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KARACHI: The government is likely to set GDP growth target of 4.8 percent in the upcoming federal budget for FY22 with a likely budget outlay of Rs 8.0 trillion, up 12 percent from last year’s budget, experts said.

This is encouraged by higher-than-expected provisional GDP growth of 3.94 percent in the outgoing year (FY21) as compared to preceding 5-year, 10-year and long-term average growths of 3.4 percent, 3.6 percent and 4.8 percent respectively, they added.

“With the arrival of Shaukat Tarin as Minister of Finance, we believe the budget is likely to target higher growth next year with an overall focus on increasing expenditures,” Muhammad Sohail, leading analyst and CEO of Topline Securities said.

He said one of the key areas of focus to achieve a higher growth in FY22 is likely to be agriculture, where past 5-year, 10-year and long-term average growths have been 2.6 percent, 2.4 percent and 3.2 percent respectively. Agriculture has a 19 percent share in Pakistan’s GDP.

He said the government may give shape to earlier announced subsidy on fertilizers, along with few more steps to enhance agriculture productivity. This in turn is also likely to help check food prices, which has been a major reason behind higher CPI inflation. Government is also targeting cotton production of about 10.5 million bales in FY22, which fell abysmally by 34 percent on year-on-year to 5.6 million bales in FY21. Cotton has a weight of 4 percent in overall agriculture output.

To continue momentum in industrial growth, government is likely to reduce custom duties etc. The industrial sector has grown at 5-year, 10-year and long-term averages of 1.4 percent, 2.6 percent and 6.5 percent respectively. Finance Minster has also hinted that incentives will be provided to export-oriented sectors and services sectors with particular focus on IT space. Services has grown by 4.3 percent, 4.4 percent and 5.5 percent over the past 5-year, 10-year and long-term, respectively.

The government has been in talks with the IMF to set tax and non-tax revenue collection targets for the next year and to negotiate to soften program conditionalities due to the third wave of COVID-19 outbreak. The government wants to set FBR tax revenue target of Rs 5.8 trillion for FY22, which will be lower than IMF’s target of Rs 6.0 trillion. That being said, target is still likely to be 23 percent higher compared to estimated collection of Rs 4.7 trillion in FY21, which we believe will still be an ambitious target. The government is likely to target additional Rs 600 billion to come through nominal GDP growth of 13-14 percent. The Finance Minister has hinted that Rs 200-300 billion may be added through improving the overall efficiency of Federal Board of Revenue. The government expects Rs 100-150 billion to come in through the already implemented Income Tax amendments in Feb-2021, while the remaining Rs 100-150 billion to be generated through new taxes and/or removal of exemptions.

The FBR is working on different proposals to generate additional revenue through withdrawal of sales tax exemptions, abolition of concessionary/reduced sales tax rates, changes in Federal Excise Duty (FED) regime, raise in tax burden for higher income slabs in salaried class, reduction in the number of personal income tax slabs, adjustment of rental income, installation of Point of Sale (POS) machines etc. FBR tax revenue collection (as % of GDP) is expected at 10.1 percent in FY21, which is likely to rise to 10.8 percent in FY22. During the past 5-year and 10-years, the same has averaged at 10.4 percent and 9.7 percent, respectively.

The government is looking to generate additional income through non-tax revenue sources, where the government expects Rs 155 billion from the telecom spectrum auction. Then on-tax revenue target is likely to be set at Rs 1.4 trillion for FY22 against the outgoing year’s target of Rs 1.1 trillion.

Copyright Business Recorder, 2021


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