Finance Minister Asad Umar presented the third finance bill for the current fiscal year during the National Assembly session being held on Wednesday evening.
Earlier, Umar, without revealing any specifics, had said the 'mini-budget' — technically the Finance Supplementary (Second Amendment) Bill of 2019 — would help generate more revenue for the government.
Speaking amidst loud jeering by opposition lawmakers, the finance minister described the bill as a measure to address the people of Pakistan's needs.
"This is not a budget, this is a corrective package aimed at addressing various sectors of the economy," the finance minister clarified at the start of his speech.
Salient features of Finance Supplementary (Second Amendment) Bill of 2019
- Tax on income generated from loans to small businesses, agriculture sector and low-income housing to be reduced from 39pc at present to 20pc.
- Introduction of interest-free revolving credit of Rs5 billion (qarz-i-husna)
- Withholding tax on bank transactions waived off for tax filers.
- Ban on purchase of vehicles for non-filers lifted for new locally manufactured cars up till 1300CC capacity, but higher taxes will apply.
- Small businesses exempted from submitting withholding tax returns every month; will do so only twice every year.
- Rs20,000 fixed tax on marriage halls reduced to Rs5,000.
- Pilot scheme to be introduced in Islamabad to facilitate traders in filing and paying taxes.
- Duty on newsprint abolished completely.
- Investment in solar panels and wind turbines to be exempt from duties and taxation for five years.
- Reduction and abolishment (in some cases) of duties on raw materials to support export industries.
- Super tax on non-banking companies to be abolished from July 1, 2019.
- Continuation of 1pc per annum reduction in corporate income tax.
- Capital loss carry-over to be allowed for 3 years (stock trading).
- 0.02 per cent withholding tax on trading to be abolished.
- Import duties on cars with engine capacity of 1800CC and above to be increased.
- Taxes and duties on mobile phones rationalised: taxes on budget sets to be reduced, high-end sets to become more expensive.
- Machinery for greenfield projects (including renewables) to be exempt of customs duty, sales tax and income tax (for five years)
- Tax refunds to be worked out; promissory notes to be issued by mid-February.
- Gas Infrastructure Development Cess to be removed from fertiliser production.
- Duty on diesel engines for agricultural applications to be reduced to 5pc from current 17pc.
Starting his speech with an assessment of Pakistan's economic condition, the finance minister said his aim had been to eliminate all factors that necessitate a return to the International Monetary Fund for a bailout package by successive regimes.
"The Constitution ensures the rights of the underprivileged segment of society and it is the Pakistani government and parliament's responsibility to reduce the gap between the rich and the poor. Unfortunately, this responsibility was never fulfilled," the finance minister continued. "I wish to recommend measures for the prosperity of this country," he added.
"The people sitting on my right [the opposition] had left nothing when they were leaving the government. Instead of reforming themselves, the last ruling regime tried to buy an election. The budget deficit, as presented by them [in their budget], should have been 4.1 but the actual deficit at the end of the year clocked in [much higher]," he said, speaking above opposition shouts of "Liar, liar!"
"They destroyed the electricity [generation and distribution] system and left us a Rs450bn deficit. The gas [distribution] system which had never witnessed a deficit has now recorded Rs150bn deficit," he complained. "Similarly, the deficit was around Rs30bn in Railways."
"They left the country indebted with Rs2,500bn to Rs3,000bn in loans that were not shown in the books," he further alleged.
"I wish those shouting 'Liar, Liar!' right now had called out their own ministers when they were in power," he said after recounting the challenges he said he had inherited.
"We took several difficult decisions, and I appreciate that the people realised that these difficult decisions were necessary," the finance minister said.
"I want to give them the good news that these difficult decisions are yielding dividends: the deficit is reducing, exports are increasing and imports are declining. We need to bring a balance in revenue and expenditure as it is vital for growth. Our imports are touching a dangerous point. We have to increase exports and bring reforms in the agriculture and other sectors," he said.
"The camera is recording [when I say this]: At the time of the next election, the PTI govt will not have to purchase an election [like our opponents attempted to]. The years 2022 and '23 will witness the highest growth as compared to the period from 2008 to 2023," he claimed.
Umar said the opposition will guide the government in its efforts to bring reforms in the economy. He said the PTI has given preference to the livelihood of youngsters.
Considering that small and medium-sized businesses hold an important position for the growth of the economy, he announced a reduction in the tax on small and medium enterprises. A cut in interest rate was also announced on agricultural loans, along with a reduction in the low-incoming housing tax.
Announcing that the withholding tax on banking deposits and transactions is being waved off for filers, the minister said the previous government "were proud of their influence in the business community but they hit them hard".
"Pakistan was 76th in the international ranking of ease of doing business but during the last decade, it fell to 136th rank. We are taking steps for ease of doing business. Instead of submitting their withholding tax statement every month, businessmen will have to submit it only twice a year," he said.
He announced that the government will launch a pilot project of a scheme in Islamabad under which a simple regime for taxation will be introduced on traders' request.
