Budget ironies

Budget-making in Pakistan largely follows the narrow path laid out by the IMF, where the Fund’s primary focus remains on hard numbers, such as the primary fiscal target, gross revenues, and specific expenditures.

Beyond that, the process becomes a spreadsheet exercise aimed at meeting the demands of powerful stakeholders in Islamabad and Rawalpindi, all while being spun in a way that doesn’t provoke public backlash.

The recent budget is riddled with ironies. Some have labeled it as “pro-poor” or “middle-class friendly”—which it clearly is not. Others call it pro-investment and capital market-friendly—again, a misleading claim. At its core, the budget is focused on taxing where it is easiest for the FBR to collect, without touching any politically sensitive areas.

Initially, the government aimed to lower taxes for salaried individuals to earn some political goodwill. There was even a proposal to cut the lowest income tax slab to just 1 percent. But pressure from government employees—whose salaries were increased by only 6 percent, below expectations—shifted priorities. Unlike salaried private-sector workers, government employees can protest and threaten work stoppages. As a result, the government increased public sector salaries by 10 percent, sacrificing meaningful tax relief for the broader salaried class, who are limited to venting on social media.

Another example: a proposal to impose 18 percent GST on solar panels was scaled back to 10 percent. Solar panels, however, are largely a concern of the elite. Just before the budget, a rational plan to reform net metering was scrapped after backlash. Currently, net metering is only available for three-phase meters—found mostly in affluent homes—while the poor and lower-middle class with single-phase meters are excluded. Moreover, 80 percent of private solar setups are not net-metered. Many opinion-makers and legislators benefit from net metering, and the government backed down under pressure.

To offset this concession, a federal excise duty (FED) of Rs10 was slapped on one-day-old chickens. Traditionally, FED is applied to discourage consumption of harmful products like tobacco and alcohol—yet beer remains exempt. Now, the government is taxing the cheapest source of protein—eggs and chicken—effectively making basic nutrition more expensive for the poor. Tellingly, no member of parliament or the senate objected to the chicken tax, as long as solar panels remained untaxed.

The government also tried to justify lower taxes on stock market income while simultaneously raising taxes on fixed-income returns from banks and mutual funds. To rationalize this, officials cited a distinction between “passive” and “active” income—arguing that passive income should be taxed more heavily. In reality, it appears the government is more interested in showcasing stock market growth as a success metric, even if it means penalizing a far larger base of savers who rely on fixed-income instruments.

In essence, the budget can best be described as directionless—devoid of a coherent strategy, shaped by optics and pressure rather than sound policy.