax on the banking sector increases to 42pc
- Families with incomes below Rs40,000 will receive Rs2,000
- Households that use less than 200 units of electricity will be offered easy-term loans to purchase solar panels
- Tax-to-GDP ratio set at 9.2pc
- Rs699bn in targeted subsidies in new prosecutors
- Defense expenditure at Rs1.52tr
- FBR target set in Rs7tr
- 2pc additional tax for those with an annual income of Rs30m
- Average inflation forecast of 11.5pc
ISLAMABAD: During ongoing negotiations to convince the International Monetary Fund (IMF) to release the bailout payments. The PML-N-led coalition government on Friday presented a federal budget with a combination of real stabilization measures covered in sugar with a sense of well-being. The revival of the oil tax with a bang. The removal of construction incentives along with real estate taxes, and sweets for government employees. Taxpayers of income taxes, industries, and solar energy. And additional taxes of Rs355 billion to be collected by the Federal Revenue Board (FBR).
“Economic stability is our top priority… we have to lay solid foundations for economic development. That is based on sustainable growth,” Finance Minister Miftah Ismail said in the National Assembly. Additionally, he added that economic development would be derived from exports. Which would, particularly from agriculture, information technology, and industrial products.
The most critical moves arising from the IMF program in the budget relate to an almost insignificant change in subsidies (Rs699 billion next year versus Rs682 billion in the current year) and a reduction in electricity sector subsidies.
That would mean that national average electricity rates would increase by more than 20% with a cumulative financial impact of nearly Rs1.5 trillion. The allocation for electricity sector subsidies for next year remains at Rs570 billion against Rs596 billion during the current year, a decrease of 4.4 percent.
Must Read: The Fed’s GDP tracker shows the economy could be on the brink of a recession
On top of that, a non-tax revenue target of Rs750 billion has been set for the oil development tax (PDL). Which is almost 455% more than an estimated collection of approximately Rs135 billion during the current year.
In the previous year’s budget, the PTI government set a target of Rs610 billion for PDLs, but then gradually reduced it as global oil prices rose.
This means that the current government would not only end the ongoing subsidy of Rs10-23 per liter on petroleum products. But would also start raising PDLs over the next year, a requirement to revive the IMF program.
A key objective required under the IMF’s lending programs is to provide a primary budget surplus of PRs 152 billion (0.2% of GDP) (i.e. a non-interest financial deficit) next year from a deficit of PRs 360 billion (0.7% of GDP) during the current fiscal year.
In his budget speech, Ismail said the government preferred the national interest over political capital and began making difficult decisions to get the country back on track.
Tough times ahead
“The series of difficult decisions is not yet complete,” the minister said extemporaneously as he read the written speech. Additionally, he added that “the primary deficit will become a primary surplus.”
The minister admitted that a rise in energy and fuel prices would stoke inflation. But the government had no other option but to reverse the “devastation caused by mismanagement over the past four years.”
Another key step in the budget appeared to be a reversal of incentives. Which is related to taxes and subsidies for the construction and real estate sector. That’s the PTI government’s favorite program.
The 2022-23 budget allocates only Rs500 million each for the Naya Pakistan Housing Authority. And the profit margin subsidy in Naya Pakistan against Rs30 billion and Rs3 billion, respectively, in the current fiscal year.
The finance minister said it was one of the five main principles of tax policy. Which is to impose a tax on non-productive assets and wealthy people. That’s to encourage entrepreneurship and investment.
He said Pakistan’s tax system had resulted in an artificial rise in real estate prices. As a result, the taking housing facilities are out of the reach of the middle class.
The money generated by this dead investment was a major source of inflation and social disharmony. He said: “We don’t want to discourage the real estate sector. But we want to steer this sector in a direction where it can become the engine of growth for cities. Our proposals aim to encourage construction and vertical growth and discourage speculative investment in open plots.”
