Introduction:

The federal government has recently announced the budget for the financial year 2023-2024. The budget includes various relief measures, revenue measures, and legislative changes aimed at promoting economic growth, facilitating trade, and encouraging investment in key sectors. This blog post highlights the salient features of the budget and provides an overview of the key measures proposed.

Download Budget File

Guiding Principles:

The budget is guided by several principles, including:

1. No increase in duties on the import of essential items.
2. Trade facilitation and ease of doing business.
3. Encouragement of industrialization and investment.
4. Incentives for the agriculture sector.
5. Promotion of energy efficiency and conservation.
6. Promotion of Information Technology (IT) and IT-enabled services.

Finance Minister Ishaq Dar Targets 3.5% Growth in ‘Responsible Budget’ for 2023-24

Relief Measures:

The budget introduces several relief measures to support various sectors, including:

1. Exemption of Customs duties on specific papers and art cards and boards for the printing of the Holy Quran.
2. Incentives for the Pharma sector by including one more API and 03 drugs in the existing duty-free regime.
3. Exemption of Customs duties on raw materials of Diapers, Sanitary Napkins, and Adhesive Tape.
4. Reduction of Customs duty from 10% to 5% on non-localized (CKD) of Heavy Commercial Vehicles (HCVs).
5. Exemption of Customs duties on the import of seeds for sowing to promote growth in the agricultural sector.
6. Exemption of Customs duties on import of shrimps/prawns/juveniles for breeding in commercial fish farms and hatcheries.
7. Exemption of Customs duties on roasted peanuts for manufacturing of ready-to-use supplementary foods (RUSF) by World Food Program certified manufacturers.
8. Increase of Customs duty on Carbides of Calcium from 3% to 11% to protect the local industry.

Revenue Measures:

The budget proposes various revenue measures to strengthen the country’s revenue base, including:

1. Withdrawal of capping of fixed duties and taxes on the import of old and used vehicles of Asian Makes above 1300 CC.
2. Imposition of an adjustable advance tax on cash withdrawals.
3. Increase in withholding tax rates on the supply of goods and rendering of services.
4. Imposition of additional tax on extraordinary gains due to exogenous factors.
5. Rationalization of Super Tax rates for different income slabs.
6. Re-imposition of withholding tax on non-residents on debit/credit or prepaid card payments.

Legislative Changes:

The budget includes several legislative changes to strengthen customs operations and facilitate trade, such as:

1. Rephrasing the definition of smuggling to enable anti-smuggling operations within the territorial limits of the country.
2. Addition of Provincial Levies and Khasadar Force to assist Customs in anti-smuggling operations in Khyber Pakhtunkhwa and Balochistan.
3. Strengthening penal provisions for smuggling of essential commodities and banned goods.
4. Reduction of mandatory time for filing goods declaration at border customs stations.
5. Enhancement of the warehousing period for perishable items.
6. Provision for adjudication through Customs Computerized System.
7. Simplification of baggage declaration for passengers traveling as a group.

Conclusion:

The budget for the financial year 2023-2024 introduces several relief measures, revenue measures, and legislative changes to promote economic growth, facilitate trade, and enhance revenue generation. The government aims to provide support to key sectors such as IT, real estate, agriculture, and manufacturing while ensuring ease of doing business and encouraging investment. These measures are expected to have a positive impact on the economy and contribute to its development

.

Introduction:

Finance Minister Ishaq Dar presented the federal budget for the fiscal year 2023-24, targeting a growth rate of 3.5% for Pakistan’s economy. Emphasizing that this budget should be viewed as a ‘responsible budget’ rather than an ‘election budget,’ Dar highlighted various allocations and measures aimed at driving economic development and addressing key sectors.

Budget Highlights:

Public Sector Development Programme (PSDP):

The PSDP has been set at Rs1,150 billion, including Rs200 billion for public-private partnerships.

Exports and Remittances:

The government projects exports to reach $30 billion and remittances to reach $33 billion in the coming fiscal year.

Duty Exemption on Solar Panels and Batteries:

Customs duty on the import of raw materials used for solar panels and batteries is being removed.

Real Estate Investment Trusts (REITs):

Tax exemptions for REITs have been extended.

‘Diamond Card’ for Overseas Pakistanis:

In addition to the remittance card, a ‘diamond card’ is proposed for overseas Pakistanis who send back over $50,000 to the country.

Youth Scheme:

An allocation of Rs10 billion has been made for providing 100,000 laptops to deserving youth.

IT Services and Freelancers:

The income tax rate of 0.25% has been extended until 2026. IT professionals can import equipment at zero duty up to 1% of their exports, with a limit of $50,000 per year. IT professionals earning up to $24,000 per year are exempted from filing income tax returns. A Rs5-billion Venture Capital Fund will be established to facilitate business capital in the IT sector.

Agriculture:

Rs30 billion has been allocated for converting 50,000 tubewells to solar power. Import taxes and duties on hybrid seeds will be removed. Agri-based industrial units in rural areas with a yearly turnover of Rs800 million will be tax-exempt for five years.

No New Taxes on Industries:

The large-scale industrial sector will not face new taxes.

Current Account and Trade Deficits:

The current account deficit for the outgoing fiscal year is projected to be $4 billion, while the trade deficit is expected to be $26 billion, a decrease from the previous fiscal year.

Economic Performance Review and Criticisms:

Dar reviewed the economic performance during 2013-18, highlighting achievements during the previous government’s tenure. He criticized the previous Pakistan Tehreek-e-Insaf (PTI) government, attributing the current economic crisis to their policies and failure to adhere to commitments made to the International Monetary Fund (IMF). He stated that the incumbent government prioritized saving the country at the expense of political capital.

