Daily Times

The federal government of Pakistan presented a federal budget of Rs14.460 trillion for the fiscal year 2023-24 on 09 June 2023, with the GDP target set at 3.5% and the fiscal deficit targeted at 6.54% of the GDP. The government has set itself a target of collecting Rs12, 163 billion in gross revenue receipts, out of which Rs 9,200 billion were proposed to be collected from taxation measures. This proposed tax target represents an increase of 27.78% against the corresponding figure of Rs 7,200 billion for the fiscal year 2022-23.

However, the initial budget, presented on June 9, was significantly changed after the original budget had been completely debated upon in the parliament this is the first time that the parliament passed a budget that it had not discussed, and significant adjustments were announced after the parliamentary debate was over.

Now, the size of the budget is partially adjusted upward by Rs20 billion. Subsequently, it will require recovering at least Rs2.215 trillion extra from the economy — and put total spending at Rs14.480 trillion. Thus, the revenue collection target of the Federal Board of Revenue (FBR) has been raised from Rs 9,200 billion to Rs 9,415 billion for 2023-24.

The budget came in the backdrop of a global economy that is still reeling under the shocks of COVID-19 and the simmering Russia-Ukraine war which have collectively exacerbated the supply-chain bottlenecks and global commodity inflation super-cycle. While global economic development is hindered, inflation is on the rise. The invasion has disrupted supply routes for crude oil, natural gas, and wheat, leading to a rapid increase in fuel and food prices. This has exerted immense pressure on import-oriented and developing economies like Pakistan where it has become extremely difficult for the governments to curtail inflationary pressure and at the same time preserve growth patterns for ever expanding population. The IMF has forecasted global growth at 2.8% in 2023 and expects to see a modest recovery to 3% next fiscal year. It further foresees global growth to remain around 3% in the next five years. This baseline forecast of 03% until 2028 makes it the lowest medium-term growth projection since 1990 and is quite below the average of 3.8% from the two previous decades.

Pakistan, an emerging market economy in the Asia Pacific region, faces unique challenges in addition to those experienced by other developing nations. The country’s geopolitical situation, challenging financial environment, and high import-led inflationary pressures have significantly affected its growth prospects for the upcoming fiscal year. Furthermore, devastating floods and deep-rooted political unrest have further worsened the economic situation.

In FY2022, Pakistan’s economy had posited a high growth of 6.1%; however, it was largely unsustainable as it was driven by import-fed domestic demand, which was stimulated by expansionary fiscal policy which ended up with a high fiscal and current account deficit. In FY2023, Pakistan’s real GDP growth rate remained at 0.29% against the budgetary growth target of 5%. This slowdown was mainly due to multiple factors such as devastating floods, policy tightening, and necessary measures taken to address fiscal and external imbalances. Now, for FY2024, the government has set an ambitious revenue target out of which Rs. 9,415 billion is to be collected from taxation measures. However, given the pressures from an uncertain global financial situation, contraction in large-scale manufacturing and rapidly eroding the purchasing power of people, there are concerns that this revenue target might be ambitious.

This year the federal budget has been presented by the government in perhaps the most testing times. The economic situation is far from normal and making a budget for any government would have been an uphill task. Nevertheless, the government has fixed itself some high targets at a time when the growth of the economy is extremely low. Looking at the finance bill 2023 in which new measures have been proposed in the budget for achieving the target of Rs9,415 billion following major amendments proposed in the income tax law emerged.

The economic situation is far from normal and making a budget for any government would have been an uphill task.

(a.) Through Finance Act 2022, the government introduced the concept of super tax on high-earning persons to be paid at the time of filing of he tax return. Slab-wise rates were prescribed for the tax year 2022 with a maximum rate of 4%. About certain specified sectors, an enhanced rate of 10% was prescribed for the tax year 2022 only and for banking companies, a 10% super tax was to be applicable for the tax year 2023. The Finance Bill 2023 has proposed to introduce new slab rates for super tax for taxpayers having income in excess of Rs 300 million. As a result, the highest slab rate of 10% will be applicable to taxpayers from all sectors having income over Rs 500 million, thus, eliminating the discrimination

A 10% final tax has been re-introduced in this budget on the issuance of bonus shares by the companies. Earlier, this amendment was withdrawn by the government in the name of reforms but somehow this year it has again popped up.

(b.) Adjustable advance tax on cash withdrawals of non-filers has been reintroduced at the rate of 0.6% where the total of the payments for cash withdrawal in a day exceeds Rs 50,000. Earlier similar provisions were introduced in 2015 which remained applicable till June 30, 2021. There were various clarifications issued in respect of the earlier provisions which would remain functional. (c.) The threshold of immunity from the probe on foreign remittances from PKR 5 million to USD 100,000 was also proposed but the later government has agreed to withdraw the amnesty scheme after the IMF had strongly opposed it.

Similarly in the sales tax also, some important measures have been introduced by the government, some of which are: Requirement of shop area for Tier-1 retailers withdrawn; Branded edible items excluded from sales tax exemption both for retailers and wholesalers; The reduced rate of sales tax increased from 12% to 15% on supplies made by the Point of Sale (POS) retailers dealing in leather and textile products; and increase in sales tax for locally manufactured finished textile goods.

(To be Continued)

Saud Bin Ahsen has done MPA from Institute of Administrative Sciences (IAS) Lahore and can be reached at saudzafar5@gmail.com