Budget 2018-19: Expenditure up, development down

ISLAMABAD: Amid rumpus and shouting of ‘liar, liar’ by the opposition and later a walkout, the 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.

Interestingly, Miftah took oath as the finance minister hours before presenting the federal budget in the National Assembly. The opposition, especially the PTI and PPP, lambasted the move and termed it ‘snatching ‘Vote Ko Izzat Do’ [give respect to vote].

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.

In this election year, the government has also unveiled Rs800 billion federal Public Sector Development Programme (PSDP), with three-fifth proposed to be spent on infrastructure projects including China-Pakistan Economic Corridor (CPEC).

In this figure, Rs100 billion has been earmarked as blocked allocation which the next government can expend on their behalf on projects what that suggest. It is worth-mentioning that for debt financing [repayment of interest and principal amount] of already amassed Rs23.608 trillion public debt, the government would spend Rs2.22 trillion in fiscal year 2018/19.

Defense expenditures have been earmarked at Rs1,100 billion (Rs1.1 trillion).

The combine of these two major heads of expenditures constitutes the figure of Rs3.3 trillion, indicating that next year both would eat up three-fifth (62.9pc) of the total budget outlay. Besides, for running civil government Rs463.4 billion would be spent.

The government has fixed the GDP growth target of 6.2 percent and contain inflation below 6 percent in 2018/19.

On the revenue side, tax revenues have been estimated at Rs4.888 trillion of which the FBR tax revenues would be Rs4,435 billion (Rs4.435 trillion). In non-tax revenues, the provincial share has been estimated at Rs2.59 trillion.

Interestingly, this government extended the ‘super tax’ [collected from banks and companies for rehabilitation of internally displaced people due to military operations] for the fourth year; however, it announced to reduce it by one percentage point every year and would be abolished in three years.

This tax is charged at 4pc on banks and 3pc on non-banking companies who have income more than half a billion. Petroleum levy has been fixed on petrol, diesel, kerosene, light diesel at Rs30 per liter. It would not only increase the revenue of government but also increase its prices in the local market.

Corporate tax that is currently 30 pc has been reduced to 29 pc for tax year 2019 and every year it would be reduced by one percentage point to 25 pc in tax year 2023.

Currently, tax on undistributed profit that is charged at 7.5pc on accounting profit, if at least 40pc of after-tax profit is not distributed within six months of the end of the year. This tax has been reduced from 7.5pc to 5pc and the condition of distributing 40 pc after–tax profits have been reduced to 20pc.

In order to promote Real Estate Investment Trust (REIT), the rate of tax on dividends issued to the unit holders by REIT has been reduced from 12.5pc to 7.5pc. The tax rate on bank transaction by the non-filers has been reduced from 0.6pc to 0.4pc on a permanent basis.

Threshold of taxable money for payment on services has been increased from existing 10,000 to Rs30,000 and on payment for goods, it has been increased to 75,000 from earlier Rs25,000.

Currently, tax credits are allowed for establishing a new industrial undertaking, purchase of machinery through equity and extension, expansion and BMR of machinery. Now this facility has been extended to June 2021.

To encourage establishment of crude oil refineries having capacity of minimum 0.1 million barrels a day have been exempted from income tax for 10 years. This facility is also allowed for the existing refineries in case where capacity is expanded by installing deep conversion unit capacity of at least 0.1 million capacity.

On import of coal, tax has been reduced to 4pc from 5.5pc on companies and 6pc on individuals. Welfare institutions like Aziz Tabba Foundation, Saylani Welfare International Trust and Al-Shifa Eye Hospital have been exempted from income tax.

For non-filers withholding tax rates on sale of goods has been increased from existing 7pc to 8pc in the case of a company, and from existing 7.75pc to 9pc in non-corporate cases.

In a tricky move, the government had earlier exempted the individual who earning Rs1.2 million a year [mostly salaried class], but now, it has imposed Rs1000 for income between 0.4 million to 0.8 million a year; and Rs2000 on income group earning Rs0.8 million to 1.2 million a year.

Printers and publishers of holy Quran have been exempted from sales tax and custom duty on printing paper. Imported LNG has been exempted from value addition tax, which is currently charged at 3pc. For gas distribution companies, sales tax on import of LNG and supply of RNG has been reduced to 12 pc from existing 17pc.

In agriculture sector, sales tax on fertilizers has been reduced from existing 5pc to 3pc. Sales tax on supply of natural gas to fertilizers plant for use as feed stock has been reduced to 5pc from existing 10pc. Sales tax on LNG imported by fertilizer manufacturers for use as feed stock is also reduced to zero from current rate of 5pc.

