ISLAMABAD: The government has taken measures of around Rs506 billion, including taxation measures of Rs264 billion and enforcement measures of Rs242 billion in the budget (2021-22)to meet annual target of Rs5,829 billion including 17 percent sales tax on crude oil, Federal Excise Duty (FED) on phone calls/SMS messages/internet data usage, 17 percent sales tax on silver/gold jewellery, and 7.5 percent withholding tax on monthly electricity bill of above Rs25,000 of domestic users not appearing on the Active Taxpayers List.
During the technical briefing on the Finance Bill,2021, held at the FBR House, the FBR team of members informed media that total taxation measures have been proposed at Rs383 billion for 2021-22.
Total relief measures stood at Rs119 billion.
The net impact of the measures stood at Rs264 billion.
In order to materialise the fixed tax target of Rs5,829 billion, the FBR will generate Rs2,182 billion through direct taxes, and Rs3,647 billion in the shape of indirect taxes.
The government has reduced tax rate on capital gain tax on disposal of securities from 15 to 12.5 percent; exempted ED to industrial units located in the Fata and the Pata; exemption from FED on motor vehicles up to 850 cc and sales tax reduced from 17 percent to 12.5 percent, and withdrawal of value-added tax (three percent) on motor vehicles up to 850 cc. The FBR will generate Rs7 billion from sugar to be a Third Schedule item and manufacturer to collect tax on retail price.
The FBR has taken customs duties measures of Rs52 billion and relief measures of Rs42 billion. The net impact of the customs duties measures stood at Rs10 billion.
Sales tax/federal excise measures amounted to Rs215 billion, whereas, sales tax relief totalled at Rs19 billion.
The net effect of the sales tax measures comes to Rs196 billion. The income tax measures have been projected at Rs116 billion, whereas, relief has been provided of Rs58 billion. The net impact of the income tax measures totalled at Rs58 billion.
The FBR members informed that the enforcement measures would result in revenue generation of Rs242 billion. They said that the government has reduced the threshold of monthly electricity bill for withholding tax on electricity consumption from 75,000 to 25,000 from domestic users not appearing on the Active Taxpayers' List. Under the Finance Bill 2021, the zero-rating is proposed to be withdrawn from petroleum crude oil, parts/components of zero-rated plant and machinery, import of plant and machinery by petroleum and gas sector, and supply, repair and maintenance of ships.
The FBR will generate revenue of Rs38 billion from this taxation measure.
The FED on mobile phone calls and SMS @ Re1 per call (call exceeding three minutes) and Re0.10 per SMS will generate additional Rs70 billion in the next fiscal year.
The levy of FED on internet data usage at the rate of Rs5 per GB will fetch additional revenue of Rs30 billion.
The government has also announced establishment of border sustenance markets for mainly food items.
The FBR members stated that the FBR has not changed the income tax slabs for the salaried class and the FED on cigarettes. However, the FBR has eliminated block taxation of property income and shift to normal tax regime; reduced block taxation on capital gain on disposal of immoveable properties if gain exceeds Rs20 million, and reduced block taxation on interest income, if it exceeds Rs5 million.
During the current financial year, Tax Laws (Second Amendment) Ordinance, 2021was promulgated to implement corporate income tax reforms to provide a level playing field to all the businesses.
Certain tax credits, concessions and exemptions were withdrawn.
The provisions of the Ordinance have been made part of the Finance Bill 2021, they stated.
The government has withdrawn 12 withholding taxes including collection of tax on payment of royalty to residents; cash withdrawal, banking instruments, banking transactions other than through cash, collection of tax from persons remitting amounts abroad through credit or debit or prepaid cards, collection of tax on domestic air travel, international air travel, extraction of minerals; members by a stock exchange registered in Pakistan, collection of tax on marginal financing by NCCPL, CNG stations, and collection of tax on certain petroleum products. The FBR has abolished 100 percent tax credit for new industrial undertaking if investment is made through equity or proportionate tax credit if investment is made through equity as well as debt and this corporate sector revenue measure will fetch Rs65 billion into the FBR kitty.
The rate of minimum tax was reduced from 1.5 percent to 1.25percent for all persons, for refineries from 0.75percent to 0.5percent, fast moving goods sold by integrated retailers from 1.5percent to 0.25percent, SEZ enterprises from 1.5percent to zero percent and Special Technology Zones (STZs) enterprises from 1.5percent to zero percent.
The shifting of goods from reduced rate (one percent, five percent, 10percent, 12percent) to standard rate (17percent) silver/gold jewelry, fat filled milk, LNG/RLNG will bring additional tax of Rs35 billion.
The withdrawal of exemption on imported luxury food items such as cereals, milk and cream, frozen meat and sausages, fat filled milk at standard rate of GST of 17 percent will fetch Rs14 billion. On enforcement side, the FBR has placed master bill of lading and certificate of origin made mandatory in order to discourage concealment.
The FBR also extended anti-smuggling regime to retailers.
On telecommunication Services, the rate of GST is harmonised and bring down rate from 17percent to 16percent for the Islamabad Capital Territory (ICT).
The government has granted exemption from FED to industrial units located in the Fata and the Pata.
The sales tax relief has been provided on high quality printing paper for the holy Quran and temporary imports by international athletes (SAF Games).
The increase in the threshold of turnover for cottage industry has been enhanced from Rs3 million to Rs10 million.
The export proceeds of services to be taxed @ one percent at par with goods and this measure will bring Rs5 billion revenue in the kitty.
For discouraging "on money" - penal additional tax on sale of vehicle will be imposed from Rs50,000 to Rs200,000 on the basis of capacity of engines of cars prior to registration.
Copyright Business Recorder, 2021
ISLAMABAD: The federal government has increased power sector subsidies by over 300 percent to Rs 510 billion for fiscal year 2021-22 as compared to Rs 124 billion allocated in budget for 2020-21, which was later revised upward to Rs 350 billon.
