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Budget 2019-20 presented in NA

12 June, 2019

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ISLAMABAD: Budget 2019-20 presented in the National Assembly by Minister of State for Revenue Hammad Azhar on Tuesday, the PTI government’s first full-year budget proposed a ferocious array of taxes on almost all sectors of the economy, in line with a staff-level agreement with the International Monetary Fund (IMF) for a bailout package, with maximum focus on recoveries from income tax and sales tax. Income tax payers will bear a significant brunt of the new revenue effort set to unroll with the arrival of the new fiscal year on July 1.

The government has increased income tax rates to a maximum of 35pc from 25pc at present and reduced by half the taxable income bracket to Rs50,000 per month for salaried and Rs33,333 per month for non-salaried. From the head of income tax alone, the government is aiming to raise Rs258bn of additional revenue in the forthcoming year.

Another key decision under the budget is the removal of zero-rating facility to five export-oriented sectors, including textiles, and imposition of normal 17pc GST despite strong opposition from the industry. In return, the government has promised speedy refund claims against actual exports. From sales taxes, the government is expecting to raise Rs250bn incremental revenue, via GST rate adjustments in various areas and elimination of zero-rating.

Also, the budget removed a restriction on sale and purchase of movable and immovable assets of tax non-filers that was considered a move for documentation of economy when it was first introduced. Also tax rates were increased on sugar, cement, steel and many edible items and facilitation has been offered on import of machinery and equipment for industrialisation, including in the tribal region now being merged with Khyber Pakhtunkhwa.

The minister hoped the difficulties arising out of budgetary measures, including inflation, would subside over six months to a year period as the State Bank of Pakistan acts independently through monetary policy tools that point towards further hikes in interest rates, which he hoped will bring “long-term benefit to the nation through effective documentation of economy and expansion in the tax base”.

The budget promised 10pc increase in net pensions, 10pc ad hoc relief on running basic salaries for grade 1-16 employees of the civil government and equivalent army personnel and 5pc for grade 17-20 officers. The officers in grade 21 and above in civil and equivalent armed forces officers, the minister said, had agreed to not get any increase, while members of the federal cabinet had volunteered 10pc pay cuts as a symbolic gesture of solidarity with the citizens who are being asked to sacrifice greater share of personal income for stabilisation of the government’s fiscal accounts.

In the same spirit, Mr Azhar said the current civilian expenditure was promised to be cut by 5pc or Rs23bn to Rs437bn next year from revised estimates of Rs460bn.

The defence expenditure for next year has been pegged at Rs1.153tr against Rs1.1tr of original budget allocation of current year, up 14pc.

And yet, the minister said the next year’s overall deficit would be 7.1pc of GDP or Rs3.137tr, compared to 7.2pc of GDP during current year. The budget documents, however, put the deficit number at Rs3.151tr or 7.2pc of GDP. This would be achieved through a cash surplus of Rs423bn expected from the provinces as the federal deficit was pitched for next year at Rs3.574tr.

This was mainly because the government has committed to the IMF that it will undertake a fiscal adjustment equal to 0.6pc of GDP in the primary deficit given a massive bill of Rs2.891tr in interest payments due next year. The primary deficit is the difference between revenues and expenditures after debt servicing has been removed from the latter. As such, the budget sets an ambitious revenue target of Rs5.555tr for the Federal Board of Revenue (FBR) that missed its Rs4.435tr target during current year by a record margin. The budget revised FBR’s collection target to Rs4.15tr. Yet, the minister said the tax-to-GDP ratio will increase to 12.6pc next year with all the aggressive campaign from current year’s 12pc.

Mr Azhar said the government would continue import compression and try to increase exports to reduce external deficit to $6.5bn next year from $13bn during the outgoing fiscal year. This would be achieved by supporting exports through revised duty structure on raw material and intermediate goods, improved tax refunds, competitive electricity and gas rates and redoing free trade agreements.

The government has also promised Rs190bn allocation for social protection through the food ration card scheme for one million deserving people, besides special nutritious food for infants and mothers, interest-free loans to the poor and stipends to six million women through mobile phones.

The budget has promised Rs100bn loans to the youth under the Kamyab Jawan Programme. The minister also said the federal and provincial governments would together provide Rs280bn agriculture support programme for the next five years.

He spoke about revival of public sector entities through a combination of corporatisation, privatisation and restructuring for which a plan would be announced later, but said $2bn would be raised next year through sale of two LNG-based power plants and $1bn through cellular phone licences.

The minister promised introducing a new system through the State Bank of Pakistan to end trade-based money laundering to meet the requirements of the Financial Action Task Force. With the same purpose, a new directorate of customs would be created for cross-border movement of currency.

The minister said the government would make every effort to ensure the budget measures had minimal impact on price increases and where unavoidable due to international market would ensure that consumers are protected to the extent possible through social safety programmes.

“We will tailor our fiscal and monetary policies, coordinate with the provinces and adopt administrative measures to fight this menace of inflation,” he said, adding that the government would no longer depend on the State Bank borrowing with effect from July 1 as it was inflationary.

At the same time, the minister said the year 2019-20 shall continue to be the period of stabilisation, which he described as “a difficult transition” to achieve within a minimum amount of time. He said the revised tax rates would increase the CNG price by about Rs3 per kg and LNG price by a few rupees per kg. The overall tax policy would target reducing exemptions in a phased manner, gradual improvement in the value-added tax region and revision in special procedures to ensure effective tax compliance.

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