Cabinet green-lights Rs4.42tr deficit budget

In a first, PM approves budget proposals via video link from London


Shahbaz Rana May 30, 2016
PHOTO: REUTERS

ISLAMABAD: The federal cabinet on Monday approved a deficit budget of Rs4.42 trillion which, like proposals in previous years, lacks major policy initiatives to put the country on the path to sustainable economic growth.

The proposals appear to strike a balance between fiscal consolidation, imposed by the International Monetary Fund, and some incentives for the industrial sector. It was approved by the cabinet during a meeting which was presided over by Prime Minister Nawaz Sharif via video link from the Pakistan High Commission in London, a first in the country’s history.

Rs1.67 trillion development budget approved

The government expects tax revenues to climb to Rs3.635 trillion, a new historical level, thanks to heavy indirect taxation.

To boost earnings for next year, the budget proposes Rs170 billion in new taxes which will largely overburden existing taxpayers.

Further, the government is proposing to increase defence spending by over one-tenth to Rs860 billion, up by Rs79 billion from last year.

The federal cabinet has also approved measures to further limit tax-free cash withdrawals from banks by linking the Rs50,000 limit to one identity card against the current practice of unlimited banks accounts.

Other measures approved will see tax hikes on a string of consumer items. The super tax has also been extended for another year.

Tax reliefs, albeit for select sectors, include lower rates for Pakistan Cricket Board. Tax benefits will also be extended for industrialists.

While Nawaz specially asked for a special package for farmers including substantial subsidy on urea, budgetary proposal for abolishing sales tax on pesticides has been approved.

Rs1.7t development budget proposed for upcoming fiscal

After the federal cabinet’s approval, Finance Minister Ishaq Dar will present the budget in the National Assembly on Friday.

Expenditure

The total estimated size of federal expenditures is over Rs4.42 trillion, around 8% higher than last year’s budget of Rs4.1 trillion. The government will borrow Rs1.6 trillion, 4.8% of Pakistan’s gross domestic product (GDP), to run the country.

Despite the large deficit, the four provinces are expected to save about Rs335 billion or 1% of GDP from their incomes. This will bring down the national budget gap to Rs1.28 trillion or 3.8% of GDP. This is in line with targets set by the IMF for fiscal year 2016-17, including a special waiver of 0.3% due to one-off spending of Rs100 billion on Temporarily Displaced Persons (TDPs).

Listing expenditures at Rs3.4 trillion, the federal cabinet has decided to maintain subsidies for the incoming fiscal year at Rs169 billion.

With local government elections being held late last year, the cabinet has increased the budget of running the government by 6.8% to Rs348 billion.

The government has set aside Rs245 billion to pay pensions, to military and civilians. However, a major chunk worth Rs542 billion has been allocated as ‘grants’, which usually is provided to the military for defense procurements.

Taxation

The government has proposed to remove limitations on taxing unexplained assets of non-filers while transactions up to year 2002 can be investigated.

The cabinet approved advance tax on Alternate Corporate Tax.  It also approved a proposal to levy 1% minimum tax on companies that are declaring gross losses.

Pakistan’s development budget to undergo Rs402 billion cut

It approved to increase dividend income tax rate to 20% for non-filers of income tax returns against the existing rates of 17.5%. It also approved 3% withholding tax on cars leased by banks and such companies. Raising taxes on consumer items, the government is proposing to increase federal excise duty on cigarettes from Rs3,030 per thousand sticks to Rs4,500 for cigarettes with printed sales price of over Rs3,350. Those with sales price below Rs3,350, federal excise duty rates have been raised from Rs1,320 to Rs2,000.

The cabinet has approved 10% sales tax on meat, poultry. The poultry and animal feed to be charged 5% sales tax. A 17% tax is approved on soya bean meal, sunflower seed.

Published in The Express Tribune, May 31st, 2016.

COMMENTS (9)

vinsin | 5 years ago | Reply @ahmed: Security expenses = 860 (budgeted) + 80 (coalition fund) + 245 (pensions) + 542(grants) + 100 (IDP) = Rupees 1827 billion 300 billion for nuclear weapons not added.
Qazi Rahim | 5 years ago | Reply Tax agriculture sector and you can cover the defect. All the crooks are hiding their money in guise of agricultural earnings.
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