• Interest-free loans for starting businesses and farm inputs
• Ehsaas cash transfers allocation increased
• Capital Gains Tax on stocks slashed
• Universal health coverage through Sehat cards
• Increase in pay and pension of government employees
• Tax relief for women entrepreneurs
ISLAMABAD: With certain limitations imposed by the ongoing Covid-19 pandemic and the International Monetary Fund (IMF) programme, the government on Friday announced its third budget with an expansionary and feel-good approach, significantly increasing subsidies and incentives for big business, manufacturing, corporate market and agriculture sectors and proposing about 24 per cent hike in revenues, including Rs506bn worth of additional measures.
“The stabilisation phase is now over, and budget 2021-22 will focus on inclusive and sustainable growth…fostering growth with investment,” Finance Minister Shaukat Tarin said in his budget speech which was marred by loud sloganeering by the opposition parties.
The additional revenues of Rs506bn are based on Rs264bn worth of policy measures and Rs242bn of administrative. The budget more than doubles (226pc) subsidy allocations and significantly hikes surcharges and levies on oil and gas, including a 36pc increase in petroleum levy. It also allows a 10pc increase in salaries (ad hoc allowance) and pensions at an additional cost of Rs160bn and promises universal health coverage through Sehat Card.
As such, the revenue plan is based on massive reliance on indirect form of taxation and that too mostly outside the divisible pool sources that keep the federation financially floating. For example, Rs115bn alone would be additional revenue on account of gas infrastructure development cess that would increase by a massive 767pc to Rs130bn next year against just Rs15bn this year.
A similar and even bigger additional revenue of Rs160bn is targeted to flow from petroleum levy on oil projects which means petroleum prices would go up in the next fiscal year. The target for petroleum levy is Rs610bn for next year, up 35pc from current year’s Rs450bn that would now touch Rs500bn by June 30, 2021.
Another 260pc increase is expected in natural gas development surcharge to Rs36bn next year, compared to just Rs10bn this year. Also a 52pc increase would come in as royalty on crude oil to Rs35bn and yet another 20pc higher revenue from royalty on natural gas.
About 68pc increase is projected in extraordinary receipts from UN operations at Rs47bn against Rs28bn this year. A higher amount of Rs30bn (48pc) is expected from dividends to Rs90bn next year.
At the same time, the budget projects next year’s fiscal deficit at 6.3pc of GDP (Rs3.42tr) that too with more than 1pc of GDP (Rs570bn) cash surpluses from the provinces.
The revenue target for next year is targeted at Rs5.829tr, compared to Rs4.691tr this year, showing an overall increase of Rs1.138tr (24pc). About Rs635bn would accrue automatically on account of 8.2pc inflation and 4.8pc GDP growth rate.
The finance minister said the trickledown effect had not helped the vulnerable over the past 74 years and hence the government would change the course of history by uplifting 4-6 million low income households in the next year, through bottom-up approach. This would include Rs500,000 interest free business loan to every household, Rs250,000 interest free farming loan and Rs200,000 interest free loan for tractors and machineries and Rs2m worth of low-interest loan for house building.
The next year’s budget entails major concessions to the manufacturing sector, including automobile, textiles, pharmaceutical industry, mobile phone and information technology, and even small and medium enterprises (SMEs) through reduction in import duties on raw material and lower general sales.
A major favour has also been given to the stock market through reduction in capital gain tax from 15pc to 12.5pc, while a series of withholding taxes have been removed, including those on banking transactions, stock exchange transactions, margin financing, air-travel services, debit and credit card-based international transactions and mineral exploration.
The amount of subsidies for next year has been targeted at Rs682bn, almost 226pc higher than current year’s Rs209bn which was later revised to Rs430bn. But this is mostly on account of payments to independent power producers and tariff differential subsidies. Of this, about 327pc increase has been projected for the power sector to Rs596bn next year against Rs139.5bn this year. Of this, a major increase of over Rs120bn or 90pc is projected to go to K-Electric whose share in subsidies would increase to Rs245bn from Rs129bn this year.
The federal expenditures are budgeted at Rs8.487tr for next year against Rs7.34tr of revised estimate for the current year, showing an increase of 15pc. The gross revenues on the other hand are targeted at Rs7.909tr, compared to revised Rs6.395tr of this year, showing an increase of 24pc.
Non-tax revenues are projected to be higher by 22pc next year to Rs2.079tr, compared to Rs1.7tr this year. Of the total FBR revenue of Rs5.829tr, the share of indirect taxes is estimated at Rs3.647tr next year against Rs2.9tr this year, up by 26pc, while growth in direct taxes is less than 22pc at Rs2.18tr against Rs1.789tr this year.
The provincial share in federal taxes would increase form Rs2.7tr this year to Rs3.4tr next year, up by about Rs707bn or 25pc, but about Rs570bn would be retained by the federal government as provincial cash surplus to contain federal deficit that would otherwise go beyond 7.1pc of GDP.
The current expenditure of the federal government would be around Rs7.5tr next year, up 14pc over current year’s Rs6.56tr. The interest payments are projected at Rs3.06tr, compared to Rs2.85tr this year, an increase of 7pc. The pension bill, excluding the latest 10pc increase, is estimated at Rs480bn of which Rs260bn goes to the military pensioners. The running of the entire civil government would cost Rs479bn, down from Rs487bn this year, while defense expenditure would go up to Rs1.37tr against Rs1.29tr this year, showing an increase of just 5.8pc. The Public Sector Development Programme (PSDP) is projected at Rs900bn next year against Rs650bn this year which has now been cut by another Rs20bn.
The hallmark of the taxation side is reintroduction of self-assessment scheme that was previously introduced by the Musharraf government, but this is balanced through a third-party audit and a restriction on tax notices by the Federal Board of Revenue.
The finance minister said the budget did not impose any new tax on salaried class. The tax compliance costs would be reduced, putting an end to profile updation every year despite submission of entire data as part of tax returns. The budget also provided relief in federal excise and sales taxes on locally manufactured cars of less than 850cc and electric vehicles.
The minister also announced relief measures on setting up of cold storages for agriculture products and tax exemptions on Covid-related medical equipment, etc, for another six months. He also promised a minimum wage of Rs20,000 per month for private workers, an increase of 20pc.
He said the government had given an economic programme in the budget which addressed welfare of all segments of society, from agriculture to industry and from services to social sector, from labour to farmer to women to students, homeless, government servants, youth and the poor households.
Published in Dawn, June 12th, 2021