Umar revealed a second revision in PTI government's policy on disallowing non-filers from purchasing vehicles. "We decided to lift the ban on the purchase of small [locally manufactured] vehicles up to 1300CC, but the tax ratio for non-filers is being increased so they are encouraged to become filers," Umar said.
"Most of the news and editorials are not being published in the PTI government's favour but we do believe that a free press is vital for true democracy ... so we are completely waiving the duty on import of newsprint," he announced.
Speaking about the need to strengthen the industrial sector, the minister said the government would reduce, and in some cases waive off, the duties on raw materials in order to make industries profitable. "Special attention has been paid to small and medium industries, including vendors of the auto industry," he added.
Umar termed the previous government's alleged move to tax investments as "cruelty". Promising to bring investments to the Special Economic Zones being set up as part of the China-Pakistan Economic Corridor, he announced that all equipment brought to the SEZs will now be duty-free.
He said: "Our trade deficit’s larger chunk consists of energy imports. We want to shift our dependence to renewable electricity ... we want solar panels and wind turbines to be produced locally. And so investment in this sector for local production will enjoy a five-year relaxation in duties and taxes."
Umar said the previous government, instead of encouraging savings, had imposed a tax on savings of companies that they could use for reinvestment. "We are eliminating this foolish tax by July 1," he announced.
Referring to the opposition's frequent criticism of the prevailing situation at the Pakistan Stock Exchange (PSX), the minister said, "When the stock market lost 15,000 points in just seven months during their [opposition's] tenure, there was no problem; when the market plunged by just 5,000 points during our government a hue and cry was raised that the economy had crashed."
He added that the PSX had seen an increase of 3,000 points during the last three weeks.
In what he said was the "only item" in the supplementary budget where the tax is being increased, Umar announced that the duty on import of vehicles with engine capacity of 1800CC and above would be raised.
He said the administrative issues of exporters were being resolved and would be "revealed later". For farmers, the minister said, the price of urea will be reduced by Rs200 per bag after legislation is passed by the parliament in this regard. In addition, production units are being increased by 50pc to facilitate the issuance of loans to farmers and the regulatory duty on components of diesel engine is being reduced from 17pc to 5pc.
"I hope that the country's new journey of self-dependence will continue. We are ready to take difficult decisions. We may ask for assistance from the IMF but we will not let the burden pass on to poor people," he concluded.
What was expected from the mini-budget
Earlier today, the federal cabinet headed by Prime Minister Imran Khan was given a briefing on the bill, after which it was taken to the parliament for debate.
The supplementary budget was expected to offer major incentives to boost the stock market, housing, agriculture and industrial sectors, besides imposing punitive duties on luxury imports.
According to the finance ministry’s adviser and spokesman Dr Khaqan Najeeb Khan, the mini-budget would support ease of business processes, simplify procedures and facilitate business by reducing bureaucratic red-tape.
Informed sources, however, said the government was planning to reverse documentation reforms introduced for the equity markets in a bid to turn around the declining stock index which fell from its high at 53,000 points in 2016 to around 38,000 points at present. The package was also likely to include the reduction and removal of some tax rates, commissions and capital gains tax.
Third bill for fiscal 2019
The 'mini-budget' would constitute the third finance bill for fiscal 2018-2019.
The National Assembly had in May 2018 passed the Finance Bill 2018-19 during the tenure of the PML-N government, the basic structure of which remained the same as announced by then Finance Minister Miftah Ismail on Apr 27, 2018.
Then, in September 2018, Umar had presented the incumbent Pakistan Tehreek-i-Insaf (PTI) government's amendments to the budget announced by the PML-N.
The highlights of the amendment included a cut in federal development programmes and measures to bring the budget deficit down to 5.1 per cent.
Tax rates were lower than the previous year and the tax relief that had been granted by the PML-N was revoked from salaried persons earning more than Rs200,000 per month. The tax rate in the highest income tax slab was raised from 15 pc to 30 pc. The rate of withholding tax on banking transactions for non-tax filers was increased to 0.6pc
Other developments included an increase in federal excise duty on imports of luxury vehicles and duties on 'expensive' cell phones. Customs duty was also increased on more than 5,000 'luxury' items. Regulatory duty was increased on the import of more than 900 items.
The Insaf Sehat Card facility was expanded to Fata and Islamabad Capital Territory.
Opposition opposes govt decision to announce mini-budget
On Jan 16, the government had sought the opposition’s support for the mini-budget announced today. National Assembly Speaker Asad Qaiser had facilitated two meetings between the government and opposition in which the issues of the mini-budget and formation of committees of the NA were discussed.
However, leaders of various political parties had opposed the government’s plans, saying the mini-budget "will add to the miseries of public" and "badly affect the commerce and industrial sectors in the country".
Parliamentary leader of the PPP in the Senate, Sherry Rehman, had in a statement expressed her reservations over ever-increasing prices of various commodities.
Similarly, several PML-N leaders, including former prime minister Shahid Khaqan Abbasi, had also criticised the government’s move to present another finance bill.
Speaking at a news conference on Jan 12, the PML-N leaders had lashed out at the PTI government for what they termed "directionless and failed" economic policies, which they claimed had drastically brought down the country’s growth rate in just five months.