Reflections on provincial budgets FY27—III

Just like other provinces, the messages in the ‘white paper’ of Balochistan are once again generic, and lack any specific indication as to what are the economic philosophical underpinnings of economic policy – whether neoliberal, or non-neoliberal, austerity-based, or non-austerity based, and pro-cyclical, or non-cyclical in nature.

Moreover, while broad economic outcomes are being alluded to, for instance allocating ‘resources to key sectors such as education, healthcare, infrastructure development, and agriculture to ensure sustainable development across the province’ and ‘enhancing public services and creating opportunities for employment and entrepreneurship’, yet what is not clear is firstly, some details on economic outcomes being targeted within these broad areas, and what is the extent of the role of public sector in taking forward the provincial economy, in terms of partnership with the private sector, and role in co-creation of markets.

Also read: Reflections on provincial budgets FY27—I

These indications, for instance, otherwise reflect the productive and allocative dimensions of the budget, but are overall missing in the messages/statements in the ‘white paper’. In addition, while it is important to improve ‘tax collection mechanisms,’ and ‘control operational expenses,’ as indicated in a message in the ‘white paper’, it is important to highlight the direction of tax policy being taken; for example, in terms of indicating medium-term targets with regard to both moving away from regressive taxation to enhance equity aspects of taxation, and increasing development expenditure.

As per the annual budget statements (ABS) of the four provinces – Punjab, Sindh, KPK, and Balochistan – and just like the federal budget, there is no clear indication provided to make an otherwise much-needed shift from indirect taxes to direct taxes.

Moreover, in the spirit of removing regressive taxation, the sales tax on services – a significant indirect tax– needs to be diminished; hopefully, over the medium-term while the gap is filled by direct taxes primarily through rationalizing tax rates, and enhancing tax base both at the provincial and federal levels.

In the case of Punjab, budgetary estimates for FY27 for indirect taxes stood at Rs.673.2 billion, which is more than the revised estimates for the last fiscal year by Rs.205.6 billion, indicating, in turn, the wrong direction of policy, where instead of lowering indirect taxes, they are being enhanced.

Also read: Reflections on provincial budgets FY27—II

On the other hand, direct taxes are much less than indirect taxes, and as per budgetary estimates for FY27 stood at Rs.59.5 billion, where within direct taxes, agricultural income tax target for FY27 was kept at Rs.12.5 billion.

There is a lack of ambition being shown in terms of enhancing direct taxes, whereby direct tax budgetary estimates are only being targeted by more than Rs.14.6 billion over revised estimates for the last fiscal year, while with regard to agricultural income, budgetary estimates for the last fiscal year are only being kept at Rs.8.5 billion over the revised estimates for the last fiscal year.

This is strange in view of the fact that the rising level of inequality requiring lessening of regressive, consumption-based, indirect taxes, and also greater fiscal space is needed to pursue much-needed counter-cyclical policy to break away from an otherwise highly sub-optimal economic growth rate seen over the medium-term. At the same time, within direct taxes, the revised estimates for property tax revenue for FY26 only stood at Rs.27.3 billion, and are being only raised in terms of budgetary estimates by Rs.16.3 billion to around Rs.43.6 billion. It is quite shocking that while agriculture and property contribute to nominal GDP in FY26, yet they contribute so little in terms of income tax revenue!

The situation of Sindh is not that dissimilar from Punjab’s, where against the budgetary estimate for the last fiscal years in direct taxes at a Rs.10 billion, the revised estimates only see government likely reaching Rs.3.3 billion (that is around only one-third of what was budgeted), while the budgetary estimates for FY27 for direct taxes are also kept at Rs.10 billion. Here, within direct taxes, revised estimates for FY26 agricultural income tax, and property tax stood at Rs.2 billion, and Rs.1 billion respectively, against budgetary estimates for the last fiscal year for these two at Rs.8 billion, and Rs.1.4. At the same time, the budgetary estimates for the last fiscal year stood at Rs.6 billion for agricultural income tax (lesser than budgetary estimates for last fiscal year), and Rs.1.4 billion (same as budgetary estimates for FY26).

At the same time, indirect taxes, which are regressive in nature, and also distort prices have seen perpetuation overall, whereby against the budgetary estimate of indirect taxes for the last fiscal year at Rs.461.4 billion – against which the revised estimates for FY26 stood at Rs.426.4 billion – for FY27 the budgetary estimates for indirect taxes stood at Rs.535.4 billion. Here, a major portion of indirect taxes is composed of sales tax. Unlike the federal government, which has not shown direction by lowering rates to shift away from regressive taxation—especially given the drastic rise in poverty in recent years—provincial governments have also failed to make this directional change by lowering their provincial General Sales Tax (GST) rates, even though these rates vary slightly across provinces. It is, therefore, hoped that both federal and provincial governments preferably put in place a medium-term policy direction of lowering provincial GST, and hopefully do away with it altogether. On the contrary, budgetary estimates of Sindh for FY27 for provincial GST stood at Rs.450 billion, which is more than the revised estimates for last fiscal year, which is Rs.360 billion; while budgetary estimates for FY26 stood at Rs.380 billion.

In KPK the same direction of policy is seen with regard to direct taxes being lower than indirect taxes, and the direction of policy is not indicative of shifting away from consumption-based taxation to income-based taxation. Not only are the volumes of direct taxes much higher than Sindh’s and Punjab’s, which are much bigger provinces in terms of contribution to GDP and population, for instance, but also the difference between direct and indirect taxes is much less than the two provinces. Hence, budgetary estimates for FY27 for direct and indirect taxes stood at Rs.695.4 billion, and Rs.811.4 billion, respectively, which are higher than revised estimates for the last fiscal year by Rs.108 billion for direct taxes, and Rs.128.4 billion for indirect taxes.

It is important to note that both overall indirect taxes, and in terms of provincial GST, there is no reversal of direction to shift away from indirect taxes. Here, with regard to indirect taxes the budgetary estimates for FY27 stood at Rs.704.9 billion, which are higher than both the budgetary estimates for the last fiscal year at Rs.663.6 billion, and revised estimates for FY26 at Rs.602.7 billion. Similarly, within indirect taxes, budgetary estimates for sales tax for the last fiscal year stood at Rs.453.1 billion, which are more than the budgetary estimates for the last fiscal year by Rs.15 billion, to stand at Rs.437.3 billion, while revised estimates for FY26 for sales tax stood at Rs.398.4 billion.

To be continued

Copyright Business Recorder, 2026