Of this, an amount of Rs 136 billion has been earmarked for the Independent Power Producers (IPPs).
The government recently paid Rs 89.2 billion to 20 IPPs as per revised agreements and increased allocations for Power Holding Private Limited (PHPL) by 152.6 per cent to Rs 118 billion against revised allocations of Rs 46 billion during 2020-21. Allocation for inter-Disco tariff differential has been enhanced by 67 per cent to Rs 184 billion for 2021-22 as compared to budget allocations of Rs 110 billion in 2020-21 and revised estimate of Rs 191.830 billion. This implies that inter-Disco tariff differential subsidy has been reduced by over 4 per cent vis-à-vis revised allocations.
Allocation for subsidy to Karachi Electric (KE) has been massively enhanced by 450 per cent to Rs 85 billion for 2021-22 as compared to budget allocation of Rs 15.5 in 2020-21 which was revised to Rs 16 billion.
KE will get a subsidy to Rs 56 billion as tariff differential in 2021-22 which is 460 per cent higher than budget allocation of Rs 10 billion in 2020-21 and 250 per cent higher than revised allocation of 2020-21. An amount of Rs 7 billion has been earmarked for KE's tariff differential for agriculture tubewells in Balochistan. KE will also get Rs 22 billion as industrial support package in 2021-22 which is higher by 340 per cent against Rs 5 billion of 2020-21. Tariff Differential Subsidy (TDS) for agri tub-wells in Balochistan has been increased to Rs 4.4 billion for 2021-22 against budget allocation of Rs 3 billion, which was later revised to Rs 7 billion. An amount of Rs 7.6 billion has been earmarked to pay to Wapda/ Pepco receivables of ex-FATA. However, no amount has been allocated to pay to Wapda on account of tariff differential for AJ&K, despite the fact that an amount of Rs 1 billion had been allocated for 2020-21 which was revised upward to Rs 27 billion. An amount of Rs 2 billion has been earmarked for tariff differential to AJK as compared to revised allocation of Rs 36.537 billion.
Allocation for payment of Discos receivables of merged districts of KP has been enhanced by 80 per cent to Rs 18 billion for 2021-22 against Rs 10 billion in budget estimates, which was later on revised to Rs 15 billion.
For Industrial Support Package (ISP) an amount of Rs 15 billion has been earmarked in budget of 2021-22 while Rs 26 billion has been allocated for zero rated industries subsidy.
According to budget documents, an amount of Rs 171 billion has been earmarked as subsidy for other sectors/ departments - Rs 10 billion has been earmarked as subsidy to LNG sector for providing gas at lower rates to industry, Rs 10 billion for PSO, APL liabilities, Rs 7 billion for Passco for wheat operation and wheat reserved stock and Rs 6 billion for USC Ramazan Package against Rs 3 billion budget estimates and revised allocation of Rs 8 billion.
Allocation for subsidy for others has been increased by 7 per cent to Rs 53 billion for 2021-22 as compared to budget estimates of Rs 49.5 billion in 2020-21 but it is 44.6 per cent less vis-à-vis Rs 36.650 billion of revised allocations. Of this, an amount of Rs 8 billion has been earmarked for wheat subsidy against Rs 6 billion of 2020-21. Allocation for Metro Bus Subsidy has been slashed by 100 per cent to Rs 1 billion from Rs 2 billion, whereas subsidy to fertilizer plants will remain at Rs 6 billion. An amount of Rs 5 billion has been allocated for provision of (unnamed) subsidy.
For Naya Pakistan Housing, an amount of Rs 30 billion has been allocated as subsidy for 2021-22 against the same allocation in budget 202-21. However, the government has so far released only Rs 500 million. An amount of Rs 3 billion has been estimated as mark-up for Naya Pakistan.
However, no amount has been allocated for white fly pesticide, Prime Minister's fiscal package, Prime Minister's package for Rabi crops and agri loans by ZTBL to farmers. In 2020-21, the government had not earmarked any amount either for these items but paid Rs 15.2 billion as revised allocations.
In a nutshell, overall subsidy allocations have been increased by over 225 per cent to Rs 682 billion for 2021-22 against budget allocations of Rs 209 billion in 2020-21 and 59 per cent as compared to revised allocation of Rs 430 billion.
According to Finance Minister, subsidies are projected at Rs 682 billion up from Rs 430 billion of revised estimates, mostly comprising payments of due of IPPs, tariff differential subsidies and subsidies for food.
Copyright Business Recorder, 2021
ISLAMABAD: The Finance Bill 2021-22 has introduced the concept of additional tax on disposal of vehicles prior to its registration with the Excise and Taxation Department to discourage 'on money'.
According to the Finance Bill 2021-22, every motor vehicle registration authority of the Excise and Taxation Department shall, at the time of registration, collect tax at the rates specified in Division VII of Part IV of the First Schedule, if the locally-manufactured motor vehicle has been sold prior to registration by the person who originally purchased it from the local manufacturer.
Explaining the salient features of the Finance Bill 2021, a tax expert, Amer Javed Ahmad, senior partner, Rafaqat Babar and Co Chartered Accountants explained that the bill proposes to tax the concept of "on" money of vehicles, which is the imposition of tax on disposal of vehicles provided that the vehicle is disposed of without getting it registered.
The bill has now expanded the scope of withholding on, taxpayers included in the supply chain (such as 236G and 236H), domestic consumers of electricity subject to minimum electricity consumption of 25,000, rental income from sub-lease, commission income, removal of separate notice requirement in the cases of concealment, profit on debt realised on GP and certain other funds.
The bill also proposes to increase the revenue by broadening the tax base for IT services, telecommunication industry and agriculture industry by introducing the novel concept of cloud computing and data storage services and altering the definition of industrial undertaking.
To regulate the blanket exemption given to export of IT or IT-enabled services, it is proposed to levy one percent tax on funds received through normal banking channel.
