PTI unveils Rs7tr budget amid opposition ruckus

ISLAMABAD: The Pakistan Tehreek-e-Insaf (PTI) government presented its first austerity-aimed budget, with a Rs7.022 trillion total outlay for the fiscal year 2019-20 on Tuesday, where it vowed to collect more taxes and make cuts in spending weeks after reaching a deal with the IMF for a $6 billion bailout.

Before a rowdy National Assembly session, the government announced plans to slash civil expenditure while promising to substantially raise revenues to stem a yawning fiscal deficit, as it pledged to collect 5.5 trillion rupees in taxes.

“We have slashed the civil budget by five per cent while the military budget will remain the same,” said Hammad Azhar, Minister of State for Revenue, as he announced the details of the plan.

“The financial year 2019-2020 will be a year for economic stability. We will make some tough decisions and will try to save the poor public from the effects of those tough decisions,” he added. Azhar went on to highlight a range of new taxes and increases in existing levies in the new budget, saying raising revenues was pivotal to stabilising the country’s economy. “As long as we do not improve our tax system Pakistan cannot prosper,” said Azhar.

The budget of 2019-20 is 30 per cent more than the revised budget of Rs5.385 trillion for the current fiscal year (2018-19). The minister said total federal revenues have been estimated at Rs6.717 trillion which is 19 per cent higher than the previous year’s revenues of Rs5.661 trillion.

The collection of revenues by Federal Board of Revenue (FBR), he said, are estimated to be at Rs5.555 trillion which are 12.6 per cent of Gross Domestic Product (GDP). The minister of state said out of total revenue collections, an amount of Rs3.255 trillion would be distributed among the provinces under 7th National Finance Commission (NFC) Award which is 32 per cent higher than the current year’s share of Rs2.465 trillion.

He said net federal revenues for the upcoming fiscal year have been estimated at Rs3.46 trillion against revenues of Rs3.07 trillion during current fiscal year, which is 13 per cent higher. Similarly, he said, the federal budget deficit would be Rs3.56 trillion whereas the provincial budget surplus is estimated to be at Rs423 billion for the year 2019-20.

“The government had to take actions to control the situation,” he said as opposition MPs continued to chant noisily, nearly drowning out his voice. Prime Minister Imran Khan and other members of the PTI could be seen shifting uncomfortably in their seats, though they maintained their smiles.

“We confronted the immediate threats and took measures to stabilise the economy,” Azhar added. He then listed the PTI government’s achievements over the past 10 months and how they managed a fragile economy they inherited.

“The overriding goal of the government in this budget, of course, is the welfare and prosperity of the people of Pakistan,” he said. The budget aims at managing the external deficit — by reducing imports and aiming for higher exports.

“We want to bring current account deficit from $13 billion estimated this year to $6.5 billion in 2019-20. To increase exports, the government will support duty structure on raw materials and intermediate goods, improve mechanism for tax refunds; provide electricity and gas at competitive cost; redo the free trade agreements and make Pakistan part of the global value chain.”

To reduce the fiscal deficit, a “challenging target” of Rs5,555 billion (5.5 trillion) FBR revenue collection will be combined with aggressive expenditure controls to reduce primary deficit to 0.6 per cent of the GDP. “Both the civil government and military have announced unprecedented reduction in expenditures,” he added.

Pakistan has one of the lowest tax-to-GDP ratios at below 11 per cent — which is lower than others in the region. “Only 2 million people file income tax returns — of which 600,000 are employees,” he lamented. “Only 380 companies alone account for more than 80 per cent of the total tax. Many rich [people] do not to contribute to our taxes,” he said. “This has to change in Naya Pakistan.”

He said austerity shall be put in place in the regular civil and defence budgets. As a result, the running of civil government which was Rs460 billion this year, is being budgeted at Rs437 billion for the coming year, a decrease of 5 per cent.

The defence budget is being maintained at the last year level of Rs1,150 billion. “In taking these difficult decisions on austerity, I want to appreciate the wisdom of the Prime Minister and the support of armed forces leadership in particular the Army chief [Gen Qamar Javed Bajwa].”

He added: “Let me be clear on one point the sovereignty and defence of Pakistan is paramount. All other considerations are secondary to that of national dignity and honour. We will ensure that the capacity of our armed forces to defend our country and our people is never compromised.”

In the measures proposed for 2019-20 budget, the government’s borrowing from the State Bank is inflationary, therefore the government will no longer use this facility with effect from July 1, 2019. “Our medium-term inflation target will be in the range of 5-7 per cent. In addition, we will continue to focus on good governance and remain committed to fighting corruption. We will assign autonomy to our institutions, strengthen their capacity and choose their leadership on merit.”

He said the year 2019-20 shall continue to be the period of stabilisation. “This is a difficult transition that we want to achieve within a minimum amount of time. We will try to minimise the adverse effects of any difficult decisions on our citizens.”

In the development budget that can spur economic growth, connectivity and job creation, this year the combined allocation of national programmes is Rs1,863 billion. Out of this the federal PSDP is Rs951 billion which will be increased from Rs500 billion.

