Finance Minister Muhammad Aurangzeb on Wednesday unveiled a Rs. 18.9 trillion budget on the floor of the National Assembly, announcing significant hikes to taxes of almost all segments of society and raising fears of fresh inflationary pressures in the months to come.
In his speech—marred per tradition by loud protests from the opposition of the Pakistan Tehreek-e-Insaf and Sunni Ittehad Council—Aurangzeb maintained that the government’s economic performance of the past year was “impressive” in light of prevailing financial and political challenges. “Today, Pakistan has another chance to walk on the path of economic progress and we cannot afford to waste this opportunity,” he said and called on all MNAs to work with the government to move toward progress.
Recalling the cripplingly low reserves of the State Bank of Pakistan just a year earlier, as well as massive depreciation of the rupee and rampant inflation, the minister said it had appeared difficult to move past this situation. Praising the former government for successfully completing the $3 billion Stand-by Arrangement with the IMF, he said this had paved the way for economic stability.
The government has set a GDP growth target of 3.6% and inflation expectations of 12%. According to Aurangzeb, the budget deficit is 6.9% of the GDP, while the primary surplus would remain at 1% of GDP. The budget envisions a record Rs. 12,970 billion tax collection by the Federal Board of Revenue (FBR), 38 percent more than collections in the current fiscal year.
The non-revenue target has been fixed at Rs. 3,587 billion, while the center’s net income is estimated at Rs. 9,119 billion. Aurangzeb said total federal expenditures are estimated at Rs. 18,877 billion of which Rs. 9,775 billion would be expended for debt servicing. “P.M. Sharif-led coalition government deserves felicitations for untiring efforts to revive the economy,” he said, stressing curbing inflation was a particular focus and the central bank’s recent cut of the interest rate was testament to this.
PSDP
Noting the key role played by the Public Sector Development Program (PSDP) the development, prosperity and social welfare, Aurangzeb said the government had earmarked Rs. 1,500 billion for it, the biggest in the country’s history. Within this, he said, Rs. 100 billion were allocated for Pakistan Peoples Party (PPP)-projects, adding the budgeted amount reflected the government’s commitment to resolve challenges of infrastructure development, transportation, energy, I.T. and water resources. He further explained that 83% of the allocation was fixed for ongoing projects, while 17% was for new projects.
Overall, he explained, 59% (Rs. 824 billion) of PSDP funds would be allocated for basic infrastructure; 20 percent (Rs. 244 billion) for the social sector; 10 percent (Rs. 75 billion) for erstwhile FATA districts; and 11.2% for I.T., telecommunication, science and technology, governance and production sectors. He said the budget had encouraged new projects that support exports, boost production capabilities, promote competitiveness, expand the digital infrastructure, and focus on innovation-driven enterprises, industrial development, agro-industry and seed development, blue economy, science and technology, research, development and innovative reforms.
“We acknowledge the key role played by the private sector in economic development as the basic stimulant of progress. We encourage private sector investments and are ready to give our share in the private sector’s efforts through viability gap and arrangements,” he said, adding the budget aimed to upgrade existing infrastructure for transport to facilitate the increasing volume of traffic, improve the highways’ network, and increase communication between big cities and other areas.
The minister said efforts were underway to expand and modernize the country’s energy infrastructure, construct hydropower dams, install solar power plants and lay transmission lines. Special attention, he said, was for water resource management through the construction of dams, irrigation system and drainage system network to counter floods and ensure water supply for agriculture and domestic consumption.
Taxes
Despite earlier claiming to inflict minimal impact of new taxes, the budget speech highlighted significant increases to existing rates, posing fresh inflationary pressures. Aurangzeb said the government would introduce personal tax reforms to bring them in line with international standards, adding the minimum tax slab would remain fixed at Rs. 600,000/annum, while the maximum would be Rs. 5,600,000/annum.
