Budget: 2022-23: Axe falls on development expenditure

ByAsrar Raouf

Former Civil Servent


June 11, 2022

Budget: 2022-23

Asrar Raouf looks at a tricky budget

Pakistani economy Budget: 2022-23 is in the grip of the plethora of loans and this situation has become almost untenable causing existential risk to the country itself. The precarious financial position of the country is amply reflected in the budgetary measures proposed this year. The tight financial position has compelled the government to slash development expenditure and this tendency has become almost a usual factor in governmental fiscal and monetary planning. The restraints imposed upon the financial wherewithal of the state appear to be overwhelming pushing to bring about structural changes in the economic sphere of the country with IMF breathing down the neck of Pakistani financial managers to carry them out without further delay impervious to the financial agony the people of Pakistan will experience in the process.

The budget proposals unveiled by the coalition government reveal that while preparing a Rs.9.5 trillion budget the financial managers have kept in front a highly optimistic target of just 4 per cent increase in expenses along with exhibiting excessively optimistic expectation increasing the collection of revenue by more than one-fourth of the current collection. Needless to say that both these targets are quite unachievable though it appears that targets are fixed under the instructions of the IMF. However, in terms of figures the budget outlay this year is Rs.9,502 billion that is almost a trillion rupees higher than last year’s outlay. As far as expenditure is concerned the financial planners have budgeted total current expenditure at Rs.8,694 billion that is 15.5 per cent higher than last year’s budgeted figure.

The main drain on federal finances is debt services that have registered a high incremental increase and now stand at 45.4 per cent registering a very high level of increase from last year when they accounted for 29.1 per cent and now this head requires Rs.3,950 billion clearly making it as the single largest expenditure of the government. The other high level state expenditure is in respect of defence expenditure that is budgeted at Rs.1,523 billion making up 17.5 per cent of total current expenditure and is 11.16 per cent higher than last year. Both these heads of expenditure actually constitute account for almost 63 per cent of the total financial liabilities of the state exchequer making it extremely hard to make ends meet.

On the revenue side, it is pointed out that the total revenue budgeted stands at Rs.9,004 billion and after subtracting provincial transfer of Rs.4,100 billion as part of the NFC Award, the net revenue comes out at Rs.4,904 billion that is rated to be 9 per cent higher than last year. In this respect the government, on behest of the IMF, has set the tax collection target for the FBR at Rs.7,004 billion which was 20.1pc higher than last year’s target of Rs.5,829 billion. The revenue collection has left a budget deficit that is budgeted at Rs.3,798 billion that is registered at 4.9 per cent that happened to have come down from the previous year high of 6.3 per cent of the GDP. This reduction is mainly attributed to the intense pressure applied by the IMF that finally goaded the Pakistani financial managers to push the budget deficit down.

The main casualty of the lack of resources is gross reduction in the vital Public Sector Development Programme (PSDP) and expenditure in this respect has been budgeted at Rs.2,158 billion that has registered just 1 per cent increase from Rs.2,135 billion last year. Under this head of expenditure the federal PSDP makes up Rs.727 billion that has gone down 19.2 per cent from last year’s budgeted that amounted to Rs.900 billion. In addition, provincial PSDP has been allocated at Rs.1,432 billion registering an increase of 16 per cent from last year’s budget of Rs.1,235 billion. There is a consistent reduction in amounts allocated in respective budgets for development works that indirectly deprives people of the facilities that are considered normal amenities of living provided by most states.

The rationale behind the growth of economy is also mentioned in the budgetary proposals as it was pointed out that the problem of Pakistani economy is that growth is 3-4 per cent but when it moves up to 5-6 per cent, the current account deficit of the country goes out of control, because in the process the most benefit goes to the elite class that increases country’s imports. It is therefore mentioned that what is required is to adopt new thinking aiming at facilitating the lower-income section to increase domestic production. Amidst these constraints, the coalition government has set the growth rate at five per cent and it is trying to bring in measures that may provide sustainable growth. This policy has given rise to high levels of inflation making the common man to grapple with the hard economic conditions. The coalition government has resolved to bring down the inflation rate to 11.5 per cent bringing it down from its current high level of more than 13 per cent.

The new budget has proposed many measures and the first is related to providing tax relief to people earning salaries up to Rs.100,000 per month. It must be kept in view that the previously minimum taxable salary was Rs.50,000 per month. Moreover, minimum tax bracket for small business persons is raised from Rs.0.4 million to Rs.0.6 million. People earning an annual income of Rs.300 million or more per year are proposed to pay 2 per cent extra tax and 2 per cent tax on the value of high-value hybrid and electric vehicles is also levied. Advance withholding tax will be collected from those sending remittances abroad via credit, debit and pre-paid cards. Advance tax will be increased on cars above 1,600cc and exemption will be granted for complete custom duty on pharmaceutical ingredients. To encourage solar energy, sales tax on import of solar panels and distribution is also exempted. To help the hard-pressed government employees, 15 per cent increase has been approved in their salaries.

It is often pointed out that the wealth of the majority of rich people is parked in real estate. In order to make them cough-up money the government has announced that all people who have more than one immovable property in Pakistan with a value of over Rs.25 million would be deemed to have received a rent amounting to 5 per cent of that immovable property’s fair market value. They would have to pay 1 per cent in tax on this deemed rental income. However, one house of every person would be excluded from this tax. The government has also proposed the imposition of a 15 per cent tax on capital gains on immovable properties if the holding period was a year or less. The tax would be reduced by 2.5 per cent every subsequent year, eventually going down to zero once the holding period reaching six years.

The advance tax rate on the purchase and sale of property for filers is proposed to be enhanced to 2 per cent from the current 1 per cent while it would be 5 per cent for non-filers. Under the budgetary proposal, the government said that any citizen of the country who is not a tax resident of any other country would be treated as a tax resident of Pakistan. It said that the criterion for a resident person in connection to taxation was being modified as the current regime was being misused by wealthy individuals. The budget is an effort to tread the middle ground and is quite delicately balanced though it is feared that it has amply left open the possibility of many supplementary budgets to meet IMF conditionalities. TW

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