ISLAMABAD - Budget is nothing more than an estimate of income and expenditures. However, in Pakistan we celebrate or mourn it as a major national event. We also have a tendency of estimating our expenditure first and then, according to the budget deficit (which is either dictated by IMF or some imaginary golden number in our minds), we set the tax target.
This year, economists were hoping that since stability has been achieved (inflation came down to 4 percent level), so there is a dire need to adopt a set of policies that result in a boost in growth. However, a common man’s expectations are something else. Those expectations can generally be never met in any kind of budget, barring a few exceptions. Every year, there are statements after a budget is announced. One significant boilerplate comment is whether the budget was people-friendly or pro-rich. My initial assessment of the budget presented by Finance Minister Ishaq Dar is that it is partly people-friendly.
This assessment can be explained in six parts: Interest payments issue, PSDP, relief to common man, employment generation through public and private sector investment, human capital and taxes.
The estimated budget deficit is Rs 1,328 billion out of which Rs 1,280 billion are interest expenses. Rs 1,512 billion are allocated for PSDP of which Rs 700 billion will be spent by the federal government. Therefore, as suggested by a few latest research papers at the Pakistan Institute of Development Economics, the interest payments need to be curtailed because, it eats up significant amount of resources.
This year development expenditures need special attention for two reasons – the allocation and the way it will be spent on each project. Huge money is needed to solve the problem of energy shortages and the government has allocated Rs 142 billion to spend on Neelum-Jhelum, Diamer and Dasu dams. Moroever, as Dar announced, they are determined to get rid of electricity shortages by December 2017. Therefore, it is necessary to invest in these projects.
Relief for the common man has few dimensions. The BISP budget is raised to Rs 102 billion and the number of beneficiaries will be increased from 41 million to 50 million. However, question arises what the total anticipated number of people is, who should benefit from the BISP programme. If it is close to 80 million, we are still short of 30 million. Moreover, Baitul-Maal budget is increased from Rs 2 billion to Rs 4 billion, which implies it will increase the beneficiaries. Salaried class will get more salaries, which is more than increase in inflation. Minimum wage is increased to Rs 13,000 for the informal sector.
In addition to monetary increase in wages and salaries, several projects will be started by the government, such as renovation of Islamabad-Lahore Motorway, Lahore-Karachi Motorway, the highways which are part of Pak-China projects, canals and dams in Balochistan and Sindh etc. These projects will definitely generate employment opportunities.
To boost domestic production, industrial tax holiday in KP, decline in export financing, reduction in exporters’ risk and setting up of export development fund as well as a land port authority will increase industrial production and exports. Rs 600 billion are allocated for the betterment of the agriculture sector while duty-free solar tube-wells will reduce the cost of agriculture production.
Rs 71.5 billion are allocated for higher education of which Rs 20.5 billion are for HEC. The government is determined to increase the budget of education to 4 percent of GDP, which is currently close to 2 percent. Nonetheless, important thing is not to spend more, but how to spend and where to spend is vital for better results. Moreover, the government has started internship programmes for all those graduates who do not get jobs after getting degrees from their institutes.
Every year it is debated that the poor should be taxed less and rich more. Moreover, neglecting the excess burden, the debate of regressively and progressivity is the topic of the town. Considering the hot topic, the announced tax policy is not pro-rich apart from decline in corporate tax from 33 percent to 22 percent. 10 percent tax is imposed on all the electricity bills exceeding Rs 75,000. This implies that revenue will increase if theft does not increase. Moreover, capital gain tax is increased to 15 percent if a shareholder sells his share within one year, 12.5 percent if he sells between one and two years and 7.5 percent if he sells his shares after two years. Currently, the share of capital gain tax in total tax is 0.3 percent. Therefore, it is a very good initiative to collect taxes from share market. Moreover, non-filers of tax returns need to pay extra tax, which will increase the compliance rate. Apart from above few taxes, minimum tax rate slab declines to 2 percent. Vehicle transfer duty is reduced, regulatory duty on mobile phones is decreased, but sales tax is doubled, taxes on cigarettes are increased, and, more importantly, SROs cannot be issued by FBR.
In the light of the above policies and their impacts, few things are inevitable: Budget generates economic activity, FBR has uphill task, but good chances to achieve an ambitious target of Rs 3,100 billion, it gives relief to common man, but not in a significant manner and non-filers of tax returns will be dealt with harshly.
The writer is an Islamabad-based economist.