ISLAMABAD: The government made history in more ways than one in its budget announcement on Friday. The sixth consecutive budget by a civilian government, delivered by a non-elected finance minister hurriedly sworn in just so he could deliver the speech may be new. But the most lasting, and most meaningful, changes brought in by the budget sat silently between the lines and the numbers.

This is the first budget announced by the PML-N that shifts gears away from development spending towards current expenditures. For the first time, the development budget has been slashed while large hikes have been given to defence and all other heads under current spending, like subsidies, running of government affairs, debt servicing. The budget also showers incentives on business and industry in quantities never seen before, leading many to wonder where the revenues will come from to pay for all these handouts. Most of the tax cuts directly benefit what some call Finance Minister Miftah Ismail’s de facto constituency — corporate, industry and banking circles.

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The so-called relief measures are for civil and armed forces personnel, removal of tax on bonus shares, reduction in super tax and corporate tax for big businesses and income tax rates for the salaried class besides incentives for exports and agriculture to count a few.

On the other hand, Mr Ismail announced a considerable increase in defence expenditure and an equally big cut in development spending that has a direct bearing on the living standards of people. One explanation for diversion of resources from development to defence was the fact that defence expenditure exceeded the target during this year by Rs80 billion (almost 9pc) while the public sector development programme (PSDP) allocations were cut by Rs251bn or 25 per cent.

The new revenue scheme behind these expenditures appears to be based on indirect mode of taxation named “other taxes”. Here, a 76 per cent increase has been estimated to come from petroleum levy — Rs300bn instead of Rs170bn this year — through Rs30 per litre PL on all petroleum products across the board from existing Rs3-10 per litre presently.

On top of that, a steep 786pc increase has been proposed in the taxes on information & communication technology (ICT) to generate Rs37.55bn next year compared to Rs4.23bn this year. Likewise, the gas infrastructure development cess (GIDC) would generate Rs100bn next year compared to Rs15bn collected during the current year. The cess has been battling a court challenge, that the government presumably expects to win.

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As such, the total inflows from so-called other taxes would touch Rs454bn next year compared to Rs212bn collected this year, a jump of almost 114pc.

The budget measures also indicated a signature focus of Prime Minister Shahid Khaqan Abbasi towards promotion of imported Liquefied Natural Gas through reduction in tax rates and other facilitations besides reduction in taxes and duties on utilisation of domestic and imported coal in power sector for reducing cost of production.

The FBR taxes have been estimated at Rs4.435tr next year compared to Rs4.103tr budgeted for the current year and revised to Rs3.935tr, showing a nominal 8-12pc increase when seen in the context of almost 12.5percent automatic growth from inflation and GDP and partly affected by reduction in income tax rates.

An across the board 10pc increase was allowed as ad hoc relief in salaries to civil and armed forces employees and an equal 10pc increase in pensions besides a 50pc jump in house rent allowances for government servants. Separately, a Rs5bn has been kept in the budget for special allowances of up to Rs500,000 per month on the basis of their performance. This entire package will have an additional cost of Rs69bn.

“To a large extent we have fulfilled promises that we made with the nation in 2013. Today Pakistan is at a new stage of growth and prosperity” said Miftah Ismael, bemoaning that “we have been punished for it as well but no one can sever our relationship with the people” in an apparent reference to removal of his party supremo as the prime minister.

The total size of the federal budget (expenditure) has been estimated at Rs5.246 trillion for next year, about 10.4pc higher than Rs4.753tr budget estimates for current year. Debt servicing and defence expenditure would together eat up Rs2.7tr or 65pc out of the Rs4.18tr current expenditure for next year, leaving just Rs463bn for running of the civil government and Rs800bn for development.

A drastic increase in bank borrowing has been booked at Rs1.015tr for next year compared to Rs390bn of current year perhaps because of lower expected receipts from abroad and provincial cash surplus.

Perhaps because of ongoing judicial and political challenges to the economic reforms package announced by the prime minister early this month offering incentives for whitening of domestic and foreign assets and relaxation in income tax have been made part of the finance bill for 2018-19.

He set a growth target for next year at 6.2pc, increasing tax-to-GDP ratio of 13.8pc, net budget deficit at 4.9pc of GDP, net public debt at 63.2pc of GDP and rate of inflation below 6pc.

He also lamented that ongoing 7th NFC award had shrunk federal government’s fiscal space by 10-11pc and transferred more than Rs2.5tr additional funds to provinces which could have been, otherwise, spent by the centre.

Published in Dawn, April 28th, 2018


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