Here is all you want to know about Budget 2018-19

Here is all you want to know about Budget 2018-19

Web Desk
April 28, 2018

Finance Minister, Miftah Ismail, on Friday unveiled the federal budget 2018-19 with an outlay of Rs5,932 billion.

 The opposition termed the budget ‘politically motivated’ to win over the support of voters in the upcoming general election. 

The major focus of the budget is on stimulating the economic growth by doling out billion of rupees for development projects, social safety nets, and agriculture and industrial sectors.

This is a deficit budget targeting fiscal deficit [income-expenditures gap] of 4.9 percent, which is equivalent to Rs1.890 trillion that is 5.5 percent of the GDP for fiscal year 2017/18. This worrisome figure would be funded by domestic sources [banks and non-banks] of Rs1.548 trillion while Rs342 billion would be arranged from external sources. Besides, to get the deficit figure in control, the provinces would throw surplus of Rs285.6 billion, as the government is encouraging them to generate up to 1 percent of GDP and in return get the financial benefit.

Rs1,100 bn allocated for defence

The federal government has proposed Rs1,100 billion allocation for defence budget for the financial year 2018-2019, showing an increase of little over 10 percent from the revised estimates of Rs998 billion for the year 2017-2018 to cater to needs of the armed forces and other defence-related establishments.

 The proposed defence budget is about 26 percent of the total estimated current expenditure of Rs4,178 billion for next fiscal.

The Pakistan Army would get major chunk of Rs523 billion from the defence budget. The major part of it, which is Rs295.5 billion, would go to employees-related expenses and Rs82 billion would be used for operating expenditure.

The Pakistan Air Force would receive Rs233.7 billion against the previous budget’s revised estimates of Rs201 billion with Rs50.7 billion going to employees related expenses, Rs121 billion for physical assets and Rs28.6 billion for operating expenses. The Pakistan Navy’s budget has been kept at Rs119.3 billion against the last budget’s revised estimates of Rs190.3 billion. Out of it, Rs32` billion would be spent on employees and Rs55.3 billion for physical assets. An amount of Rs223.9 has been proposed for defence production establishments, ISOs and accounts organs.

Pakistan’s defence budget, which is around 9.25 billion in terms of US dollars, is nearly seven times less than defence budget of India. The Indian government had announced 63 billion dollars defence budget for the fiscal year 2018-19.

10pc hike in salaries, pensions of civil, military employees

It has  proposed an ad hoc relief of 10 per cent in the salaries and pensions of civil and military employees with effect from July 1, 2018.

Considering the difficulties of low-paid pensioners, the minimum pension is being increased to Rs10,000 from the current Rs6,000. Similarly, the family pension will also be increased to Rs7,500 from Rs4,500 previously. The minimum pension of pensioners above the age of 75 will be Rs15,000. As much as fifty (50) percent increase was proposed in the house rent of government employees.

In the budget estimates for the next fiscal year, the overall allowance of staff car drivers and dispatch riser is being increased from Rs40 per hour to Rs80 per hour.

An allocation of Rs12 billion was proposed for provision of advances to government servants for house building and purchase of transport facility. An amount of Rs5 billion has been allocated for senior officers’ performance allowance, details of which would be announced later.

Miftah said the total financial impact of raise in pay and pension with increase in allowances is about Rs69 billion. “Our government has consistently increased pay and pensions of government employees over the last five years and despite fiscal constraints a further relief is being provided to government servants and pensioners although inflation this year currently stands at 3.8 percent,” he said while counting relief to salaried class.

The total pension bill of the civilian and armed forces is estimated at Rs342 billion for the next fiscal year and in the current budget Rs248 billion has been allocated, while the revised estimates will be Rs333.35 billion.

Miftah said the increase would be apart from the major relief the salaried class would get due to drastic slash in the income tax rates, announced earlier by Prime Minister Shahid Khaqan Abbasi.

Health tax slapped on tobacco, cell phones

 The government has slapped health levy on tobacco and mobile handset through the Finance Bill 2018.

For imposition of health levy on tobacco, the Pakistan Tobacco Board or its contractors, at the time of collecting cess on tobacco, directly or indirectly, shall collect the Health Levy at the rate of ten rupees per kilogram of tobacco from every person purchasing tobacco, including manufacturers of cigarettes.

