Govt presents Rs9.5 trillion federal budget in NA today

| Budget deficit target projected at Rs3.77tr
| Provinces to get Rs4.1tr as share from NFC Award | Govt likely to earmark Rs650b for subsidies; Rs800b allocated for PSDP | In expenditures, debt servicing is projected at Rs4tr; domestic debt servicing at Rs3.5tr and Rs500b for foreign debt servicing | Massive subsidies of Rs1.757tr given to various sectors despite IMF opposition | Defence budget is estimated at Rs1.53tr | All major budget estimates except pay raise of civil servants finalised

ISLAMABAD   –   Amid uphill economic challenges ranging from higher inflation rate to declining foreign exchange reserves, the federal coalition government would present the annual budget for next fiscal year with a total outlay of Rs9.5 trillion.

The government would introduce measures in the annual budget in a bid to revive much needed stalled International Monetary Fund (IMF) programme. Federal Minister for Finance and Revenue Miftah Ismail would present the budget in National Assembly after getting approval from special cabinet meeting.

The government claims it is going to announce a “very progressive budget” and it would also focus on fiscal control and consolidation, to reduce the budget deficit that has got widened due to the economic policies of the previous government especially giving massive subsidy on oil and electricity prices.

Officials informed that the government has finalised all major budget estimates except increase in salaries of civil servants, as the federal cabinet would make a decision in this regard. The Ministry of Finance would present different proposals for enhancing government officials’ salaries keeping in view the available fiscal space.

The Finance Minister on Thursday announced to increase the salaries of the civil servants in the budget. The government has set ambitious targets including tax collection, restricting budget deficit and inflation rate in next fiscal year. The country would need massive foreign borrowing to meet international financing needs, which would enhance to $41 billion.

According to the estimates, total outlay of the budget would be around Rs9.5 trillion for the next fiscal year. In expenditures, the debt servicing is projected at Rs4 trillion for the upcoming financial year as compared to Rs3.1 trillion of the present year. The domestic debt servicing is estimated at Rs3.5 trillion and Rs500 billion will be given for foreign debt servicing. Meanwhile, defence budget is estimated at Rs1.53 trillion, which is 5 percent over the revised budget of the outgoing fiscal year.

The government is likely to allocate Rs650 billion for the subsidies for the next fiscal year as compared to Rs850 billion of the current year. Meanwhile, it would earmark Rs530 billion for the pensions and the running of the civil government consumes only Rs550 billion. The government has allocated Rs800 billion for the Public Sector Development Programme (PSDP) including Rs90 to Rs100 billion from Public Private Partnership. The budget deficit target has projected at Rs3.77 trillion or 4.8 percent of the GDP. The tax collection target for the Federal Board of Revenue (FBR) is estimated at Rs7 trillion and non-tax revenue receipts were projected at Rs2 trillion. The provinces will get Rs4.1 trillion as their share from the National Finance Commission (NFC) award.

The government would set the GDP growth target at five per cent for the next fiscal year with efforts to increase it to six percent. The growth target for the agriculture sector set at 3.9 percent, industry at 5.9 per cent, and services sector at 5.1 per cent. The broad-based revival of the LSM is projected to sustain growth at 7.4 percent during 2022-23. The services sector is targeted to grow by 5.1 percent in 2022-23. Investment level for the year 2022-23 is expected to decrease slightly to 14.7 percent of the GDP. Fixed investment is expected to grow by 13 percent on a nominal basis; however, as a percentage of the GDP it will decrease marginally as compared with the last year and will remain around 13 percent of the GDP in 2022-23. The National Savings rate is targeted at 12.5 percent of the GDP.

The Economic Survey also shows that the cash-starved government has given massive subsidy of Rs1.757 trillion to the various sectors in the current fiscal year despite strong opposition from the International Monetary Fund (IMF).

