EDITORIAL: The Sindh budget for 2025-26 was considerably more realistic relative to the federal budget on four counts. First, the budgeted increase in current revenue expenditure by 12.5 percent next fiscal year compared to the outgoing year has been attributed to inflationary pressures on operating expenses — a realistic estimate.
In marked contrast, the federal budget did not accommodate higher inflationary pressures on total current expenditure relative to the outgoing fiscal year budgeting it at 16.286 billion rupees lower than the revised estimates of 2024-25. This was in spite of increased budgeted allocations on all components of the current expenditure, excepting mark-up on debt, which was attributed entirely to a projected reduction in the discount rate over next year – a rate subject to International Monetary Fund approval.
Second, the Sindh budget has projected a provincial deficit of 38 billion rupees next fiscal year, which renders the federal budget’s proposed Sindh surplus of 298 billion rupees (out of a proposed total provincial surplus of 1217 billion rupees in the federal budget based on Sindh’s share of 24.55 percent of the divisible pool), an exercise in ludicrous accounting.
In addition, the Sindh deficit is premised on the Federal Board of Revenue meeting its budgeted target of revenue collection next year, a target that has invariably fallen short nearly every year with the shortfall in the outgoing year acknowledged at around a trillion rupees. The Sindh budget noted that its share in 2024-25 was lower than the federal budget had estimated by 104 billion rupees.
Third, the Sindh government reduced indirect taxes whose incidence on the poor is greater than on the rich. This included professional tax, entertainment duty, local cess, drainage cess, motor vehicle tax for commercial vehicles, tax on certain services reduced from 10 to 8 percent with a transition to a negative list where all services will be taxed except those on the negative list.
In marked contrast, however, the federal budget continued to rely on indirect taxes with more than 70 percent of direct taxes being collected in the sales tax mode through withholding taxes on items.
And even more disturbingly, the focus of the FBR is on generating revenue from enforcement measures that require the legislature to approve extraordinary powers to tax commissioners, with many having a rather dubious history of accepting bribes with threats, which were rightly opposed by the Senate panel and, if passed, would no doubt be challenged in the court.
The reduction of taxes on some services and placing others on the negative list, based not on political influence one would hope but on which services impact the poor more than the rich, the Sindh government budgeted 388 billion rupees more from agriculture income tax, legislated to be implemented on 1 July this year but with effectivity dating back to 1 January 2025 as per IMF conditions. This amount is what the Federal Finance Minister and the FBR Chairman claimed was what was additionally collected from enforcement measures in 2024-25 which, in turn, convinced the Fund to allow the same amount to be earmarked from this source in 2025-26 but with the caveat: failure to generate the amount must be followed by the government raising taxes by at least that amount.
The FBR Chairman told the Senate panel on Saturday that IMF approval was required for tax related proposals — a fact already known to the general public which, together with the Fund staff, would have fully supported proposals targeted to enhance enforcement of direct taxes or taxes based on ability-to-pay principle and not on those imposed in the indirect tax mode.
And finally, Annual Development Programme budgeted by Sindh for next fiscal year is 1 trillion rupees. The federal budget earmarked 2869 billion rupees for combined provinces development outlay against 2383 billion rupees in 2024-25 and here too there seemed to be little synchronicity between the Sindh budget and the federal budget: Sindh’s share was envisaged by the federal government at 733 billion rupees, given its share in the divisible pool of 24.55 percent.
Surprisingly, there was no mention of the usual PPP (Pakistan People’s Party) government’s emphasis on a public private partnership (PPP) on development projects in the provincial budget and neither did the Sindh Chief Minister mention the zero allocation for public private partnerships in the federal budget next year as well as in the current year possibly due to continued lack of private interest in investing in public sector projects as the economy continues to remain fragile.
One would, therefore, have hoped that given the long standing major water issues facing several Sindh cities, including Karachi, budgetary allocation had been made for dealing with this issue through perhaps considering setting up desalination plants that can convert sea water into drinking water as well as imposing punitive fines on using water for frivolous activities.
Copyright Business Recorder, 2025
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