Sales tax on fish feed has been removed that was earlier 10pc. Similarly, sales tax is being exempted for preparation of fans and animal feed of dairy farms. GST on agriculture machinery has been reduced to 5pc from 7pc.

In order to promote local computer assembling and manufacturing of laptops and computers, 21 types of computer parts have been exempted from sales tax that are imported by manufacturers.

The government also restored zero-rating for stationary which will help promote local stationary and reduce its prices.

Supply of finished fabric to and by retailers, to end consumers, and other supplies of finished fabric including carpets, leather etc. are subject to sales tax 6pc. Similar rate of 6pc is applicable on import of ready to use articles of textile and leather.

The rate of sales tax of 6pc is retained on the sales for those persons who are integrated with FBR online systems. For others, rate of sales tax is proposed to be applied at 9pc for both supply of these goods and import of finished goods of textile and leather.

Second-hand clothes and shoes have been given exemption of value addition tax which is currently 3pc. To enhance documentation and base of sales tax, further tax is proposed to be increased from existing 2pc to 3pc. This will not only discourage undocumented economy, but it will also result in revenue increase.

Federal excise duty on locally produced cigarettes has been enhanced in respect of Tier-1, TIER-2 and TIER-3 to Rs3964, Rs1770 and Rs848 per thousand cigarettes respectively. Customs Duty of 3pc on import of bulls meant for breeding purposes has been withdrawn.

Customs Duty on import of feeds meant for livestock sector has been reduced from 10pc to 5pc, and fans meat for use in dairy farms has been allowed at concessionary rate of 3pc to the members of the corporate diary association.

In poultry sector, the concessionary rate of Customs Duty on import of growth promoters premix, vitamin premix, Vitamin B12 (Feed grade) and Vitamin H2 (Feed grade) is reduced from 10pc to 5pc for registered manufacturers of poultry feed.

To tackle the problem of physical and mental stunting in children a food fortification program in collaboration with international partners is underway. Under this program, flour mills will mix critical micronutrients e.g. folic acid, vitamin B12, Zinc etc in the flour being produced for sale to the general public.

However, to ensure that the appropriate quantities of such micronutrients are being added to the flour, 3pc Customs Duty on import of the microfeeder equipment is withdrawn. Cancer treatment drugs have exempted from customs duties at import stage. However the sole exemption is exception was Tasigna on which customs duty at 5pc was withdrawn.

On corrective eyesight glasses, custom duty has been reduced to 3pc from current 11pc. To provide incentive to exports an inter-ministerial review has identified certain raw materials, used in export related sectors. It is therefore proposed that the existing rate of Customs duty on raw materials falling under 104 PCT codes are being exempted whereas in respect of 28 PCT code the Customs Duty rates are being reduced.

Customs Duty on Synthetic filament tow of acrylic or modacrylic (PCT 5501.3000) which is currently 11pc is being withdrawn by inclusion in the Prime Minister Export Package. Custom duty on import of tanned hided (including wet blue) by registered leather tanning sector has been withdrawn

Regulatory duty on import of optical fiber cable has been reduced from 20pc to 10pc. In addition, duty on fiber optic cable and other raw material has been reduced to 5pc. Acetic Acid is not locally manufactured and is a widely used raw material in various industries including food sector, so custom duty on Acetic Acid (PCT 2915.2100) has been reduced from 20pc to 16pc.

Customs Duty on import of plasters (PCT 2520.2000) has been reduced from 16pc to 11pc. Carbon Black rubber grade that is main raw material in tyres manufacturing has been reduced from 20 pc to 16pc.

Custom duty on Silicon electrical steel sheets that is importable for manufacture of transformers at concessionary rate of 10% customs duty has been reduced to 5pc.

In order to encourage tourism, customs duty on import of Pre-fabricated structures complete rooms, not locally manufactured has been reduced from 20pc to 11pc for setting up of new hotels / motels in hill stations (including AJK and Gilgit Baltistan), coastal areas of Baluchistan.

Custom duty on charging stations for electric vehicles has been withdrawn which currently 16pc.

Custom duty on import of electric cars is reduced from 50pc to 25pc. These electric cars have also been exempted from regulatory duty of 15pc. Import of CKD kits for assembly of domestically produced electric cars is proposed at 10pc. On specified LED parts and components, five percent custom duty has been withdrawn.

Rate of existing Additional Customs duty has been increased from 1pc to 2pc. Exception is being provided for Plant and machinery, Imports by Privileged Personnel /Organizations, Relief goods, Export Promotion regimes etc.

For Benazir Income Support Programme (BISP) funds has been increased from Rs.121 billion to Rs.124.7 billion. Quarterly stipend per family has been increased from Rs.3,000 to Rs.4,834.