EDITORIAL: Finance Minister Mohammad Aurangzeb presented yesterday a Rs 17.573 trillion federal budget for 2025-2026 in the National Assembly with gross revenue receipts estimated at Rs 19.278 trillion, including Rs 8.206 trillion as the share of provinces under the National Finance Commission (NFC) award.
FBR (Federal Board of Revenue) revenue is estimated at Rs 14.131 trillion and non-tax revenue at Rs 5.147 trillion.
On the expenditure side, current expenditure has been markedly contained at Rs 16.286 trillion as against the revised estimates for the current fiscal at Rs 16.390 trillion despite the 10 percent increase in salaries of federal government employees and a 7 percent increase in pensions. This has primarily been brought about by a significant decrease in mark-up payments that are estimated at Rs 8.207 trillion against Rs 8.945 trillion for the outgoing fiscal year.
There has also been an insignificant increase in the pension bill from Rs 1.014 billion to Rs 1.055 billion despite an increase of 7 percent in the pension payments thanks to the changes made in the pension scheme under the yet-to-be implemented pension reforms. There is, therefore, a long way to be traversed for meaningful pension reforms to make the scheme sustainable.
There has also been a significant reduction in subsidies from Rs 1.378 trillion this fiscal to Rs 1.186 for trillion for next fiscal; courtesy the IMF’s insistence. It is noteworthy that the budget documents do not envisage any major privatization activity to materialise in the next fiscal year as estimated proceeds from sell-off effects have been stated as a meagre Rs 87 billion.
The emphasis on taxing transactions within the economy through sales taxes, income tax, withholding and advance tax remains the main feature of the federal budget for revenue mobilization. To plug revenue leakages and evasion, the focus on digitization and electronic monitoring and tracking of transactions is likely to be pursued in earnest.
As part of deterrence against the growing incidence of tax frauds, an effort is being made to strengthen the existing legal provision.
The term ‘abettor’ is, therefore, proposed to be defined without whose connivance such frauds cannot happen. To increase the number of registered persons under the act and promote the documentation of economy the Sales Tax Act is proposed to be amended to implement enforcement measures such as restrictions on bank account operations, sealing of business premises, property seizure, and the appointment of a receiver to compel an unregistered person to comply.
The total exemption from sales tax on supplies, imports and procurement of plant and machinery by the industrial units located in defunct FATA and PATA is proposed to be gradually withdrawn by imposition of tax in the next 4 years at the rates of 10, 12, 14 and 16 percent, respectively. This measure is bound to raise hackles in erstwhile tribal areas and only time will show whether the government would stay the course or succumb to pressure.
Needless to say, the misuse of this exemption by units such as tea, iron and steel on the industrial units in the rest of the country is having a telling effect on their operations.
The tax rate on profit on debt (savings in banks or national savings) is proposed to be increased from 15 percent to 20 percent and the upper cap at present on such profit up to five million rupees under final tax regime is proposed to be removed for individuals and Association of Persons (AoPs). This indeed is an unwise and self-injurious proposal for a country with the lowest savings rate in the region, and it clearly militates against the efforts aimed at increasing the national savings rate to finance development and reduce the dependency on borrowings for such financing.
Moreover, it is bereft of empathy for senior citizens/retirees who depend on returns earned on their life savings.
The tax rate on dividend has been enhanced to 25 percent, and to 15 percent on dividend from mutual funds. These measures are likely to divert savings and investments to real estate, bullion and other commodities.
The surprising omission of taxing income of the retailers and wholesalers in the entire budget document is indeed an enigma, so to speak. This omission appears to be strategic so as not to rile up the mighty traders (Tajeran Ittehad).
Obviously, the underlying assumption is that renewed enforcement measures on collecting sales tax would inevitably bring them into the income tax net through documentation of transactions. How this measure plays out in Faisalabad and Lahore would be interesting to watch.
Contrary to the perception generated by the finance minister’s repeated averments prior to the budget presentation that this would be a ‘bold’ budget, except for the proposal to end the protection to local industry in a phased manner of high import tariffs, it is a rather half-hearted attempt despite the compelling need for widening the tax net to distribute the burden equitably and provide meaningful relief to the corporate sector and the salaried people that carry the highly disproportionate burden of tax on their income.
It is, therefore, a sad commentary that the government has not afforded a meaningful respite to these two classes of taxpayers from the heavy taxation of their income.
In fact, it has gone the extra mile to increase the burden of tax on their incomes from savings and investment. Instead, the primary focus appears to be on tax leakages and not on expanding tax base as the former involves squeezing the already taxed while the latter would require the government to muster political will and courage to rope in the elite and groups with a high nuisance value that have successfully and resolutely resisted all efforts aimed at taxing their incomes thus far.
Needless to say, there’s a growing need for decreasing informality within Pakistan’s economy, and the importance of this fact cannot be stressed or emphasised enough.
Copyright Business Recorder, 2025
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