Conclusion:

Finance Minister Ishaq Dar’s budget speech for the fiscal year 2023-24 outlines the government’s targets and allocations to drive economic growth and address key sectors. The budget emphasizes responsible fiscal management and includes measures to support industries, IT services, agriculture, and overseas Pakistanis. The government aims to stabilize the current account and trade deficits while addressing the challenges inherited from the previous government.

Introduction:

The coalition government in Pakistan has granted an unprecedented amount of Rs2.24 trillion in tax exemptions during the current fiscal year, a significant increase of 28% compared to the previous year. The staggering figure of tax exemptions, which accounts for 43% of all exemptions granted during the tenure of the Pakistan Tehreek-e-Insaf (PTI) government, may adversely affect Pakistan’s credibility with international financial institutions and foreign nations.

Rising Tax Exemptions:

According to the Pakistan Economic Survey 2022-23 presented by Finance Minister Ishaq Dar, the cost of tax exemptions has surged by Rs483 billion, or 28%, in just one year. Despite the annual withdrawal of tax exemptions, the government has continued to grant them, resulting in the massive figure of Rs2.24 trillion for the current fiscal year. This amount surpasses the cost of constructing the Diamer-Basha dam. In total, the previous government granted Rs5.2 trillion in tax exemptions over four years.

Impact on Loan Negotiations:

Tax exemptions have consistently been part of agreements signed between Pakistan and the International Monetary Fund (IMF). However, successive governments have failed to curtail these exemptions and have even added more beneficiaries to the list. The significant value of tax exemptions, amounting to Rs2.24 trillion, can pose a challenge during loan negotiations with the IMF and when seeking budget support loans from the World Bank under the pretext of tax reforms.

Breakdown of Exemptions:

Income Tax:

The estimated cost of income tax exemptions for the current fiscal year is nearly Rs424 billion, accounting for 19% of the total exemptions. Notably, Rs14.5 billion in exemptions were granted for various allowances, while Rs52 billion was given as tax credits.

Sales Tax:

Sales tax exemptions increased by 28%, reaching Rs1.3 trillion in the current fiscal year. The rise is primarily attributed to exemptions on petroleum products, resulting in a loss of Rs633 billion. Exemptions on products protected under the Fifth Schedule of the Sales Tax Act also significantly increased.

Customs Duty:

The cost of customs duty exemptions rose to Rs522 billion, a 52% increase from the previous year. The concessions granted to the automobile sector, oil and gas exploration sector, and the China-Pakistan Economic Corridor contributed to a tax loss of Rs193 billion.

Pakistan’s Key Interest Rate Expected to Remain Unchanged Amid High Inflation: Analysts

Concerns and Implications:

The rising tax exemptions pose concerns over Pakistan’s financial position and its ability to attract external loans. The substantial amount of tax breaks granted may weaken Pakistan’s case and credibility with international financial institutions and foreign nations. These exemptions, protected by tax laws, have been challenging to curtail in the past.

Conclusion:

The government of Pakistan’s decision to grant record tax exemptions, amounting to Rs2.2 trillion, raises concerns about the country’s financial stability and its position in loan negotiations with international financial institutions. Despite the withdrawal of tax exemptions each year, the government has been unable to curtail them effectively. The Economic Survey’s findings highlight the need for a closer examination of tax policies and the implications of excessive exemptions on Pakistan’s economic health and credibility with global financial institutions.

Introduction:

Prominent economist Dr. Kaiser Bengali has issued a dire warning, stating that Pakistan’s economy is currently in a state of recession and that the country faces an imminent default without the assistance of the International Monetary Fund (IMF). Speaking at the Karachi Press Club, Dr. Bengali emphasized the challenging economic conditions, noting that the government is unable to generate additional tax revenue during these testing times. Instead, budgetary cuts are necessary to mitigate the crisis. With hopes of new foreign funding fading, the IMF loan program hangs in the balance, possibly due to demands for political concessions. The economist also highlighted the ongoing phenomenon of rupee devaluation, affecting trade and import costs.

The Recession and Budget Challenges:

Dr. Bengali expressed concern over the prevailing economic situation, stating that Pakistan’s economy is in recession. The government’s inability to generate additional tax revenue poses a significant challenge. This situation has necessitated budgetary cuts to manage expenditures. The economist noted that the budget, traditionally viewed as an economic document, has become increasingly political in nature. He anticipated that favored sectors of the economy may continue to receive tax concessions, while others bear the cost. The small number of wealthy individuals and large landowners limits the potential for generating desired direct taxes, leaving expenditure cuts as the only viable option to address the ongoing economic and financial crises.

The Role of Defence Budget and Fiscal Space:

Dr. Bengali highlighted the need for fiscal measures and adjustments in the upcoming budget for FY24. He suggested that the defense budget should be subject to revision, creating fiscal space to support economic growth. This implies that a reallocation of resources might be necessary to ensure the sustainability of the economy. By reducing the defense budget, the government aims to free up funds that can be redirected towards sectors that require immediate support, contributing to overall economic stability.

Conclusion:

Dr. Kaiser Bengali’s assessment of Pakistan’s economy raises significant concerns, emphasizing the imminent default without the support of the IMF. The economist’s observations underscore the challenging circumstances faced by the government, particularly the inability to generate additional tax revenue during the ongoing economic crisis. The necessity of budgetary cuts and a potential revision of the defense budget highlight the need for fiscal measures to navigate through the current financial challenges. As Pakistan strives to address its economic and financial crises, strategic decisions must be made to ensure long-term sustainability and growth. Collaboration with international institutions like the IMF may play a crucial role in stabilizing the economy and mitigating the risk of default.