Aurangzeb cuts development budget amid criticism

Rs250b budget cut, Rs15b tax withdrawn to secure PPP support

ISLAMABAD:

Finance Minister Muhammad Aurangzeb announced on Tuesday a Rs250 billion cut in the development budget and the withdrawal of Rs15 billion in taxes while granting three-month honorariums to Parliament employees.

During his speech concluding the budget debate in the National Assembly (NA), Aurangzeb also relaxed conditions on foreign travel bans and introduced a 75% tax on non-filers. These measures were part of efforts to secure the Pakistan Peoples Party’s (PPP) support for the budget, despite sharp criticism from Chairman Bilawal Bhutto, who labelled the budget as one crafted by and for bureaucrats.

Bhutto condemned the government for imposing taxes on essentials such as infant milk, packaged milk, educational materials, mobile phones, and computers. Deputy Prime Minister and Foreign Minister Ishaq Dar supported some of Bhutto’s recommendations, promising they would be addressed.

The finance minister revealed that the government, following Senate recommendations, had rescinded proposals to impose a 10% sales tax on stationery, 25% on hybrid electric vehicles, and 18% on local supplies, machinery, and plants for exporters. These reversals are expected to have a cumulative negative impact of Rs15 billion.

Aurangzeb explained that the Rs250 billion budget cut would be managed through increased public-private partnerships. Out of the Rs1.5 trillion Public Sector Development Programme (PSDP), Rs350 billion will be allocated to these partnerships, reducing the PSDP’s size to Rs1.15 trillion from the previously approved Rs1.4 trillion by the National Economic Council. Notably, the Rs65 billion allocated for PPP projects remains untouched, as per PPP demands.

These budget adjustments aim to align with the International Monetary Fund (IMF) programme targets, which Aurangzeb indicated were progressing positively.

Despite criticism, no reduction was announced in the higher tax rates for the salaried group. However, Aurangzeb announced honorariums equivalent to three months’ basic salaries for the staff and officers of the NA and Senate. “The budget is based on a homegrown reform plan aimed at pulling the country out of its current economic situation, necessitating economic reforms,” Aurangzeb stated. He highlighted the government’s goals to increase the tax-to-GDP ratio to 13%, pursue privatisation, and implement reforms in state-owned enterprises (SOEs) and the energy sector. The private sector will be prioritised, shifting from a government-led to a market-driven economy. Aurangzeb announced a relaxation on the stringent conditions for imposing a 75% income tax on SIM cards for non-filers and their international travel restrictions. Before blocking mobile SIMs and banning international travel for non-filers, individuals will be granted a personal hearing.

Additionally, a new concession was introduced for non-filers and a newly defined category of late filers. A person will be considered a filer if they have filed income tax returns on time in any of the last three tax years. The Senate proposed that the late filers’ rate of 6% to 8% should not apply to those who have timely filed their return of total income in any of the last three tax years.

Late filers have been offered to buy assets by paying lower-than-non-filers income tax rates.

Aurangzeb also accepted the Senate’s recommendation about the exclusion of financially independent spouses from the asset details of taxpayers. The asset details of a taxpayer’s spouse can now only be included in the wealth statement if the spouse is dependent. This will free politicians and politically exposed persons from undue scrutiny during witch hunts.

On Tuesday, the finance minister said that under the directives of the prime minister, the government has tried to protect “as much as possible” the agriculture, health, education, and renewable energy sectors. He said retailers should be part of the tax net for which strict measures need to be taken.