Policy priorities are water management, building a knowledge economy, fixing electricity transmission and distribution, low-cost hydel power generation, China-Pakistan Economic Corridor, investing in human and social development and “public-private partnership” in eligible sectors such as highways. The PTI proposes to better utilise water resources. The PSDP’s focus therefore would be on building dams and drainage projects with an allocation of Rs70 billion. Diamer-Bhasha Dam shall be allocated Rs20 billion for land acquisition, while Mohmand Dam will get Rs15 billion for its ongoing construction.

For human development and knowledge economy, the PTI proposes Rs58 billion in its budget. Health, education, attainment of development goals, and climate change are some of the key areas. For higher education a “record” Rs43 billion is proposed.

While the agriculture sector is administratively under the domain of the provinces, the federal government is investing “a record Rs12 billion for multiple projects”. The government has also announced second phase of “Quetta development package” for Rs10.4 billion. This is in addition to Rs30 billion of water and road sector projects that the federal government is financing.

For Karachi, a development package of Rs45.5 billion is being undertaken. To improve agriculture sector, an important five-year programme worth Rs280 billion for uplift of agriculture sector is being launched in consultation with the provinces.

Details include improvement of water productivity through building water infrastructure including small water conservation projects Rs218 billion worth of projects will be implemented. Increase in yields of wheat, rice, sugarcane, cotton Rs44.8 billion shall be provided for this purpose.

He also said over the next 18months, measures will be taken with the aim to reduce the circular debt to zero. On the merged districts in Khyber Pakhtunkhwa, the federal government will allocate Rs152 billion for development of districts that were previously part of FATA. This includes a 10-year development package in which the federal government shall allocate Rs48 billion this year.

This 10-year package is part of Rs1 trillion to be provided by both federal and provincial governments. The minister said for federal government employees and pensioners, an “Ad-hoc Relief Allowance” at 10 per cent on running basic pay of BPS 2017 to civil government employees in BPS grade 1 to 16, and employees of armed forces.

Civil employees BPS 17-20 will be given ad-hoc Relief Allowance at 5 per cent. Civil employees in BPS 21 and 22 will receive no increase in pay as they have decided to sacrifice for the sake of improvement in economic situation of the country.

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

Special pay admissible to ministers, ministers of state, parliamentary secretaries, additional secretaries, and joint secretaries will be enhanced by 25 per cent. In addition to the above, minimum wage is being increased to Rs17,500 per month.

Azhar then presented the budget estimates. The outlay of the federal budget for FY 2019-20 is proposed to be Rs7,022 billion, which is 30 per cent higher than the revised outlay of Rs5,385 billion for the outgoingfinancial year.

The gross federal revenues have been estimated at Rs6,717 billion during FY 2019-20 as compared to Rs5,661 billion budgeted for financial year 2019-20, reflecting an increase

of 19 per cent.

FBR is expected to generate Rs5,555 billion, reflecting an FBR tax-to-GDP ratio of 12.6 per cent. Out of federal revenue collections, a sum of Rs3,255 billion will be transferred to the provinces under the 7th NFC Award as compared to Rs2,465 billion during the current financial year, which means an increase of over 32 per cent.

The net federal revenues are estimated at Rs3,462 billion during 2019-20 in comparison to the Rs3,070 billion budgeted in the current year, which indicates an increase of 13 per cent. This is expected to produce a federal budget deficit of Rs3,560 billion.

Provincial surplus is estimated at Rs423 billion during financial year 2019-20.The consolidated fiscal deficit is estimated at Rs3,137 billion or 7.1 per cent of the GDP as against 7.2 per cent of the GDP in financial year 2018-19.

Afterwards, the minister presented the tax proposals. The government believes customs tariffs rationalisation is a key requirement to boost exports and domestic manufacturing.

For this purpose, duty on more than 1,600 tariff lines, being raw materials and intermediaries in principle, is being exempted in this budget. This measure will cause a revenue loss of around Rs20 billion but much higher gains are expected in return from industrial growth.

The government is finalising a customs tariff reforms plan which will be implemented in phased manner. It also wants to support the textile sector with exemption of duty on various accessories and parts of textile machinery.

Basic raw material for paper production — wood pulp and paper scrap — may be exempted from customs duty and duty on different types of paper may be reduced from 20 per cent to 16 per cent. “This will reduce prices of paper and books in the country and encourage

printing industry.”

Decrease in duty from 11 per cent to 5 per cent on steel strip for razor exporters is also being proposed. It is proposed that duty structure on tyres, varnishes and food preparations for food industry may be rationalised to discourage their shifting to smuggling and realise the lost revenues on this account.

“The government has to take some tough decisions to meet its expenditures,” he said. Realising the fact that any increase in duty and taxes at import stage is passed on to the consumer, effort has been made to keep revenue measures from import stage at a bare minimum.

It is being proposed that the rate of additional customs duty may be enhanced from existing rate of 2 per cent to 4 per cent and 7 per cent on tariff slabs of 16 per cent and 20 per cent, respectively, which in principle, are finished products, including luxury items. Presently, LNG is exempted from customs duty.

“Since LNG has replaced Furnace oil which was subjected to 7 per cent customs duty, it is being proposed to levy 5 per cent customs duty on the import of LNG.”

On sales tax, “in the interest of poor people at large the government has not adopted the easier option of collecting revenue by increasing the general sales tax rate of 17 per cent.”