It will empower the government to monitor and regulate black money routed through this provision and to catch plunders. The bill also proposed to delete exemption on medical allowance to salaried class. This would be setback to salaried individuals.
The bill seeks to provide relief by withdrawing a minimum of 12 withholding taxes such as 153B,231A, 231AA, 236P, 236Y, 236B, 236L, 236V, 233A, 233AA, 234A,and236HA.
The bill further proposes to decrease or obliterate the rate of taxation on, turnover, export of services, capital gain on immovable property, profit on debt, oilfield services, warehousing services, logistic services, capital gain on securities, and tax on dividend from certain projects.
The main hurdle to masses who maintain bank accounts for any reason but are not subject taxable income earners. They were burdened with compulsory deduction of tax on withdrawal of money.
They have been now relaxed and mandatory tax deduction has been done away.
Moreover, the bill has proposed to tax property income under the NTR regime and adjustment of business losses against such property income.
The bill further proposes to exempt certain incomes/classes of incomes such as turnover tax exemption to special economic zone enterprises, 10-year exemption of tax for special technology zones authority, developers and enterprises of special technology zones, tax exemption on the import of capital goods, exemption to electronic warehousing receipts traded on PMX, import tax exemption on import of books and agriculture equipment, and tax exemption to baggasse fired power generating units.
The following further propositions have been proposed by the bill whereby, certain powers granted to commissioner have been relinquished such as power to reject advance tax estimates as well as conduct of inquiry under section 122(5A) of the Income Tax Ordinance, 2001.
This amendment is proposed on demands of taxpayers at large. The authorities were misusing to this section to harass the taxpayers. The bill has introduced a totally novel concept of tax credit of 25 percent from the tax liability to women entrepreneurs in order to promote and facilitate women entrepreneurship.
Bill proposes to rationalise the different provisions of the Ordinance by introduction/ alteration of different provisions.
KARACHI: The textile sector has termed the measures, announced by the government in the budget, as insufficient for a significant increase in the country's exports.
The value added textile sector has asked for the more relief and concessions to achieve the double digit export growth target and earn over $26 billion foreign exchange in the next fiscal year 2021-2022 (FY22).
Leading exporter and Chairman Pakistan Apparel Forum (PAF), Jawed Bilwani has welcomed the government's announcement of new Uniform Export Facilitation Scheme, however, expressed disappointment on the measurers announced in the budget for the textile sector. "Most of our [textile sector] demands were not considered in the budget," he said.
He said that major demand of value added textile exports associations was restoration of Zero Rating on GST "No Payment No Refund Regime" through revival of SRO 1125 in letter & spirit, but the federal budget is missing this important demand. The revival of zero rating regime will help resolve the liquidity issues of the textile exporters.
Bilwani said that the federal government has allocated some Rs20 billion for the DLTL as against the outstanding dues of Rs32 billion. "We believe that with current budgetary measures, the export is likely to increase 5-6 percent in the next fiscal year," he added.
The federal government has allowed duty import of cotton yarn, which is good news for the textile sector. At the same time, there is need to consider other demands of textile sector including suspension of Export Development Fund surcharge, reduce and fix tariffs of electricity, indigenous gas & RLNG.
Ijaz Khokhar patron-in-chief Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) said that budget measures are insufficient for a significant increase in the country's exports particularly textile exports.
He said that despite the largest export oriented sector, most of the demands of the value added textile were not considered in the federal budget 2022. "Our demand of Zero rating was not accepted, because of which the textile sector will remain faced with liquidity issues due to non-payment or delay of refund claims," he added.
Khokhar said that the federal government has allocated some Rs200 billion for three major crops i.e. wheat, rice and cotton. The cotton crop is on the lowest level and there was need to allocate more funds for the cotton crop to achieve a better production to reduce the import of cotton and cotton yarn. Currently, the textile sector is facing shortage of cotton yarn and spending a huge foreign exchange on the import of this commodity, he mentioned.
He urged the federal government to revise it measurers for the industry and export sector to achieve a double digit export growth in the next fiscal year.
Chairman Pakistan Weaving Mills Association, Yousuf Yaqob said that the budget measures will not ease the liquidity issues of the textile sector as they will have to pay 17 percent sales tax. "Our demand for zero rating or reduction in the sales tax from 17 percent to 5 percent," he said and added that both demands were not considered in the budget.
Copyright Business Recorder, 2021
ISLAMABAD: Allocation for defence for Fiscal Year 2021-22 has been raised by 6.2 percent, from Rs1.292 trillion in the original estimates of 2019-20 to Rs1.373 trillion for 2021-22.
The defence budget is 16.19 percent of the total budgetary outlay and 2.87 percent of next year's projected GDP of 47.7 trillion rupees. The nominal GDP for FY 2021 is projected to increase from Rs45,567 billion to Rs47,709 billion.
The original allocation for last year was Rs1.292 trillion, but according to revised figures Rs1.299 trillion had been spent. The military voluntarily opted for a wage freeze in FY 2019-20 because of the economic challenges facing the country. Subsequent to the closure of the Coalition Support Fund after 2018, defence and security needs were met from domestic resources.
The defence budget does not include pensions, estimated to rise by 10 percent next year - to Rs360 billion under current expenditure - while other major defence related procurements and strategic programmes are not made public. The amount budgeted for defence administration is Rs3.275 billion. However, the rest of the allocation is for defence services which include employee-related expenses (Rs481 billion) including salaries and allowances paid to troops in uniform and civilian employees and operating expenses have been budgeted at Rs327 billion that include transport, POL (petroleum, oil and lubricants), rations, medical treatment, training etc.
Around Rs391 billion has been proposed for physical assets utilised for local purchases and import of arms and ammunition and related procurements. Civil works that include funds marked for maintenance of existing infrastructure and construction of new buildings have been budgeted at Rs169 billion. Apart from this, Rs1.978 billion has been allocated under the head of PSDP to the defence division and Rs1.745 billion to the defence production division.
The defence budget of the Pakistan Army is seven percent of the national budget.