The volume of tax exemptions have exceeded to Rs1.757 trillion in the year 2021-22 as compared to Rs1.314 trillion in the previous year, according to the latest Economic Survey of Pakistan 2021-22, which was released on Thursday. The Economic Survey showed that government had given income tax exemptions worth of Rs400 billion in FY22 as compared to Rs448.046 billion in the last year.  Meanwhile, the cost of sales tax exemptions has been estimated to be Rs1014.48 billion in FY22 as against Rs578.456 billion of the previous year. Meanwhile, the cost of customs exemptions has been projected at Rs342.89 billion in the present financial year, which was Rs287.77 billion during FY21.

The IMF is continuously asking Pakistan to withdraw tax exemption, which are increasing with the passage of time. In a press conference, Finance Minister Miftah Ismail on Thursday hinted to withdraw some of tax exemptions in the upcoming budget for next fiscal year.

In income tax head, the government has given exemptions worth of Rs10.625 billion in allowances, Rs65.465 billion in tax credits, Rs232.852 billion exemptions from total income, Rs195 billion in reduction in tax rates, Rs3.285 billion in reduction in tax liability, Rs61.076 billion exemption from specific provisions of the income tax and Rs26.164 billion from others/miscellaneous during the year 2021-22.

The government has given sales tax exemptions worth ofRs1014.483 billion in FY22, which was Rs578.456 billion in FY21 showing an increase of 75 percent. According to the survey, reduced Rates Under 8th Schedule (8%) is Rs893 billion, Reduced Rates Under 8th Schedule (10%) is Rs53.402 billion, Reduced Rates Under 8th Schedule (12%) is Rs17.670 billion and Rs49.891 billion as Sales Tax on Cellular mobile Phones under 9th Schedule.

The customs exemptions surged to Rs342.89 billion in FY22 from Rs Rs287.771 billion in FY21. The increase was mostly on account of preferential trade agreements (PTAs) and Free Trade Agreements. FTA & PTA Exemptions cost Rs46.105 billion. 5th Schedule Exemptions & Concessions cost Rs168.754billion and Rs60.987 billion as General Concessions: Automobile sector, E&P Companies, CPEC, etc and Rs51.081billion as Export Related Exemptions.

According to the Economic Survey, during July-April, FY2022, FBR has been able to collect Rs 4,855.8 billion as provisional tax revenues reflecting a growth of 28.5 percent. However, tax relief measures have impacted revenue collection by approximately Rs 73 billion during the month of April 2022. The Sales Tax on all POL products has been reduced to zero which cost FBR Rs 45 billion in April. In the month of April 2022, FBR provisional tax collection remained Rs 4.6 billion lower than the target of Rs 484.7 billion. The provisional net collection grew by 25.1 percent to Rs 480.1 billion against Rs 384.0 billion last year. By adding Rs 73 billion in April, the net provisional collection is 553.1 billion with a growth of 44 percent.

The net collection of income tax has registered a growth of 28 percent during the first ten months of FY2022. The net collection has increased from Rs 1,362.8 billion to Rs1,743.7 billion. The major contributors to income tax are withholding tax, voluntary payments, and collection on demand.

The gross and net sales tax collection during July-April, FY2022 has been Rs 2289.2 billion and Rs 2064.2 billion, respectively, showing healthy growths of 29.6 percent and 29.3 percent respectively. Around 71.2 percent of total sales tax was contributed by sales tax on imports during July-April, 2021-22, while the rest was contributed by the domestic sector.

The collection of federal excise duties (FED) from July-April, FY2022 has recorded a growth of 14.6 percent. The net collection has stood at Rs 256.0 billion during July-April, FY2022 as against Rs 223.4 billion during the same period last year. The major revenue spinners of FED are cigarettes, cement, services, and beverages.

Customs duty has registered a growth of 33.4 percent and 33.0 percent in gross and net revenues, respectively. The net collection has increased from Rs 595.4 billion during July-April, FY2021 to Rs 791.8 billion during July-April, FY2022. The major revenue spinners of customs duty have been vehicles, mineral fuels, iron and steel, electrical machinery, plastic, edible fruits, etc.

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