There shall be a levy on mobile handsets at specified rates. Where import value of handset (including duties and taxes) does not exceed Rs10,000, there will be zero tax. Where import value of handset (including duties and taxes) exceeds Rs10,000 but does not exceed Rs40,000, the levy will be Rs1,000.

Where import value of handset (including duties and taxes) exceeds Rs40,000 but does not exceed Rs80,000, the fixed levy will be charged at Rs3,000. Where import value of handset (including duties and taxes) exceeds Rs80,000, the fixed levy will be charged at Rs5,000.

Rs2.22tr to go into debt servicing

 Owing to already amassed huge public debt over the last several years, Pakistan will spend around Rs2.22 trillion on interest payments to the holders of national debt and retiring its principal amount during the financial year 2018/19, leaving less funds for economic and social development and children’s health and education.

The borrowing, which has been made over the last several years, is almost beyond the ability of this poor country to pay. This debt financing will be the major chunk of our country’s total budget outlay, as already the ballooning public debt has almost paralysed the economy, where more than half of the population is living below the poverty line.

It is the top category in Pakistan’s budgeted expenditures in FY2018/19, about more than two-fifth (or 42.3 percent) of the federal budget 2018/19 having total outlay of Rs5.246 trillion announced by Miftah Ismail, Federal Minister for Finance, Revenue and Economic Affairs, in the lower house of the parliament.

Prime Minister Shahid Khaqan Abbasi approving Budgetary and Taxation Proposals for FY-2018-19 after meeting the federal cabinet

After recklessly piling up trillions of rupees public debt on the nation without sensing its negative fallouts, it will now face the brunt. Allocation for public debt servicing is far more than planned expenditures.

During the budget year 2018-19, on foreign debt servicing (interest payment), the country will spend Rs229.2 billion, while on foreign loan repayment (or principal amount) Rs601.75 billion will be spent. On the domestic debt servicing, the economy will consume Rs1.620 trillion.

During the outgoing fiscal 2017/18, revised estimates, on public debt servicing (paying interest and principal amount), the government has spent huge amount of 1.954 trillion rupees against the budgeted Rs1.649 trillion in the last budget 2017/18.

Economists believe that worse is to come, as paying this huge amount is impossible without more loans, sharp austerity or running down the country's already depleted reserves. This allocated amount for debt servicing is even more than expenditures on health and education sector.

They believe that pressure on foreign exchange reserves will mount with huge debt service requirement in the coming months. Deteriorating trade balance and high budget deficit may be the most serious risk in the months ahead.

The public debt of an economy increases when it unable to meet its expenditures through own resources (tax and others) and to bridge the gap (that is called fiscal deficit), it borrows more from local and foreign lenders.

No tax on annual income up to Rs400,000

The government has reversed reduction in tax rates announced by Prime Minister Shahid Khaqan Abbasi and introduced fixed tax of slabs exceeding annual income of Rs400,000.

According to income tax rates for individuals introduced through Finance Bill 2018, where the taxable income does not exceed Rs4, 00,000, there will be zero tax. Where the taxable income exceeds Rs4,00,000 but does not exceed Rs8, 00,000, there will be fixed tax rate of Rs1000. Where the taxable income exceeds Rs8,00,000 but does not exceed Rs12,00,000, there will fixed tax rate of Rs2000.

Where the taxable income exceeds Rs12,00,000 but does not exceed Rs24,00,000, there will be tax rate of 5 percent of the amount exceeding Rs12,00,000. Where the taxable income exceeds Rs24,00,000 but does not exceed Rs48,00,000, there will be fixed Rs60,000 + 10% of the amount exceeding Rs24,00,000. Where the taxable income exceeds Rs48,00,000, there will be fixed tax rate of Rs300,000 + 15% of the amount exceeding Rs48,00,000.

Rs25 bn allocated for health sector under PSDP

For completion of 20 ongoing and 37 new projects in health sector under the Public Sector Development Programme (PSDP), the federal government has proposed an allocation of Rs25.034 billion for the fiscal year 2018-19, which is significantly lesser as compared to the last year’s allocation.

