Budget FY27: Carrots fade

Earlier, expectations were building around some relief in the budget and a possible transition from stabilization to growth. Formal businesses and employees kept highlighting the unfairly high taxation on them — and rightly so — while real estate players had high hopes for sectoral relief. There were also promises made to exporters and others.

For the past few months, the government kept showing them all carrots. However, the way things are culminating, there may not be much in the offing. The budget numbers — the bottom lines — are already being decided with the IMF, and the debate is now about how to achieve them.

The IMF is showing no leniency despite rising global oil prices, and to meet the numbers, the government may have to forgo most of its promises to the business community and salaried individuals.

That is the story. Overall economic growth is likely to slow down. Next year’s GDP growth may be lower than this year’s provisional number of 3.7 percent. Large-scale manufacturing is going to take a hit, which will have a negative impact on taxation. Interest rates are also rising again, which will push up debt servicing costs.

The reliance on taxation through the petroleum levy is likely to increase at a time when oil prices are rising. The federal government’s yield from the petroleum levy is 2.5 times higher than what it gets from taxes collected by the FBR. For instance, for every Rs100 collected by the FBR, the federal government gets only around Rs40, while in the case of the petroleum levy, the full Rs100 is retained by it.

Thus, petroleum prices are likely to remain high, keeping inflation elevated amid low growth. The salaried class may get some small actual relief — and much more relief in government advertisements. There may be some reduction in tax liability for low- to middle-income groups, while higher salary brackets may get some relief through a reduction in the tax surcharge.

Similarly, the corporate sector may get some token reduction in super tax, but it may not get what it wants in terms of easing intercorporate dividend taxation, relaxation in minimum taxes, and other demands. Formal businesses and export-oriented firms are therefore likely to continue facing a disadvantage.

Traders will remain the blue-eyed boys, while real estate players may get some relief — as they already have in the form of changes to Section 7E. The government is now returning to the old formula of trying to generate growth through a real estate pump. The eventual dump could come in the form of another balance of payments crisis. But it appears the government is losing patience.

A big hit may be coming for domestic power consumers using 200 units or less. The government is likely to end cross-subsidies for them, and they may face a sharp increase in bills amid rising fuel cost adjustments. The benefit may not be passed on to those who are currently subsidizing them; instead, it may be used to lower power sector subsidies.

This could bring a new round of inflation and more clamor. But more of the same is likely to continue.