Copyright Business Recorder, 2021
ISLAMABAD: The Pakistan People's Party Parliamentarians (PPPP) information secretary Shazia Atta Marri said the federal government is not giving the money promised to the provinces under NFC award.
"Under the Constitution, a fixed portion of NFC award is given to the provinces. Sindh is objecting that it is not getting its constitutional share. Not only Sindh, but the other three provinces are also not getting their share but they have chosen to remain silent. Sindh is constantly being abused," she said, while addressing a news conference on Friday accompanied by Nasir Shah, Saeed Ghani, Murtaza Wahab, Waqar Mehdi and Ajiz Dhamra.
Shazia said the PSDP was approved by the NEC, which should hold at least two NEC meetings a year but only one meeting was held.
She said Sindh's share in NFC was Rs770 billion and in the last 11 months Sindh received only Rs613 billion so far, whereas it should have gotten Rs690 billion in the last 11 months. She hoped that Sindh will get Rs147 billion more in the next month.
The PPPP information secretary said we do not want reduction in the share of Balochistan, Pakhtunkhwa or Punjab.
"It was not expected of Asad Umar, who claims to know the Constitution, to mislead the people. If the provinces do not build motorways, then why is Sindh being demanded to build motorways," she asked.
She said some of the bills were passed on Thursday, were not even passed by the standing committees. She said the NEPRA bill was not passed by the standing committee. The PPPP leader said the PTI had tarnished the image of Parliament by bulldozing those bills. She claimed that 'a fraudulent' and controversial census was approved by the Council of Common Interests (CCI).
She said that the Sindh government had approached the Parliament against the fraudulent approval of the census. "Sindh has written a letter to discuss the issue of the census in a joint meeting of the parliament."
Regarding water shortage in Sindh, she said water should be provided to Sindh under an agreed principle. She said the federal government wanted the provinces to fight each other.
Nasir Shah said if Bahria Town had committed any abuse, the Sindh government was with the victims. He said Bilawal Bhutto took notice of the news about Bahria Town after which we went to the spot.
"We support all the locals. Several arrests have been made and no injustice will be done to anyone." Shah said several concerns of the local population were allayed.
Copyright Business Recorder, 2021
It is a confidence booster budget and the direction is right. Commerce and industrial policies are attempted to be decoupled from the influence of finance and there are signs of central planning. Yet the planning ministry is not in the scene. The groundwork for the policies - related to trade and tariffs, automobile, refinery, and others have been going on for some time.
But for the first time, revenues are not the prime consideration. Targets are elusive. Threat of Covid-19 is still there and the IMF is giving further time-out. The beauty of the budget is that there are numerous small and token steps taken where the revenue opportunity loss is probably less than potential economic gains. The optics are really good.
It is evident that the government is betting on the manufacturing sector. The industry needs to invest. And foreign investments must come into exporting sectors. The risk is growing global commodity prices which puts the current account into jeopardy. But if it is to be financed by FDI, then there is no harm in running a deficit for a few years. The economic model can move on a sustainable path despite that.
Not to mention that there can be many a slip between the cup and the lip. There is no other way but to open the economy to face the challenges upfront and rely on the private sector to generate growth. Foreign capital likes openness. The fiscal deficit is not coming in control. Then add the energy sector's circular debt problem. The risks are certainly not small. And the solution to both generating revenues and solving the energy surplus capacity problem is by attaining consistent economic growth. For growth, the budget must be business friendly and that is what the PTI government understands well.
In fact, the PTI government's policies from day one were pivoted on reviving industrial growth and engaging private sector through fiscal and other incentives. The approach contrasts with what Ishaq Dar had adopted. After a decade or so, exporting sector is investing and billion-dollar private sector projects - not IPPs, are in the making.
There is also an awareness at the top government level that existing taxpayers can no longer be burdened with more taxes and compliances, while businesses cannot grow at higher electricity tariffs. But to develop a sustainable growth structure, the circular debt build-up will have to be arrested. For that, the economic wheel must spin fast in manufacturing and formal services. Agriculturists are getting mouthwatering support price. In livestock, there are pledges of removing duties on vaccine and feed imports.
A feel-good factor is being created. Stock market is bullish. Earnings are better. Capital gains tax and turnover taxes have been lowered. This will help trade volumes to grow further. The question is when will price multiples be rerated. If the foreign portfolio investment pours in at the PSX, then there are higher chances of these coming into manufacturing, agriculture and IT. Having said all that, the backbone of the economy is SMEs - manufacturing, and trading/retailing. Here one has high taxes and burdensome compliance and the other operates in shadows. The fundamental shift in the taxation implementation policy is to simplify returns, inculcate a culture of self-assessment, and bring in automated and third-party audit. Incentives are there for digital transactions and spread of Point of Sales (POS) machines. The attempt is to bridge the gap between manufacturing and trading/retailing SMEs.
The other issue of SMEs is lack of formal finance. For that, overall economic formality has to enhance. The math is simple. Banking deposits are around one third of formal economy. Half of these are invested in government securities and rest is credit to the private sector, within which SME's share is minuscule. One way is enhancing SMEs within the limited pie. Other is to expand banking sphere. Here some steps are taken. One is removal of withholding tax on banking transactions - the formal has been shrinking ever since it was imposed. That is over now. This coupled with digital incentives, the formal banking deposits may grow and the cash economy can potentially be curtailed.
The question is what is there for the common man suffering from high inflation? Well, not much directly. As FM said, it is traditional trickle down. Nonetheless, salaried class is happy to not have any increase in taxes. The minimum wage is increased to Rs20,000. The poor are being supported under the Ehsaas programme which is becoming more effective. Here the use of technology is doing the trick. Soon electricity subsidies will be routed through it and small farmers should be provided subsidized inputs through this window.
But all this may not be enough for the middle class. The economy must grow consistently for years before there is something for the common man which is a shame, but let's remember that it is a budget, not a magic wand.
