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KARACHI: The Budget FY23 is an attempt to satisfy IMF on key matters relating to revenue collection, subsidy reductions and attainment of fiscal discipline, analysts said.

Unlike last year’s expansionary budget that resulted in industry-led GDP growth of 5.97 percent in FY22 and huge increase in imports, this Budget is more focused on economic stabilization, Umair Naseer at Topline Securities said.

A lot will depend on global commodity prices as they will determine outlook on Pakistan macros and the ease with which government can achieve its budgetary targets in FY23, he said. Though, FY23 revenue collection target is set at Rs 7 trillion (up 17 percent from FY22), it will be a challenge to achieve this target due to economic slowdown and lower collection from oil sales.

The tax collection (sales tax, duties, petroleum levy) from oil is roughly around 22 percent of total tax collection. Currently, government is not collecting any taxes from domestic consumers in spite of raising pump prices by 40 percent recently. An effort has also been made to provide relief measures to the poor segment of the society and increase taxations on affluent people.

Budget FY23 and IMF’s programme

An analyst at JS Global Capital said that the Federal Minister for Finance, Dr. Miftah Ismail of the PML-N led collation government unveiled the Federal Budget FY23, in the backdrop of ongoing talks with IMF and the need for fiscal consolidation.

The key areas of focus of the budget as mentioned in the speech were increased focus on direct taxes; discouraging nonproductive assets by taxing them; focus on progressive taxation; focus on productive assets and taxing the affluent class.

An analyst at Darson Securities said that the coalition government announced a much anticipated budget which will set the tone for the economy and capital markets going forwards where the GDP growth target for the FY has been set at 5.0 percent. The Current Account Balance (Deficit) for the next year FY23 is projected at $12.03 billion which would be 3.7 percent of the GDP.

An analyst at AKD Securities said that in sharp contrast to recent history, Finance Minister Miftah Ismail presented Budget’23 to a rather well behaved audience, targeting higher collection from corporates, as well as measures to increase tax net, particularly on the real estate and retail side.

Steps on increasing tax net are a big plus in the budget, particularly the decisions on real estate and fixed income and sales taxes on retailers.

From market’s vantage, initial impressions of Budget’23 are in quite contrast to earlier dreaded forecasts, where additional taxation measures on corporate profitability (income above Rs 300 million to be taxed an additional 2 percent) are likely to be overshadowed by increasing taxation of real estate, an attempt to eliminate the arbitrage other asset classes currently have over equities.

The impressions for Budget’23 certainly do appear positive where economic stabilization steps, particularly on the tax net side, should be lauded.

On the sectoral front, Budget’23 is clearly positive for pharmas (elimination of CD of 30 APIs) as well as foods (annulment of GST on wheat, maize, sunflower, canola etc. – UNITY. RMPL), textiles (tariff rationalisation on synthetic yarn, Rs 40.5 billion to be released under DLTL) and the entertainment sector (5 year tax holiday to film makers, new cinemas, production houses – HUMNL).

The market is neutral for the construction sector (real estate taxation may hurt demand while 100 percent depreciation adjustment in 1st year is positive for expanding Cement players). Budget’23 has negative connotations for Autos (no new vehicles for GoP employees; increased advance tax on autos above 1600cc – INDU), and Banks (taxation increased to 42 percent from previous 39 percent including super tax).

Copyright Business Recorder, 2022


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