The federal government has not proposed anything worth mentioning for medical products, appliances and equipment for public sector healthcare facilities. Under the head of Health Affairs and Services, a total allocation of Rs13.897 billion has been made in the budget estimates of 2018-19, which is higher by 8.2 percent and 7.4 percent when compared with the budget and revised estimates of 2017-18.

The allocation for Hospital Services forms the major component, which is 83.9 percent, amounting to Rs11.657 billion, while Rs31 million has been proposed for medical products, appliances and equipment.

“I am ashamed to tell you that 30 percent of my Pakistani children are stunted due to malnutrition and inadequate food. I am today allocating on the instructions of the prime minister at least Rs10 billion for a programme that will end child stunting,” said the Adviser on Economic Affairs Miftah Ismail.

During the speech, Miftah Ismail claimed that their government introduced large-scale reforms in the health sector and it is the government’s top priority to provide quality health services to the people. However, the federal government this year too did not propose any investment in the federal budget announced for 2018-19 for bringing technology in the country so that the import of pharmaceutical raw materials should not be needed in future.

Miftah Ismail, however, spoke about a technology involving mobile phone app with the help of which teachers can look into students’ eyes and detect many diseases. “The programme will be started with the poorer districts of Pakistan and will be spread to all public schools in a few years,” he said.

To provide relief for cancer treatment in Pakistan, the government has exempted drugs from customs duties at import stage. However, the sole exception was Tasigna on which customs duty at the rate of 5 percent is proposed to be withdrawn, said Miftah while talking of relief for the health sector.

It is important to note that in 2008-09, as many as 18 life-saving drugs used for treatment of cancer were exempted from duty while medical equipment, apparatus, reagents and disposables were exempted from sales tax.

According to health experts, the federal government did not propose any significant investment in long-term healthcare policies to accommodate patients visiting public sector healthcare facilities.

Dairy, agriculture get major tax cuts

The government has proposed in the budget for 2018-19 a number of tax cut measures, expected to provide relief to the common man, including reduction in duty on agriculture and dairy items.

In his budget speech, Federal Minister Miftah Ismail announced reduction in rate of sales tax to 3 percent across the board on all fertilizers to promote agriculture growth. It is also proposed that the rate of sales tax on supply of natural gas to fertilizer plants for use as feed stock, presently, chargeable @10 percent, may be reduced to 5 percent cater for cash flow issues of fertilizer manufacturers in view of reduction in rate of sales tax on fertilizers.

Rs2.6 billion allocated for NAB

The government has allocated Rs2.6 billion for the National Accountability Bureau (NAB) in the new proposals for the fiscal year 2018-19.

In the current fiscal year, the allocations of Rs2.4 billion were made while the revised estimates of 2017-18 were 2.5 billion. Out of total allocations of Rs2.6 billion of the NAB, Rs812 million allocated for the NAB Islamabad Headquarter, Rs33.80 million for the NAB Rawalpindi, Rs379.179 million for NAB Lahore, Rs127.44 million for NAB Multan, Rs263.424 million for NAB Khyber Pakhtunkhwa, Rs377 million for NAB Karachi, Rs134.605 million for NAB Sukkur and Rs205.655 million for NAB Quetta. The allocations of Rs1.46 billion reserved for employees related expenses and Rs1.04 billion for operational expenses.

Rs85.175m set for monitoring TVs

Up-gradation of monitoring system up to 250 television channels and media development and implementation of the Code of Conduct are part of the Ministry of Information and Broadcasting’s schemes for the next financial year.

Against the estimated cost of Rs196.728 million for the up-gradation of TV monitoring system, Rs85.175 million have been proposed for the next fiscal under the Public Sector Development Programme (PSDP). Rs15 million has been proposed for the media development and implementation of the Code of Conduct while the estimated cost is Rs30 million. Both these are un-approved schemes.

Provinces to get Rs2.59 trillion from federal revenue

Provinces will get Rs2.59 trillion in the fiscal year 2018-19 from their share in the federal revenue and straight transfers, reflecting 11.8 percent increase over revised budgetary estimates of Rs2.23 trillion

Budget for PM House, Presidency up by 17, 15 pc

Prime Minister House budget was increased almost 16.71 percent while Presidency budget was increased 15.12 percent.