Copyright Business Recorder, 2021
The budget 2021-22 can best be described as an extremely generous Eidi to the people of this country: 10 percent raise in civilian and military personnel salaries, minimum wage raised to 20,000 rupees, small interest free loans to urban and farm poor, cheap credit for housing, fiscal and monetary incentives galore to exporters/productive sectors (industry and agriculture), a rise in overall subsidies by 225 percent, a rise in targeted subsidies under the umbrella of the Ehsaas programme through existing and proposed issuance of cards ranging from Benazir Income Support Programme/cash disbursement, food coupons, farm inputs (seeds/fertilizer), the Sehat Sahulat Card and last but not least a pledge not to raise utility rates or petroleum prices. Unfortunately, the cost of the Eidi is to be borne by an Uncle getting progressively poorer, reflected by unsustainable budget deficits for the three years the Khan administration has been in power - 9 percent in 2018-19, 8.1 percent in 2019-20 and projected 7 percent in 2020-21. Next year's budget deficit is projected at 6.3 percent, which necessitates a rise in federal revenue of 21 percent (a challenge at best even if the projected 4.8 percent growth is achieved), a rise in non-tax revenue of 29 percent and a provincial surplus of 570 billion rupees - doubling from this year's budgeted surplus of 242 billion rupees with no revised estimates under this head.
The most obvious solution is heavier reliance on borrowing - from domestic and external sources. However with the government redefining relief as refusal to implement the time bound quantitative conditions and structural benchmarks agreed by former finance minister Dr Hafeez Sheikh, dismissed on 30 March 2021, and the incumbent Governor State Bank of Pakistan Dr Reza Baqir with the International Monetary Fund (IMF) there is a real danger that budgeted concessional sources of funds may dry up from multilaterals and bilaterals in the event that the Fund programme is delayed or suspended.
The 8.487 trillion rupee budget envisages: (i) a 20 percent rise in total external loans budgeted for 2021-22 - 2,747,792 million rupees against 2,286,859 million rupees in the revised estimates of this year. The total mark-up on foreign loans is budgeted at 302,506 million rupees against 239,568 million rupees in the outgoing year. Actual payables would depend on the exchange rate (which may well explain a thinly veiled warning contained in the Economic Survey 2020-21 that the country will follow an exchange rate regime based on economic fundamentals) as well as on reaching an agreement with the IMF in the ongoing sixth review; in the event that the IMF delays the review pending the delivery of the proposed alternative plan to the one agreed with the government in February 2021 then the government may have to rely on more expensive sources of financing including commercial borrowing whose reliance in the budget 2021-22 is disturbingly higher than in the current year - 779,200 million rupees against 762,335 million rupees in the current year. It is relevant to note that there is no budgeted oil facility from Saudi Arabia (in the current year or the next) or China safe deposits though 496 million rupees as IMF loan for budgetary support is included; (ii) estimated provincial surplus of 570 billion rupees next year against 242 budgeted surplus in 2020-21 appears to be too optimistic; (iii) non-bank borrowing (national savings and others) is cited at a whopping 1241 million rupees and details in the public account (net) reveal national savings of only 66,137 million rupees against the budgeted 223,279 million rupees in 2020-21 with revised estimates of 52,997 million rupees - a decline no doubt attributable to the pandemic, high inflation and no salary raise last year; the low budgeted amount next year indicates that the Finance Ministry is projecting high consumption next year that one hopes is not fuelled by inflation; (iv) permanent public debt mainly sourced to ijara sukuk (debt equity) is budgeted to rise from 437,410 million rupees in 2020-21 to 1,200,000 million rupees in 2021-22 - a rise of 174 percent whose contribution to debt servicing would rise dramatically in the event that the sixth IMF review is postponed or suspended; (v) privatization proceeds are budgeted to generate 252 billion rupees - an amount that appears optimistic as attempts to privatize identified state owned entities for the past four years have been unsuccessful due to multiple factors including organized workers resistance.
Ehsaas programme is budgeted to receive 260 billion rupees - a rise of 24 percent from this year but with no credible poverty data this rise cannot be used as a yardstick to show a decline in poverty levels.
Tax revenue is budgeted to rise to 5829 billion rupees, close to the Fund's target of 5963 million rupees target for the year. However, indirect taxes, whose incidence on the poor is greater than on the rich, are budgeted to generate 62 percent of total FBR revenue - a rise from 58 percent in 2020-21. And disturbingly petroleum levy, a primary source of inflation, is budgeted to generate 610 billion rupees - 3 billion rupees more than what is noted in the second to fifth IMF review documents.
The source of revenue, the Finance Minister noted, would be distinct from what was agreed in February 2021 with the IMF. New taxes on income would generate an additional 58 billion rupees while the February 2021 ordinance withdrawing exemptions/concessions now made part of the finance bill are projected to generate 80 billion rupee. Tax on consumption (sales and excise duty) is projected to have a net impact of 196 billion rupees.
The tax machinery would be reoriented to go after evaders, identify those out of the tax net and information technology would be used extensively to detect prospective tax payers - tax enforcement measures projected to generate 242 billion rupees. GST base will be expanded and incentivize consumers through a system of prizes on sales tax receipts, relax restriction on input tax adjustment and withdraw federal excise duty and reduce sales tax on locally manufactured cars, impose federal excise on mobile calls exceeding 3 minutes, internet data usage and SMS messages.
However what was perhaps the most disturbing aspect of the budget 2021-22 was the following statement no doubt endorsed by Shaukat Tarin in his capacity as the Finance Minister, the architect and erstwhile defender of the NFC award: "revisiting the NFC award. Moreover persuading the provinces to fulfil their funding commitments made at the time of the merger of the erstwhile FATA."
Copyright Business Recorder, 2021
ISLAMABAD: The federal government has allocated Rs6027.35 million for the ongoing and new schemes of the Law and Justice Division in the budget for fiscal year 2021-22.
