Sindh's Budget for FY24

Introduction:

The Sindh government recently revealed its budget for the upcoming fiscal year. Despite facing an economic slowdown, the government sets an ambitious target of collecting Rs469.90 billion in provincial taxes. While the budget layout of Rs2.24 trillion projects a deficit of Rs37.79 billion for FY24, the government plans to manage its finances through federal transfers, foreign assistance, grants, and domestic borrowing.

Balancing Revenue Sources:

The government aims to collect a significant portion of provincial taxes from indirect taxes, such as the General Sales Tax Provincial, which primarily impacts the common people. However, the share of direct taxes, collected from wealthy individuals, remains minimal in the planned FY24 budget. The budget document reveals that only Rs8.11 billion is expected to be collected from direct taxes, which is less than 2% of the total provincial tax collection target. In contrast, indirect taxes are projected to contribute 71% (Rs312.51 billion), while other indirect taxes are estimated at 27% (Rs117.26 billion).

Agricultural Tax Challenges:

Despite being a major agricultural producer, Sindh has struggled to mobilize targeted revenue from agriculture taxes. In FY23, taxes collected from the liquor business were significantly higher than those from agriculture taxes. This raises questions about compliance in paying taxes on agriculture products. Nonetheless, the government has set an ambitious target of Rs3.63 billion for agriculture tax collection in FY24, compared to Rs900 million collected in the previous year.

Revenue Targets and Economic Factors:

The target of collecting Rs469.90 billion in provincial taxes for FY24 represents a 25.5% increase compared to the initial target for FY23. However, the government revised down the FY23 tax collection target due to the economic slowdown. Chief Minister Syed Murad Ali Shah attributed the decline in collection to factors such as a sluggish economy, high federal levies, and lackluster infrastructure development cess collection due to import restrictions. Despite these challenges, the government remains optimistic and expects increased collection in the next financial year, banking on fiscal reforms implemented over the past five years.

Revenue Streams and Anticipated Growth:

While the government has set zero capital value tax (CVT) on immovable property for FY24, it aims to collect Rs235 billion in sales tax (General Sales Tax Provincial), reflecting a 30.5% increase compared to the previous fiscal year. Additionally, the budget estimates federal transfers at Rs1.35 trillion, foreign project assistance and grants at Rs295.52 billion, local repayments/loans, and bank borrowing at Rs36.13 billion. The budget also includes a proposed non-tax revenue of Rs32 billion for the next financial year.

Conclusion:

Sindh’s budget for FY24 sets ambitious revenue targets while acknowledging the challenges posed by the economic slowdown. The government aims to strike a balance between indirect and direct taxes, focusing on sectors like agriculture and liquor business. By implementing fiscal reforms and anticipating an uptick in economic activities, the government remains confident in achieving its revenue goals. However, it will closely monitor national economic indicators and federal transfers to navigate prevailing economic conditions effectively.