Defence budget hiked by 6% to ‘offset inflation impact’

The government on Friday increased the defence budget for the outgoing fiscal year by nearly 6% to over Rs1.45 trillion in a bid to meet the needs of the armed forces, including their enhanced salary requirements.

The decision to increase the defence budget by another Rs80 billion was taken by the Economic Coordination Committee (ECC) of the Cabinet that in total approved Rs182 billion in supplementary grants.

The ECC also approved slapping a 10% regulatory duty on the import of petrol from China to curb the misuse of bilateral free trade agreement. Some oil marketing firms rerouted their imports through China to evade 10% customs duties.

The Ministry of Defence had demanded an additional Rs80 billion defence budget for “critical shortfalls” in addition to making adjustments in the budget for spending on the Jinnah Naval base, the Naval Base Turbat and multi-functional office building in the headquarters.

Federal Minister for Finance Miftah Ismail presided over the ECC meeting that approved Rs80 billion supplementary budget for the armed forces or to the extent of the actual additional expenditures being incurred. The finance ministry was of the view that the additional spending in fiscal year 2021-22 ending on June 30 will be less than Rs80 billion.

For the outgoing fiscal year, the National Assembly had last year approved a Rs1.373 trillion defence budget. With the raise in the spending ceiling, the next fiscal year’s defence budget may also now be higher than the earlier estimated figure of over Rs1.55 trillion.

In total, the Ministry of Defence got Rs153 billion or 11.8% additional money in this fiscal year over the revised budget of the previous year, which is equal to the average inflation rate in Pakistan. The defence spending will be equal to 2.2% of the Gross Domestic Product, excluding expenditures on the armed forces development programme.

Read Inflation spikes to 30-month high of 13.8%

In July last year, the previous government had given 15% special allowance of the running basic pay to all the ranks of the armed forces, which jacked up the army budget requirements by another Rs38 billion per annum.

However, ministry sources denied that there was an increase in the defence budget. "There is no increase in defence budget at all. The net effect is the same as the previous year.

"Inflation rate for this fiscal year is 11.3%. To cater for the inflationary impact, the Ministry of Defence received Rs153 billion as a supplementary grant. The rupee devaluation has also been absorbed and no additional grant has been requested. The total defence budget of the Army, Navy and Air Force is likely to be Rs1,453 Billion, which is 2.2% of the GDP," they added.

The ECC also approved Rs621 million for gas supply to the Pakistan Steel Mills (PSM). It was submitted that due to closure of the production activity in Pakistan Steel Mills (PSM), low flame gas of two MMCFD was being supplied to PSM primarily to preserve the Coke Oven Batteries and refractories kilns with an average monthly bill of Rs80 million.

The ECC revised the cess rates on all types and varieties of tobacco notified by the federal government on July 14.

The Ministry of Communication submitted a summary on funds required for clearing liabilities of the utility companies and agency partners of the Pakistan Post Office Department (PPOD). The collection of utility bills is one of the agency’s functions performed by the PPOD and the amount thus collected was deposited in SBP’s Central Account-1. Liabilities to the tune of Rs62.3 billion have been accumulated till March 31, 2022. The Rs25 billion had already been approved in April for payment to utility companies.

The ECC after detailed discussion granted permission to release funds amounting to Rs37.33 billion for clearing the remaining outstanding liabilities of the utility companies and agency partners by the PPOD after verification of claimed amount by the SBP.

The Ministry of Commerce submitted a summary on levy of regulatory duty on import of Motor Spirit (MS). It was informed that the import of MS was subject to 10% customs duty under the 5th Schedule of the Customs Act, 1969, but it was subject to 0% under China-Pakistan Free Trade Agreement (CPFTA). Those availing the FTA exemption paid zero customs duty while others paid 10% customs duty. The ECC after discussion, in order to address this anomaly, allowed levy of 10% regulatory duty on import of MS. However, where 10% customs duty was paid on import of MS, it would be exempted from levy of regulatory duty.

The ECC also deliberated and approved a summary submitted by the Finance Division on policy for grant of honorarium with direction that the proposal may be redefined as the ECC chairman in his discretion could award additional honorarium to the employees of the federal government.

The ECC approved Rs40.5 billion for the Ministry of Commerce for payment claims cleared by the SBP, under previous government’s duty drawbacks schemes (DLTL/LTLD) of textiles and non-textiles sectors. It allowed Rs2.2 billion payment to the Federal Directorate of Education. About Rs4 billion was given to the Higher Education Commission under the World Bank project – Higher Education Development in Pakistan.

The ECC also approved Rs15 billion to meet the requirements of the Ministry of Interior.