The amount kept for the Supreme Court for the next financial year is Rs2,810 million and for Islamabad High Court Rs1,086 million.
It allocated Rs3,752 million for ongoing schemes, which include; Automation of Federal Courts/Tribunals (Phase-I) Islamabad Rs4,500 million, construction of Camp Office for Federal Shariat Court in Peshawar Rs118.19 million, construction of Federal Courts/Tribunals Complex at Islamabad Rs29.57 million, construction of Federal Courts/Tribunals Complex at Peshawar Rs91.33 million, construction of Islamabad High Court, Islamabad (Received PC-I) Rs1,337.25 million, construction of new building for the Supreme Court, Branch Registry at Karachi Rs2,100 million, establishment of Alternate Dispute Resolution (ADR) Centres in Islamabad Rs9.32 million, replacement of existing No01 passenger lift at Supreme Court of Pakistan, Islamabad Rs8.73 million, strengthening of Planning and Monitoring Unit in the Ministry of Law and Justice, Islamabad Rs27 million, and strengthening the Ombudsman System of Administrative Justice and upgradation/expansion of Online Complaint Management System, Islamabad, Rs26.29 million.
For the new schemes, Rs2,275.13 million have been allocated, which are; acquisition of 5.4 acres of land for construction of Secretariat for Attorney General for Pakistan, Advocate Generals, and allied offices in connection with the Supreme Court of Pakistan Rs380 million, archiving and digitization of legislations and record of the Ministry of Law and Justice Rs61.656 million, automation of Federal Court/Tribunals Rs215 million, construction of Session Divisions (East and West) at G-11/4, Islamabad Rs1,500 million, replacement of two passenger elevators at Federal Shariat Court Building, Islamabad Rs28.24 million, strengthening of National Judicial Automation Unit (Feasibility Study-PC-II) Rs30.90 million, and Upgradation and expansion of "Data Centre" of the Federal Ombudsman's Secretariat, Islamabad Rs58.32 million.
Copyright Business Recorder, 2021
ISLAMABAD: The government has earmarked a sum of Rs 21.04 billon for Interior Division for fiscal year 2021-22 under Public Sector Development Programme (PSDP), compared to Rs14.76 billion in fiscal year 2020-21.
The budget document shows an increase of 42.6 percent in funds allocated for various attached departments of the Interior Ministry, including Federal Investigation Agency (FIA), Islamabad police, Immigration and Passport (I&P), Frontier Constabulary (FC), Pakistan Coast Guards and Pakistan Rangers, and Islamabad Capital Territory (ICT) administration
According to budgetary document released Friday, the Interior Division would execute 26 new and 24 ongoing projects during next financial year 2021-22.
Out of Rs 21.04 billon, Rs 3154.671 million allocated for land acquisition for conduction of water from Indus Water System at Tarbela Dam to the twin cities of Islamabad and Rawalpindi, while another Rs 3000 million has been earmarked for construction of 10th avenue Islamabad.
The government has allocated Rs 1717.380 million for Korang River and Rawal Lake Water Treatment Islamabad, and set aside Rs 1000 million allocated for balance works for operationalization of metro bus from Peshawar Morr to new Islamabad International Airport.
According to the budget document, Rs 825 million for construction of Koran bridge and PWD underpass Islamabad and Rs 800 million for construction of Model Prison at H-16 Islamabad.
In the budget 2021-22, Rs 710.215 million for capacity enhancement of Western Border by rising eight additional wings for Frontier Crops Balochistan, Rs 530 million allocated for Water Supply System in Forward Area of FC south DI Khan and another Rs 500 earmarked for development infrastructure in UC Sohan, Rajwal Town, Chak Shahzad, Saidpur, Noorpur Shahan Malpur, KoHathical, Phulgran, Pindi Bhawal and Kurri Islamabad.
Under the new scheme, Rs 457 million has been allocated for construction of accommodation for Bhitall Rangers at Karachi, Rs 400 million for feasibility study for conduction of water from Indus water system at Tarbela Dam to the cities of Islamabad and Rawalpindi and another approved for Rs 400 million for operational improvement of FIA in Anti Money Laundering and Counter Terrorism and Case Management System.
As per the budget breakdown, Rs 400 million has been earmarked for revamping of Cyber Crime Wing of FIA, besides setting asides Rs 400 million for construction of accommodation for 2 wing headquarters at Mehrban Killi and Barai Pakdara Khyber Tribal district FC Khyber Pakhtunkhwa.
The government has allocated Rs 400 million construction of accommodation for 2 wing headquarters at Jamal Maya and Chari Killi Orakazi Tribal district FC KP Peshawar and earmarked another Rs 359.500 million for construction of administrative and operation facilities of headquarters Wana FC KP.
Copyright Business Recorder, 2021
KARACHI: With the reduction in Capital Gains Tax to 12.5 percent and deletion of WHT, the Federal Budget for FY22 is positive for Pakistan equities, analysts said.
The federal budget for FY22 was presented by Finance Minister Shaukat Tarin in the National Assembly on Friday.
"We believe the budget announcement is mostly positive for Pakistan equities," Muhammad Sohail, leading analyst at CEO of Topline Securities said.
Some of the key announcements from the budget are reduction in Capital Gains Tax to 12.5 percent from 15.0 percent with a view to lower rates further and deletion of WHT on NCCPL Margin financing. The Turnover Tax has been reduced to 1.25 percent from 1.5 percent.
"The budget, as expected has focused on inclusive and sustainable growth, while providing relief to masses through the Ehsaas Program (allocation of Rs 260 billion), providing cheaper financing and other measures," Muhammad Sohail said.
The budget also does not entail any new material taxes, while there have been no changes in tax rates for salaried class, he added.