Therefore, persons who have more than one real estate priced above Rs25 million and located in Pakistan will be deemed to have received a rent equal to 5% of the fair market value of the real estate. And he will pay taxes at the rate of 1% of the fair market value of such property.
The tax on real estate transactions has also been amended. As such, it is now proposed that the capital gain in all asset classes be taxed at 15% in case the holding period of such property is one year or less.
The capital gain payable on such assets will be reduced to zero after a six-year holding period, reducing the tax liability by 2.5% with each subsequent year.
Must Read: Pakistan asks Qatar for more LNG to help reduce fuel shortages
In addition, the advance tax rate on the purchase and sale of property for filers has risen to 2% from the current 1pc. Besides, the advance tax rate for non-filer real estate buyers has also been increased to 5 percent.
While providing partial relief to struggling wage earners facing higher fuel and electricity prices. The finance minister doubled the basic threshold of the taxable salary to Rs1.2 million a year.
In the same direction, the basic exemption threshold for business persons. And the Association of Persons (AOP) was also improved from Rs400,000 to Rs600,000.
The government has also reduced the tax rate on profits. The profit from investing in Behbood savings certificates, and pensioners’ benefit accounts. And the profit from Shuhada family welfare accounts for a maximum of 5% instead of 10% at present.
For small retailers, the budget also provided a fixed income and sales tax regime ranging from Rs3000 to Rs10,000 as the final settlement.
The finance bill facilitated the industrial sector by allowing 100% depreciation for tax adjustment. Similarly, which allows for early adjustment of income tax at the import stage of goods in plants and machinery, raw materials, and finished products.
More relief has also been provided to the textile, pharmaceutical, and film industries.
While the finance minister also doubled the advance tax to 200% for non-filers on vehicles over 1600cc. He also increased the windfall tax for banks from 39% to 42% that made safe profits due to huge investments in government securities.
In addition, non-resident Pakistanis would also be required to become taxpayers in Pakistan unless they were tax residents elsewhere.
The budget also eliminated a 17% general sales tax on the import of solar panels and their local supply. The budget also withdraws GST on the supply of tractors, agricultural implements, and various seeds. Which includes wheat, rice, maize, sunflower, canola, and rice. The budget also promised to provide a banking facility for households to install solar panels.
The total size of next year’s budget is estimated at Rs9.5tr, up from Rs8.487tr for the current year, showing an increase of about 12pc.
The minister claimed the biggest challenge for the government. The challenge was to achieve an economic growth rate of 5% without an unmanageable current account deficit. Current expenditure for next year is estimated at around Rs8.7tr, including most of Rs3.95tr for interest payments.
A bitter point of spending was the combination of civil government operating spending (Rs550 billion) and pensions (Rs530 billion) at about Rs1.08tr for a few million compared to only Rs800 billion of the development budget.
On the other side, the defense budget increased to 11%, which is to Rs1,523tr against Rs1,37tr.
The revenue target for next year has been set at Rs7tr against Rs5,829tr for the current year, showing an increase of 20%. Around Rs973 billion would automatically accumulate due to the impact of almost 17% of inflation (11% and GDP growth (5%). While the remaining Rs355 billion would be generated through additional fiscal measures.
At the same time, the budget projects next year’s consolidated fiscal deficit at 4.9% of GDP or Rs3,798tr against Rs3.42tr (or 6.3pc of GDP).
However, the deficit at 4.9pc would be achieved with provincial governments together providing a cash surplus of Rs800bn. Otherwise, the federal budget deficit is projected at nearly 4.6tr compared to Rs4tr this year.
Non-tax revenues for next year are heading towards Rs2tr. Which are lower than the current year. For the first time and after a long gap, revenues of around Rs96 billion are forecast to be generated through privatization.
Of Rs7tr’s FBR taxes, a large portion of Rs4.43tr is intended to flow indirect taxes, led by a sales tax of Rs3.08tr. Only Rs2.57tr is expected to come from direct taxes, led by Rs2.558tr through income tax.
Stay Tuned with Us:
 to release... %%title%%){kind=link}