For the President House, the total allocations of Rs1.03 billion (Rs1,036,000,000) for the next fiscal year of 2018-19 that shows the increase of Rs76.307 million against the previous year. Surprisingly last year, the President spent Rs2.22 billion on foreign tours (though he hardly went out of the country once or twice) while this year Rs2.54 billion has been allocated for foreign tours of the President. Total allocation for the President House would be Rs259.81 million for the year 2018-19. According to this budget, Presidency would spend Rs9.80 million daily from the tax payer money.

Out of the total allocations of Rs1.03 billion for Presidency, Rs708.98 million in the head of President Employees Related Expenses and Rs229.48 million for Staff and household of the President.

While for the Prime Minister Office, Rs986 million (Rs986,000,000) for the fiscal year of 2018-19 has been allocated. Interesting aspect of the budget is that for the foreign tours of PM during the coming fiscal year of 2018-19, an allocation of Rs1.89 billion will be made. Rs70. million will be given to Prime Minister Inspection Commission. In total, daily expense of Prime Minister Office, household and foreign tours would be Rs3360.64 million daily for the coming next financial year.

However, foreign tours allocation for President and PM made in the Foreign Office head are showing in the budget for the Presidency and Prime Minister Secretariat. The amount of Rs2.54 billion was allocated for the President’s foreign tour for the fiscal year while PM foreign tours allocation was made for 1.89 billion.

Rs18.2 bn spent on Pak-Afghan border fencing

The federal government has spent Rs18.2 billion on fencing of Pakistan-Afghan border to stop cross border movement of terrorists during the outgoing fiscal year, budget document revealed.

The government had also spent an additional amount of Rs10 billion on raising a special security division (SSD) for the protection of China-Pakistan Economic Corridor (CPEC) during the on-going financial year, the document revealed.

Pakistan had launched a massive effort to fence over 2,000 km Pak-Afghan border and the first phase of the project is likely to be completed by the end of 2018, which will see the fencing of 432km at the most critical points along the border. The fencing is aimed at stopping infiltration of Afghan militants into Pakistan who were found involved in major terrorist attacks inside Pakistan.

Govt spent Rs217m on 21-day Faizabad sit-in

The Faizabad sit-in staged by the Tehreek-e-Labaik Pakistan and other protests on Khatam-e-Nabuwat issue caused an extra expense of at least Rs217 million on national exchequer.

According to budget document, the federal government spent an amount of Rs127 million on law enforcement agencies during the Jamaat-e-Islami protest and Long March of Khatam-e-Nabuwat while an additional Rs90 million was spent on Rapid Response Force (RRF) of Pakistan Rangers (Punjab) deployed at Islamabad on the request of ICT administration.

The 21-day-long sit-in by religious protesters at Islamabad’s Faizabad Interchange finally came to an end on November 27 when the Law Minister Zahid Hamid resigned following an agreement between Tehreek-e-Labbaik and the government. The protesters disrupted life in twin cities and caused massive economic losses in addition to loss of several lives.

Rs130 bn additional levy on POL products

 In a major revenue measure in the budget, the government has slapped additional petroleum levy of Rs130 billion through the Finance Bill 2018 by slapping a fixed rate of Rs30 per liter on different petroleum products.

The budget document 2018-19 showed that the government estimated to collect Rs300 billion with the help of petroleum levy in the next fiscal year against revised estimates of Rs170 billion so the net addition of Rs130 billion will be collected. On the eve of the last budget for 2017-18, thegovernment had estimated to collect Rs160 billion from the petroleum levy.

The Finance Bill 2018 reads out that on High Speed Diesel the government slapped Rs30 per liter petroleum levy, Motor Gasoline Rs30 per liter, Superior Kerosene Oil Rs30 per liter, Light Diesel Oil at Rs30 per liter, High Octane Blending Component at Rs30 per liter and E-10 Gasoline at rate of Rs30 per liter. The government has imposed Rs20,000 per metric ton levy on Liquefied Petroleum Gas (produced/extracted in Pakistan) through Finance Bill 2018.