As per preliminary analysis, he believed the budget announcement is positive for Flat Steels (cut in HRC duties), Pharmaceuticals (cut in duties on import of APIs), IT (Zero Rating), Textiles/Consumers/Foods (reduction in duties) and Refineries (exemption on tax on BMR). The budget is neutral to positive for Power (allocation of subsidy towards PHPL and IPPs), Banks (removal of WHT for non-filers), Cements and Rebar Steel (higher allocation for development expenditure) and Autos (reduction in duties on car below 850CC).
According to him, the budget is negative for Telecom operators due to higher taxes.
The government has set a GDP growth target of 4.8 percent for FY22 versus provisional GDP growth of 3.94 percent in FY21. The government expects Agriculture, Industrial and Services sector to grow by 3.5 percent, 6.5 percent and 4.7 percent, respectively during FY22.
An analyst at AKD Securities said that the Budget'22 appears highly positive with the reduction in CGT being a key development - after years of demand by the investment fraternity. At the same time, Capital Market budgetary measures include removal of WHT on marginal financing by NCCPL and removal of WHT collected from members by the PSX.
He said initial impression indicates the Refinery sector as a key beneficiary (10 year tax exemption on deep conversion new refiners and BMR for existing). The incidence of tax exemption hints at likely approval of other tenets of the Refinery Policy in the upcoming days.
Other beneficiaries of Budget'22 include Pharmas (exemption of CD and ACD on APIs), Food (duty relaxation on RM), Footwear (duty relaxation on RM), Chemicals (duty relaxation on RM), Textiles (reduction/exemption of CD, ACD and RD on RM falling under 589 PCTs; rationalization of WHT for exporters) and Food (reduction/exemption of CD/ACD for poultry industry and RM for food processing industry).
He said budget will have negative connotation for 800cc below manufacturers (removal of RD and CD on 850cc below CBUs).
Copyright Business Recorder, 2021
KARACHI: Business community and political parties expressed mix reaction on third budget of PTI government for the year 2021-22. They were of the view that the final opinion can only be shared after going through the budget documents and finance bill.
Vice President, Pakistan Businesses Forum (PBF) Ahmad Jawad has criticised the federal government for doing "too little, too late" in terms of creating fiscal space for agriculture sector in its over hyped budget 2021-22.
He said despite two digit inflation and record growth in major agriculture crops in the fiscal year of 2020-21, government once again give peanuts in the 2021-22 budget speech, except two lac loan facility without interest payment will be given to small farmers on the account to purchase tractors and other agriculture machinery; including one lac and fifty thousand loan facility without interest payment for sowing of all crops given to small farmers. Further one billion rupee will be allocated to increase olive production.
Unfolding the details, Jawad stated that there was no increase in the agriculture credit facility. No incentive announced in the budget speech for the enhancement of agriculture exports, no incentive given for the new start ups in the field of agriculture sector, no incentive were given on the subsidy of fertilisers for the farmers and no incentive given to horticulture sector which is one of the major share holder in the country's exports. However, tax exemption on the storage facility for agri crops is a welcoming step.
He further said government fixed the agriculture growth target at 3.5 percent for the coming fiscal year and it seems agriculturists will achieve the target on there own and once again provide due support to the country GDP target for the year of 2021-22.
Ahmad Jawad welcomed the development package for the areas of South Balochistan and the city of Karachi and similarly termed GDP target of 4.8 percent a good omen for the economy; including relief for telecom sector in the form of duties.
Former President of KCCI, Abdullah Zaki welcomed the reduction of sale tax rate from 17 percent to 12.5 percent and exemption of value-added tax on small cars up to an engine capacity of 850cc.
He said that the reduction of duty on industrial raw material will help reduce the cost of doing business. Revenue target is achievable, he added. He also welcomed the self assessment scheme and expressed hope that it will reduce blackmailing.
Showing his dismay over the federal budget, Pasban Democratic Party (PDP) Chairman Altaf Shakoor said the hapless nation again witnessed yet another disappointing budget of the PTI government in which no relief was given to price hike affected masses. He said public sector development programme of just Rs900 billion is peanuts for provinces.
He said 25 percent raise in salaries of government employees was promised but just 10 percent increase was given to them, which is injustice and trickery. He said the price hike is on the fire and raise in salaries is not proportionate to it.
He asked who would get Rs530 billion subsidy for electricity as the electricity rates in Pakistan are already highest in Asia.
Altaf Shakoor said that tagging Rs12 billion for agriculture sector is a joke. He said 8 percent target for inflation in this budget would open new floodgates of poverty and hunger in Pakistan.
He said it seems that these rulers would present a mini-budget within next six months.
Altaf Shakoor said that approval of this budget from cabinet is disappointing. He said mafias are benefited in the budget while there is nothing for the poor. He said this heavily deficit budget would further increase burden of loans. He said the PTI government never gave attention to widen the tax net and find new avenues of revenue collection.
He said 4.8 percent growth rate is lower even to the growth rate of Bangladesh. He said the government has done nothing to promote industry and this budget has also not allocated sufficient funds for industrial growth.
He said both government and private sector employees are hard hit by price hike and steps should be taken to increase the salaries of private sector employees at least at the rate of 10 percent.
United Business Group, spokesman, Mirza Ikhtiar Baig termed the federal budget as good budget in the present circumstances and added that efforts have been made to support the neglected sectors including IT, SME etc.
He said that Pakistan is an agriculture country but in last few years cotton production has declined from 13 million bails to 6 million bales. He said efforts have been made to improve agriculture products, which is commendable.
He especially thanked Chairman FBR Asim Ahmed and Member Inland Revenue (Operations) Dr Ashfaq Ahmed for crossing Rs4.143 trillion revenue collection in 11 months of the current fiscal year and payment of Rs250 billion refunds under faster system that has helped exporters to improve their cash flows resulting in recent increase in exports.
Copyright Business Recorder, 2021
The Pakistan Tehreek-e-Insaf (PTI) government presented its third budget with a total outlay of Rs8,487 billion on Friday.
Apart from all the figures and analysis, the budget is also a day that allows Pakistanis to give their two cents on the country's economic conditions.
