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June 12, 2019

Budget to test economy, patience

Top Story

June 12, 2019

ISLAMABAD: The PTI-led government on Tuesday presented its maiden budget, freezing spending and slapping new levies to sharply increase tax revenues to repair the ailing economy amid noisy protests from opposition parties in Parliament angry at steps set under pressure for an IMF loan agreement.

The government presented the budget with total outlay of Rs7.036 trillion, having more than one-third more taxes over the outgoing fiscal’s revised tax collections, which analysts said are to further burden the existing taxpayers.

The opposition called it a budget of the International Monetary Fund (IMF) with the government soon to be entering into the Fund’s $6 billion bailout loan program.

Lawmakers from the opposition parties raised slogans against the budget, calling it anti-poor. They tore off the budget copies amid ruckus. The ruling party however argued that the budget is people friendly.

The Washington-based lender advised various revenue collection and austerity measures aimed at improving fiscal management and revenue mobilisation through more taxation which would also hit hard the business community.

Experts said the budget would contract the already troubled economy, resulting in jobs loss, muted demand, and higher inflation, which would ultimately take a toll on the masses who are struggling to make both ends meet.

The government however announced adhoc relief allowance of 10 percent on running basic pay for civil government employees in BPS grade 1 to 16, and employees of armed forces. Civil employees of BPS 17 to 20 will be given adhoc relief allowance of five percent, while civil employees in BPS 21 and 22 will receive no increase in pay.

Increase in pension at 10 percent will be given to all civil and armed forces pensioners of the federal government. Special conveyance allowance for disabled employees will be enhanced to Rs2,000/month from Rs1,000/month.

Special pay admissible toassistants, secretaries to ministers, ministers of state, parliamentary secretaries, additional secretaries, and joint secretaries will be enhanced by 25 percent. Minimum wage is increased to Rs17,500/month.

Aimed at reducing cost of medicines for public, 19 items of raw materials and essential items of medicinal use are to be exempted from three percent import duties. Though the agriculture sector showed a grim performance in the outgoing fiscal year, the government put focus on it. Yet, the industrial sector has been ignored and even various taxes have been slapped on it.

The government announced to launch five years plan worth Rs280 billion for uplift of agriculture sector in consultation with the provinces. Of this, Rs218 billion would be spent for improvement of water productivity through building water infrastructure, including small water conservation projects. Rs44.8 billion will be spent on increasing yield of wheat, rice, sugarcane and cotton, while Rs9.3 billion would be spent for harnessing untapped potential in fisheries through shrimp farming and cold water trout farming. Electricity would be provided at subsidised rate of Rs6.85/unit for agriculture tube wells.

The government allocated Rs40 billion in electricity and gas subsidy for industrial sector, aimed at creating jobs, and another Rs40 billion for export development package. Minister of State for Revenue Hammad Azhar said the government would continue to provide long-term trade financing to exports sector.

The minister said two liquefied natural gas (LNG) power plants are being privatised for expected proceeds of $2 billion and other smaller entities. “Foreign investors have been approached for a joint-venture in the Pakistan Steel Mills and renewal of telecom licences for mobile sector in excess of $1 billion.”

The government would rationalise tariffs to boost exports and domestic manufacturing. Duties on more than 1,600 tariff lines, including raw materials, are exempted. It would cause revenue loss of around Rs20 billion, but lead to much higher gains in form of industrial growth. Basic raw materials for paper production – wood pulp and paper scrap – might be exempted from customs duty and duty on different types of paper might be reduced to 16 percent from 20 percent. The government froze tax rates for companies at 29 percent for the next two years.

A 5 percent customs duty on the import of liquefied natural gas was proposed since LNG replaced furnace oil which was subject to seven percent customs duty.

Food related inputs such as meat, vegetables and flours are difficult to document and resultantly require increased cost of enforcement. Therefore, sales tax rate is to cur from 17 percent to 7.5 percent against which input tax adjustment will not be allowed to encourage compliance at a minimal cost of enforcement for the tax authorities.

Defence expenditure is the second biggest head after debt servicing, for which Rs1.152 trillion was earmarked against the revised estimate of Rs1.138 trillion in outgoing fiscal.

The government allocated Rs70 billion for building dams and drainage projects. For Diamer-Bhasha dam, Rs20 billion has been earmarked for land acquisition, while for Mohmand Dam hydropower project would get Rs15 billion for its ongoing construction, while Rs55 billion is allocated for Dasu hydropower project. The government allocated Rs200 billion for road network projects, which are also part of CPEC of which Rs156 billion is through the National Highways Authority, including Rs24 billion for Havelian-Thakot road, Rs13 billion for Burhan-Hakla motorway and Rs19 billion for Sukkur-Multan section of Peshawar-Karachi motorway.

The federal government allocated Rs152 billion for development of districts that were previously part of the federally administered tribal areas. This includes a 10-year development package in which the federal government would allocate Rs48 billion. The 10-year package is part of Rs1 trillion to be provided by both federal and provincial governments. After the merger of FATA and provincially-administered tribal area exemptions were extended for five years in respect of supplies to promote economic activity. It was proposed to extend exemption to tax on import of industrial raw materials and plant and machinery.

Tax is Rs1.25 per unit of electricity for marble industry. It was proposed to introduce normal regime in the sector. Federal excise duty on cement has been increased from 1.5 per kg to Rs2/kg.

The previous government imposed a restriction on registration or transfers of property exceeding five million rupees by non-filers. The restriction on purchase of property has not achieved the desired goal of increasing filers and rather such restriction has been challenged in courts of law. Therefore, restrictions on purchase of property might be withdrawn.