PUNJAB’S budget for the fiscal year 2020-21 contains several headlines: significant relief in provincial taxes to businesses impacted by the Covid-19 pandemic, much bigger public interventions in the social sector through the development programme and a large economic stimulus for micro, small and medium-sized enterprises. Additionally, the budget offers substantial incentives for the construction industry, allows tax exemptions to private investors interested in collaborating with the government to jointly undertake new infrastructure schemes, and focuses on community development works for generating employment. The budget also carry some incentives meant to document the economy, besides making it easier to do business in the province. The purpose of all these measures is to rev up the provincial economy and create jobs by supporting businesses in turmoil because of the Covid-19 outbreak, which has wreaked havoc across the world, causing thousands of deaths and wiping out millions of jobs.

Indeed, Punjab in its budget for the next fiscal year proposes to do a slightly better job in dealing with the impact of the Covid-19 contagion on the people, the economy and businesses when compared to a similar exercise by the federal government. The province is not only aiming to mitigate the economic impact of the health crisis and reviving the economy through small interventions, it has also formed a framework for rolling expenditures that will allow it to release funds for development and current spending on a monthly, instead of quarterly, basis, against actual demand. The demand-driven fiscal management will help the province monitor and control its expenditures in an uncertain Covid-19 environment, which is likely to last at least until the end of the current calendar year. But its entire plan to help prop up the sinking provincial economy depends on one variable: will the federal government succeed in achieving its tax target next year and transfer to the provinces their divisible tax pool share indicated in the federal budget? Punjab received Rs473.6bn less than its indicative share from the pool this year, forcing it to sharply cut its development spending. With the virus pandemic threatening to further depress the contracting economy, few expect the FBR to meet its tax target next year. With its own tax collection consistently falling for the last two years and almost 80pc of its income coming from the tax pool, Punjab will soon find itself short of the resources needed to implement its economic revival plan.

Published in Dawn, June 17th, 2020

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