Presented by the newly-seated Finance Minister Shaukat Tarin, the budget started off with usual sloganeering from the opposition members, much to the annoyance of many but something that has become a part of the speech in recent years.
“The traditional screaming and chanting inside the Parliament during the budget speech is so annoying. This trend should stop,” said journalist Wajahat Kazmi.
Members of the government lauded the measures taken in the Budget 2021-22. Minister for Maritime Affairs Ali Haider Zaidi termed it a ‘progressive budget’ and was of the view that it will benefit SMEs, non-conventional exports and will also generate mass level employment.
Meanwhile, skeptics were of the view that the budget will not bring any change in their daily lives.
Others expressed concern over the proposal to increase the tax on mobile internet usage. Former head of Digital Pakistan, Tania Aidrus, pointed out that taxing the internet further is a ‘regressive’ move, which will not help the move towards a 'Digital Pakistan'.
Pakistan targets 4.8% GDP growth in upcoming fiscal year
In its budget proposal, the government said that in order to "reap reasonable revenue, federal excise on mobile phone calls exceeding three minutes at Rs1 per call, SMS message at Rs0.1 per SMS, and internet data usage at Rs5 per GB is being proposed. This will result into mild taxation of a broad spectrum of population."
However, reports started circulating that the 'regressive measure' could be rejected when the Finance Bill is presented in the lower house of parliament.
Meanwhile, remembering past measures, an individual congratulated former finance minister Abdul Hafeez Shaikh for ‘stabilizing and streamlining’ the economy.
Others were more critical of the government, terming the allotment of budget as ‘unfair’ and catering only to the elite.
The Pakistan Tehreek-e-Insaf (PTI) government unveiled its third budget on Friday with an aim to balance GDP growth and fiscal expenditure amid loud ruckus by the opposition.
The budget announcement is being made at a time when Pakistan is combating challenges on multiple fronts including pandemic-induced poverty, a strangling fiscal deficit, and economic recovery.
Finance Minister Shaukat Tarin, presenting the budget for PTI for the first time, continued to power through his speech even as chants by the opposition got louder across the hall.
Tarin, the country's fourth finance minister in less than three years of the PTI government, began his speech drowned in noise by the opposition. Such an environment has become usual in the National Assembly when a government presents the budget. Similar scenes were also seen when the Pakistan Muslim League-Nawaz presented the budget.
The total outlay of the budget stands at Rs8.49 trillion, up 19% from the revised number of the previous year.
Reduction in rate of capital gains tax on disposal of securities from 15% to 12.5%, reveal budget documents. The announcement is likely to give a boost to the KSE-100 Index that has rallied over 70% since its fall at the onset of the pandemic in March 2020.
Defence spending to be Rs1.37 trillion in the upcoming year.
Keeping in view inflationary pressures, salaries of federal government employees and pensions would be increased by 10%, says Tarin.
Allocation for subsidies increased to Rs682 billion.
Withholding taxes on the usage of mobile phone services has been proposed to be reduced.
Vaccination drive will cost Pakistan $1.1 billion till the end of fiscal year 2022 as it aims to inoculate 100 million citizens by then, says the finance minister.
Focus will need to be on increasing production of major crops so that the country does not rely on imports
No new taxes on the salaried class, says Tarin. "The government will introduce reforms in the taxation system that would make it easier to file returns."
CKD kits for electric vehicles will see a reduction in duty, adds the finance minister. Federal excise duty on cars up to 850cc produced in Pakistan will also be reduced.
Karachi's transformation plan will be allocated Rs98 billion from the PSDP, says Tarin. Allocations have also been made to uplift Balochistan and Khyber-Pakhtunkhwa.
An 18% increase in tax collection has come on the back of Pakistan's economic recovery, says Tarin, adding that those who criticise need to look at the revenue figures as well.
The ex-banker says focus will need to be on increasing production of major crops so that the country does not rely on imports. One of Pakistan's major challenges is controlling its import bill that usually spirals, and leads to a balance of payments crisis.
Budget 2021-22 will be pro-growth, and Pakistan will target 4.8% in the coming fiscal year, says Tarin.
Pakistan will offer interest-free loans up to Rs500,000 to boost spending by households, adds the finance minister.
Tarin says Pakistan will take different initiatives to help lift people out of poverty including the Ehsaas programme, adding Rs260 billion have been allocated to it, which is the highest so far.
This is a budget meant to promote growth, says Tarin. Federal PSDP allocation has been increased to Rs900 billion, up from the original allocation of Rs630 billion in the previous year.
The ex-banker also says a national emergency programme has been announced to promote the livestock sector.
Investments and allocations to be made in projects that help people, says Tarin.
On Thursday, Tarin, while unveiling the Economic Survey 2020-21, credited the government for its policies in response to multiple challenges, but said the economy needed a growth of 6-7% if it wanted to reduce unemployment. Pakistan registered GDP growth of 3.9% in the outgoing fiscal year, a number that beat many earlier estimates.
However, many believe that higher growth will need to be financed in part by government expenditure.
The government now has the added challenge of financing Pakistan's vaccination drive as it ambitiously plans to inoculate a maximum number of people against Covid-19 in as little time as possible. The government has already announced that it will be mandatory for all private and public sector employees to be vaccinated, with provinces also introducing penalties of salary suspensions. A couple of days ago, Pakistan announced that it has vaccinated 10 million people.
A recurring wave of Covid-19 and frequent, but 'smarter', lockdowns have already put the economy on a stop-and-start loop. However, Tarin said Pakistan's response to the pandemic has been much better than that of other countries.
JP Morgan puts weight behind Pakistan's economy, but cautions over challenges
In its report earlier this week, JP Morgan, a leading financial services company, said that it saw Pakistan's economy growing at 4% in the coming fiscal year.
"The risks of restrictive actions to contain the virus remain and continue to weigh on the growth outlook," said JP Morgan in its report titled, 'Pakistan: Reassessing the investment thesis'.