Under the proposed amended slabs, incomes between Rs. 600,000 and Rs. 1,200,000/annum would be taxed at 5% of amount exceeding Rs. 600,000; those between Rs. 1,200,001 and Rs. 2,200,000/annum at Rs. 30,000+15% of the amount exceeding Rs. 1,200,000; those between Rs. 2,200,001 and Rs. 3,200,000/annum at Rs. 180,000+25% of amount exceeding Rs. 2,200,000; between Rs. 3,200,001 and Rs. 4,100,000/annum at Rs. 430,000+30% of amount exceeding Rs. 3,200,000; and incomes above Rs. 4,100,000/annum would be taxed at Rs. 7,00,000+35% of exceeding amount.
“There are some changes proposed in tax slabs,” he said, adding the maximum tax rate for non-salaried would be fixed at 45 percent. He also clarified that the export sector would now fall under the normal tax regime. To increase tax collection from the real estate and securities sector, a 15% tax would be imposed on filers and up to 45% on non-filers under different slabs. “This will help document the economy,” claimed Aurangzeb, adding different tax slabs would be introduced for filers, non-filers, and those who file their returns late on the purchase of immovable properties.
The government has also proposed imposing tax on value of a car rather than its engine capacity, and called to end zero rating, exemptions, and reduced rates. Similarly, it has sought to increase taxes on Tier-I retailers from 15 to 18 percent. Petroleum levy, current fixed at a maximum of Rs. 60/liter has been proposed to increase by Rs. 20/liter on petrol and diesel; Rs. 25/liter on kerosene, light diesel and high-octane.
BISP
Aurangzeb said the government aims to provide maximum assistance to vulnerable segments of society under the Benazir Income Support Program (BISP) and has increased its allocations by 27 percent in the upcoming fiscal year. He said the number of beneficiaries of the Kafalat program would be increased from 9.3 million to 10 million, while 1 million more children would be registered under the Benazir Taleemi Wazaif to promote education. Similarly, 500,000 more families would be added to Benazir Nashonuma to provide nutritional support to mothers and children, while new programs would be launched to boost skills’ development.
Salaries and pensions
The finance minister said the government would adopt a three-pronged strategy to reform the pension scheme in line with international best practices, adding this would reduce the pension liability over the next three decades. He said this would be achieved through a contributory pension scheme for incoming employees, while a pension fund would be created to manage the liability.
The government has also proposed a 20-25% increase in salaries of government employees, as well as 15% enhancement in the pensions of federal government employees. The minimum wage has been increased from Rs. 32,000 to Rs. 36,000/month.
Climate change
On climate change, the minister announced the government was reviving the Pakistan Climate Change Authority to ensure implementation of “climate mitigation and adaption” efforts. He said a National Finance Climate Strategy would be prepared by November, adding this would work to secure Global Climate Finance into the country to implement projects aimed at reducing carbon emissions.
He said the federal government has fixed Rs. 4 billion for e-bikes and Rs. 2 billion for energy saving fans.
Armed forces
The FY2024-25 budget proposes an allocation of Rs. 2.12 trillion for the armed forces, a 17.6% increase compared to last year’s budget, or 1.7% of GDP. As per usual, this does not include Rs. 662 billion designated for retired military personnel, which would be drawn from the government’s current expenditure.
Overall, the Army gets 47.5%; Pakistan Air Force 21.3%; Navy 10.8%; and inter-services organizations 20.3% of the allocation.
Punitive measures
The budget proposes several punitive measures to discourage non-filers, including the possibility of barring foreign travel. This is in addition to the previously announced intent to block SIMs of non-filers, as well as cut their electricity and gas connections. It proposes fining Rs. 100 million for any implementing agency that fails to comply with the orders, with the penalty rising by up to Rs. 200 million for every subsequent defiance.
The proposal also calls for sealing businesses of traders and shopkeepers who fail to register under schemes such as Tajir Dost. Offenders also risk up to six months of imprisonment or fines. Advance tax on sales to distributors, dealers, and wholesalers who are non-filers is proposed to increase from 0.2 percent to 2 percent; and for non-filer retailers from 1 percent to 2.5%.