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Mini-budget aims to revive business sentiment

Updated January 24, 2019

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FEDERAL Minister for Finance, Revenue and Economic Affairs Asad Umar presenting the Finance Supplementary Bill in the National Assembly on Wednesday.—PPI
FEDERAL Minister for Finance, Revenue and Economic Affairs Asad Umar presenting the Finance Supplementary Bill in the National Assembly on Wednesday.—PPI

ISLAMABAD: Withdrawing critical taxes on capital market and ban on purchase of vehicles by non-filers of income tax returns and facilitating industry, agriculture and small and medium enterprises (SMEs), the PTI government announced on Wednesday the second supplementary budget in almost four months with overall net revenue loss of Rs6.8 billion.

Finance Minister Asad Umar delivered his second budget speech in the National Assembly amid exchange of name calling and taunts with opposition parties — unlike delivery of previous supplementary budget speech in September last year in a calm and peaceful environment.

Also read: A not so mini budget

While introducing the Finance Supplementary (Second Amendment) Bill, 2019, the minister claimed at the outset that it was not a new budget but “a package of investment and export promotion measures for industrial revival which addresses all the key challenges” facing the economy and would lay the foundation for macroeconomic stability and growth in the years to come.

• Tax collections to fall by Rs6.8bn, revenue target unchanged • Large incentives for lending to SMEs, agriculture, housing • Stock market is biggest winner • Non-filers allowed to buy cars up to 1300cc

Finance ministry officials believed that the impact of loss in revenue arising out of facilitations and incentives to various business segments would largely be compensated by resulting economic revival and expansion.

Explore: Moved by the numbers

When contacted, Finance ministry’s spokesman Dr Khaqan Najeeb said that “there is no change in FBR’s target and in overall fiscal deficit” during the year. The Federal Board of Reve­nue target remained unchanged at Rs4.398 trillion, he added.

Another official said the government would lose some revenue on account of removal of withholding tax on banking transactions for tax filers and stock exchange trading, but this would be more than compensated by an end to the ban on purchase of vehicles of up to 1,300cc capacity by non-filers and increase in duties on luxury cars and other items.

Duties on import of cars and jeeps above 1,800cc would increase by 5-10 per cent — from 20pc to 25pc for up to 3,000cc and from 25pc to 30pc for above 3,000cc. Also, 10pc excise duty has been imposed on import of cars and jeep engines exceeding 1,800cc to discourage luxury imports.

The Pakistan Tehreek-i-Insaf government had also announced the elimination of restriction on non-filers on purchase of vehicles in the Sept 17 supplementary budget but backed out later after widespread criticism, mostly from the opposition benches, for facilitating informal economy and non-filers.

The finance minister has a new justification this time, saying the decision will have a positive impact on the local automobile industry and remove a distortion between purchase of immovable property and vehicles.

Take a look: No impact, say most new entrants to auto sector about non-filer ban

Last time, Mr Umar had claimed that the restriction was interfering in the ability of overseas Pakistanis to do business and invest in Pakistan.

A curious insertion 1A in the finance act related to an amendment to section 123 of the income tax ordinance attracted a great deal of attention. The insertion says that “[w]here an offshore asset of any person, not declared earlier, is discovered by the Commissioner…the Commissioner may at any time before issuing any assessment order…issue to the person a provisional assessment order…for the last completed tax year of the person taking into account the offshore asset discovered.”

Some in the opposition seized upon this clause to argue that the government has introduced an “unannounced amnesty scheme”, but minister of state for revenue, Hammad Azhar, took to social media to clarify that the new clause simply extends the powers of the tax authorities to go after undeclared assets once they are discovered.

“Now the demand and recovery of tax can be executed immediately after receipt of information in suitable cases. This will enable the FBR to recover tax provisionally and the regular proceedings (which take about a year or two) will follow. This will also ensure that that we can request for freezing offshore accounts from other countries by conveying our tax demand to them.”

Arguably significant support and facilitation packages were offered to almost the entire business sector, starting from SMEs to agriculture and from low cost housing to banking and from traders to industry and special economic zones and big businesses — apparently targeting the traditional support pockets of the Pakistan Muslim League-Nawaz as the finance minister highlighted how the previous government kept squeezing them over the last five years.

For example, the minister said the tax rate was being reduced from 35pc to 20pc for income of banks arising out of additional SME financing, agricultural financing and low cost housing.

A seed money of Rs5bn would be offered as interest-free loan to the housing sector. Mr Umar described these areas as priority sectors to spur economic growth and create jobs. The additional financing will be worked out on the basis of average advances to these sectors in calendar year 2018 and the facility would remain in place from tax years 2020 to 2023.

The minister expressed the hope that the course of stabilisation coupled with structural reforms he was charting for the economy would usher an era of economic prosperity for people and promised to focus his attention on accelerating investment and domestic savings through an upcoming medium-term macroeconomic growth framework.

“Growth will come through expanding domestic supply and financed largely from domestic resources,” he said.

Another key move was the announcement for settlement of Gas Infrastructure Development Cess (GIDC) arrears against various industries that would come up for approval before the cabinet on Thursday. The finance minister hinted at bringing down the overall rate of GIDC for all sectors to reduce the cost of doing business, besides a 50pc cut in these rates for the fertiliser sector that he believed would reduce fertilizer price by Rs200 per bag.

To facilitate businesses with minimum FBR interface, the minister announced that withholding agents were no more required to file monthly withholding statements, but only biannual statements.

The finance minister also announced steps cajoling the newspaper industry, small shopkeepers and owners of marriage halls in the form of reduction in tax rates. Also included in the reduced duty rates or removal of regulatory duty are import of raw material/inputs for 135 tariff lines meant for plastic, footwear, tanning, leather, home appliances, diapers and chemical sectors. Most of these steps would come into force on March 31. Regulatory duty was also announced for removal of input materials of around 200 tariff lines for manufacturing of automobile parts by local vendors.

Accepting the demand of big businesses and their chambers, the finance minister also announced abolition of super tax on non-banking companies with effect from July 2019, besides offering incentives to industries to set up Greenfield projects.

Mr Umar said the economic framework would ensure the economy to stay on an accelerating growth path, reduce current account deficit sharply and fiscal consolidation lead to reduction in the fiscal deficit. In addition, the government will continue to manage quasi fiscal deficit in the energy sector and bring the flow of this build-up to zero.

Through aggressive structural reforms, the FBR revenue is estimated to grow significantly in real term as a percentage of GDP, with the provinces expected to follow the same. The structural measures, the minister hoped, would affirm a positive trend in domestic savings, thus ensuring a substantial portion of higher investments financed through domestic resources and exports and remittances grow in double digits.

On top of that, the minister said that adequate foreign financing from bilaterals, multilaterals, launch of Pakistan Banao Certificates, Panda Bonds, Sukuk and Eurobond and commercial financing would keep flowing to help build foreign exchange reserves to a comfortable level of import in the medium-term.

Published in Dawn, January 24th, 2019