Photo courtesy National Assembly of Pakistan
Finance Minister Ishaq Dar on Friday presented in the National Assembly a Rs. 14.5 trillion budget for fiscal year 2023-24, claiming it was not “an election budget” and had set a “modest” target of 3.5 percent GDP growth amidst an ongoing economic crunch.
In his speech tabling the budget, Dar said the government had not imposed any new taxes for the upcoming fiscal year, adding that special attention had been placed on the agriculture sector to facilitate its growth. He said the government was increasing the quantum of agricultural loans from Rs. 1.8 trillion to Rs. 2.25 trillion, adding that it had set a 3.5% growth target for the “backbone” of the country’s economy. Similarly, the budget has set growth targets of 3.4% for the industrial sector and 3.6% for the services sector. The government has also announced custom duties’ exemption on the import of seeds to facilitate agricultural growth.
However, while no “new” taxes were imposed, the government proposed raising the general sales tax from 17 to 18 percent; imposing a 25 percent sales tax on luxury item imports; and increasing taxes on cigarettes and sugary drinks.
Key takeaways
Among the key takeaways in the proposed budget—which is expected to face little resistance as there is virtually no opposition in the Lower House—are no increase in duties on the import of essential items and no new taxes. The government has also withdrawn a cap on fixed duties and taxes on the import of old and used vehicles above 1,300cc of Asian origin.
Sales tax has been exempted for contraceptives, while withholding tax has been increased from 1 to 5% on payments to non-residents through debit/credit cards or prepaid cards. Similarly, services provided by restaurants would be taxed at 5% if payment is made through debit or credit cards, mobile wallets or QR scanning.
The government has also proposed significant boosts to the salaries of government employees, with an ad hoc increase of 35% for Grades 1-16 and 30% for Grades 17-22. The minimum wage has, likewise, been raised to Rs. 32,000/month, while pensions have also been increased, with a minimum hike of Rs. 12,000. However, a 6% “super tax” has been proposed for individuals earning between Rs. 200 million and Rs. 400 million annually; this would increase to 8% for those earning between Rs. 400 million and Rs. 500 million, and 10% for those earning over Rs. 500 million per annum. An additional tax of up to 50 percent has also been proposed on the income of a person or group due to “extraordinary gains” from outside factors.
The budget has also aimed to promote renewable energy sources by proposing an end to customs duty on solar panels and their related equipment, including inverters and batteries. An exemption has also been proposed on customs duties for the import of shrimps/prawns for breeding in commercial fish farms and hatcheries.
Among the relief measures proposed in the budget are an increase to the allocation for the Benazir Income Support Program from Rs. 400 billion to Rs. 450 billion; targeted subsidy on wheat flour, ghee, pulses, rice through the Utility Stores; and a Rs. 1 billion health insurance card for working journalists and artists.
Fiscal matters
The total outlay of the FY24 budget is Rs. 14.46 trillion, approximately 51 percent higher than last year. According to the proposed budget, total current expenditure has been set at Rs. 13,320 billion, including Rs. 1,804 billion for defense expenditure—15.4 higher than last year—and Rs. 7,303 billion for debt servicing—85 percent higher than last year. The total revenue budgeted against these expenses is Rs. 12,163 billion of which provincial transfer is Rs. 5,276 billion, leaving just Rs. 6,887 billion net revenue for the federal government. The overall fiscal deficit—the difference between total expenditures and revenue—has been budgeted at Rs. 6,923 billion, 82 percent higher than last year’s Rs. 3,797 billion.
The government’s tax collection target has been set at Rs. 9,200 billion, 23 percent higher than last year’s target. Meanwhile, the government has projected inflation for the upcoming fiscal at 21 percent, against the outgoing year’s inflation of 28.2%. The total allocation for the Public Sector Development Program (PSDP) has been budgeted at Rs. 2,709 billion, including federal PSDP of Rs. 1,150 billion and provincial PSDP of Rs. 1,559 billion.
The Finance Bill proposes continuing the 0.25% fixed rate on exports of IT and IT-enabled services while removing sales tax return filing for IT exports. A 20 percent tax rate would be applied to banking company income from additional advances to the IT sector. For overseas Pakistanis, foreign remittance limit has been increased from Rs. 5 million to the rupee equivalent of $100,000, while also proposing the waiver of 2 percent withholding tax on immovable property purchases by non-residents if secured with foreign remittances.
The government has proposed allocating Rs. 81.9 billion for education, with Rs. 5 billion allocated for a Pakistan Endowment Fund aimed financial aid for students. Similarly, the government has allocated Rs. 10 billion for the Prime Minister’s Laptop Scheme to distribute 100,000 laptops to merit-based students.
Budget session
Commencing the budget session, Dar reiterated the achievements of the PMLN’s government of 2013-2018, maintaining the country had been on the path to prosperity before the PTI came into power and “derailed” it. He lamented that the incumbent government had inherited an economy in “dire straits” and maintained that the reason for the IMF’s intransigence in reviving a stalled bailout was due to a loss of credibility. P.M. Sharif, earlier, claimed once again that the government had fulfilled all prior conditions of the IMF to unlock the next tranche of a $6.5 billion loan facility that expires on June 30. However, pundits say the new budget is unlikely to convince the global lender of Pakistan’s commitment to fiscal discipline. A key concern appears to be no significant measures to expand the tax net, with no attempt to bring in the agriculture sector or traders, a likely consequence of the government not wishing to alienate its vote-bank ahead of general elections slated for later this year.