The fiscal budget has all feel-good measures that could appease both the International Monetary Fund (IMF) abroad and the inflation-stricken public at home. Though relying much on the stability, instead of growth of the economy, Finance Minister Miftah Ismail has taken the steps, which are hardly sustainable, and it is very likely that the government will have to present a mini-budget to undo the announcements. Walking on a tightrope, the finance minister has, on the one hand, imposed petroleum levy, which will increase petroleum prices, and on the other hand, he has slashed tax on the salaried class drawing salary up to Rs100,000 a month, besides slashing taxes on solar panels for low-consumption consumers so that they are given respite. As one reads the 300-page financial bill document, every page demonstrates tax resumptions, tax hikes, and new taxes, but the fiscal plan still runs in deficit. The previous government incentivized the construction and real estate sectors, which helped the then government revive the economy and create jobs. The incumbent government has withdrawn most of the incentives for both sectors, leaving several investors in the lurch, who have started mega projects, and are in the middle of them. On the other hand, the financial bill looks sweet for industries, retailers, income tax payers and government employees.
The government estimates the collection of revenue at Rs7.3 trillion, which will be done through additional taxes of Rs355 billion to be collected by the Federal Board of Revenue. The total outlay of the budget for 2022-23 is Rs9.5 trillion, which is again Rs800bn more than the previous bill, and the government is relying on policies to increase exports of agri, IT and industrial products, and to decrease imports from $76 billion to $70 billion. The plan looks really ambitious and mostly bets on hopes of cutting the prices of oil, LNG and cooking oil in the international markets. The petrol market may not see an ease in the near future in the wake of an ongoing conflict between Ukraine and Russia, and OPEC’s refusal to increase oil production. Right now, the government is under immense pressure not to increase petrol prices, whereas the fiscal necessities demand that all subsidies be withdrawn, along with the PDL and general sales tax levied on petroleum products. The government has withdrawn subsidies from Rs699 billion to Rs682 billion, of which a huge chunk belongs to the power sector, which means power bills would go up by more than 20 percent. A similar hike would be seen in the gas tariff.
The budget measures are all set to achieve the terms set by the IMF. One of the key terms imposed on Pakistan for the release of funds is to provide for a Rs152 billion primary budget surplus from a deficit of Rs360 billion during the current fiscal year. This can only be achieved through tough measures. The government has not minced any words to get the nation prepared for the trying times ahead. Prime Minister Shehbaz Sharif and Finance Minister Miftah Ismail, both have ringed warnings, strict warnings, of the series of difficult decisions, which will trickle down time to time so that “the primary deficit will be converted into primary surplus”. These measures may peter down people’s buying power and stoke up inflation, which former prime minister Imran Khan foresees at 30 percent. The finance bill for the next year has also undone the landmark project of the previous government – the Naya Pakistan Housing Authority – by withdrawing its allocated subsidies which stood at Rs30 billion. This will impact people’s dream to own their own house at a cheap markup. Not only this, the government has imposed tax on more than one immovable property priced above Rs25 million in Pakistan. This may be a right measure, as government after government deemed the real estate sector as the engine of growth contrary to the worldwide trend of investing more in startups and entrepreneurial ventures. In the same vein, the bill proposes tax hikes on transactions of immovable properties, advance tax on buying and selling property for filers.
The only hint of relief, which is a meagre one, is the change of exemption of income tax slab for the salaried class. The proposed threshold for income tax on salary has been increased from Rs600,000 to Rs1.2 million a year, which means most of the salaried class will be saved from income tax. A similar concession has been offered to the basic threshold for business individuals and the Association of Persons, which has been increased to Rs600,000 from Rs400,000. But there was no point of reducing the tax rate on profit from investment in Behbood savings certificates, pensioners’ benefit accounts and Shuhada family welfare accounts. The government must reconsider the decision. Most of the scheme holders under the above mentioned heads are widows, elderly and pensioners.
Like all budgets, the next year’s fiscal document also allocates huge chunks of revenues for the defence budget, which has been increased by almost 11 percent, and debt servicing. The budget looks a usual exercise, as it lacks any innovative, out-of-the-box measures for the turnaround of the economy. But this does not deprive the team of Prime Minister Shehbaz Sharif and Finance Minister Miftah Ismail and their team members of the credit for presenting a balanced as well as pro-growth budget. The only thing the government must keep in mind is that the revenue target for the next year should be achieved and increased. And every possible measure should be taken to provide relief to the public. Side by side, the previous government must also be praised for leaving the economy in a sound state, despite facing the COVID-19 pandemic.