Pakistan’s Rs14.46tr federal budget negates new taxes in election year, infrastructure development of 3.5% growth

Pakistan's Budget 2023-24: Fueling Growth, Remittances, and Infrastructure Development 

Ishaq Dar, the Finance Minister of Pakistan, recently presented the budget for the fiscal year 2023-24, amounting to Rs14.46 trillion. The budget aimed to acquire an economic growth rate of 3.5% and did not contain any new taxes. The government is aspiring to persuade the International Monetary Fund (IMF) to extricate more bailout funds.

Key highlights of the budget include:

• No increase in duties on fundamental item imports.
• Immunity to customs duties on raw materials for diapers and hygienic napkins.
• Reduction of customs duty from 10% to 5% on non-localized (CKD) heavy saleable vehicles.
• Imposition of a 5% tax on payments made through credit/debit cards at cafes and hideaways.
• Removal of the requirement to file sales tax returns for availing a concessionary fixed tax rate for IT and ITeS exports.
• Announcement of a five-year taxation holiday for agro-based industrial SMEs has been set up on or after July 1, 2023.
• Exemption of customs duties on specific papers, art cards, and boards used for printing the Holy Quran.
• Encouragements for exporters of IT and IT-enabled services through the duty-free import of IT-related equipment.
• Expulsion of the capping on fixed duties and taxes for the import of old and used vehicles in Asia is above 1,300cc.
• Exemption of sales tax on contraceptives and accessories.
• Proposed withdrawal of the shop area requirement for tier-1 retailers.
• Re-imposition of a 0.6% advance adjustable withholding tax on non-ATL persons on cash withdrawal.
• Increase in the monetary limit of foreign remittances from Rs5 million to the rupee counterpart of $100,000.
• Waiver of the 2% final withholding tax on the purchase of unbudged property for a non-resident individual POC/NICOP holders acquiring property through foreign remittances.
• Rationalization of the Super Tax to apply to all individuals earning income above Rs150 million, with additional slabs taxed at 6%, 8%, and 10% respectively.

The Finance Minister emphasized that despite the economic challenges faced by Pakistan due to the previous government's "misgovernance," the current government has taken tough decisions to rescue the economy from default. The budget aims to address issues such as the current account deficit and promote remittances through formal channels. It also focuses on education, infrastructure development, construction, energy needs, and providing relief to government employees.

Current Account Deficit:

The Finance Minister highlighted that the current account deficit (CAD) has been a major challenge for the Pakistani economy. In the fiscal year 2021-22, the CAD reached $17.5 billion. However, due to prudent decisions and import curbs implemented by the government, the CAD has been reduced by 77% to $4 billion. Additionally, the trade obligation has decreased by $21 billion.

Increasing Remittances:

Remittances play a vital role in Pakistan's foreign exchange reserves, accounting for 90% of the country's exports. The government has proposed measures to promote remittances through ceremonial channels. This includes abolishing the 2% final tax on the purchase of immovable property and introducing a "diamond card" for individuals sending over $50,000. The diamond card holders will enjoy various privileges such as non-prohibited bore licenses, preferential access to Pakistani embassies and consulates, fast-track immigration at Pakistani airports, and special prizes through draws.

Education:

While education falls under provincial jurisdiction, the federal government plays a part in supporting the sector. The budget proposes an allocation of Rs65 billion for the Higher Education Commission (HEC) under current expenditure and Rs70 billion for development expenditure. Additionally, the establishment of the Pakistan Endowment Fund with an allocation of Rs5 billion is planned to provide financial aid to the education sector. The government also intends to distribute 100,000 laptops to merit-based deserving students, allocating Rs10 billion to the Prime Minister's Laptop Scheme.

Public Sector Development Programme (PSDP):

The government has proposed an allocation of Rs1-150 billion (including Rs200 billion from Public Private Partnership mode) for the PSDP. For the provincial program, Rs1,559 billion has been allocated. The budget prioritizes 80% of partially completed projects and allocates 52% of the PSDP to attract direct foreign investment. An allocation of Rs108 billion has been made to ensure balanced growth among various cities, with special attention given to projects in Balochistan.

Construction and Real Estate:

The finance minister emphasized the importance of the construction sector in Pakistan's economic output. To incentivize the sector, a tax of 10% or Rs5 million, whichever amount is lower, will be charged on construction enterprise income. Individuals constructing their property will receive a 10% tax credit or Rs5 million for the next three years. Tax exemptions related to Real Estate Investment Trusts (REITs) have been extended until June 30, 2024.

Energy Needs:

Pakistan heavily depends on imported fuel to meet its energy requirements. The government aspires to increase solar energy and the use of local coal. Measures proposed to discuss the energy needs intersperse instructing coal-powered power plants to use local coal, exempting raw materials for solar panels, inverters, and batteries from customs duties, introducing the "Bonder Bulk Storage Policy" to address fuel deficiency, and allowing refinery and oil marketing corporations to purchase oil from the storage facility.

Tax Revenue and Expenditure:

The Federal Board of Revenue (FBR) expects to collect Rs7-200 billion in tax revenue, with the provinces' share amounting to Rs4-129 billion in the next fiscal year. Non-tax revenue collection is estimated at Rs1,618 billion, while federal tax collection is projected to be Rs4,689 billion. The total expenditure for the year is estimated at Rs11,090 billion.

Overall, the budget focuses on providing relief to the masses, increasing employment possibilities, encouraging ease of doing business, assessing taxes on high-earning individuals, and addressing challenges such as foreign currency outpouring and pension and wage concerns for government employees.

It's important to state that budget details can be subject to changes, amendments, and updates as it goes through the legislative process and may be influenced by economic conditions and government policies.