KARACHI: Like most budgets in recent years, the budget for fiscal year 2023-24 is also heavy on financing expenditures by accumulating debt even as a large chunk (more than 50 per cent) of current expenditures constitute debt servicing.
While the approach to this year’s budget was nothing new, despite a narrative that suggests otherwise, there were some measures that are unique.
Key among them is the government substantially increasing the limit of money that can be remitted from outside Pakistan without any questions asked on the source.
The budget proposes that this limit be increased from Rs5m to $100,000 (roughly Rs30 million), placing a “bar on asking nature and source of unexplained income/assets”. Most likely, this measure is an attempt to bolster the country’s dwindling foreign exchange reserves, which currently stand at less than $4 billion, barely covering a month’s imports.
The government has also proposed a hike in withholding tax rate, from 1pc to 5pc, on payment to “non-residents through debit/credit or prepaid cards”, as it looks to discourage dollar outflows from the country. This measure, if eventually approved, would mean that all international e-commerce transactions (Amazon, Netflix etc.) would get more expensive.
Another new measure proposed by the finance minister looks to facilitate small and medium enterprises (SMEs) in obtaining loans from banks.
During his speech, Ishaq Dar noted that a central bank scheme allowed SMEs to get their loans refinanced at a 6pc markup. But, he pointed out, because SMEs often do not have a credit history, banks are hesitant in providing them with loans.
In order to remedy this, the finance minister said that the government would take on 20pc risk for loans given out to SMEs under this scheme.
This year’s budget also focused on incentivising IT services and professionals by granting the status of cottage industry to Pakistani freelancers working for foreign companies (exporting IT services). As a result, freelance exporters will not be required to file a sales tax return.
The government has also done away with caps on the fixed duties and taxes on the import of “old and used vehicles of Asian makes above 1300cc”.
This means refurbished 1300cc cars from Japan and China, which have a sizeable market in Pakistan, will likely get more expensive. Smaller cars, such as Mira and Alto, would remain unaffected by this measure.
Mr Dar announced that in a bid to promote digital payments — through debit/credit cards, mobile wallets or QR scanning — at restaurants, the government has reduced the tax rate from 15pc to 5pc.
That means dining out has been made cheaper if one opts for electronic payment methods.
In line with the government’s solarisation initiative, the budget announced an exemption on customs duty on the raw material used in production of solar energy products.
The exemption encompasses essential components such as inverters, solar panels, and batteries, marking a positive step towards promoting renewable energy in the country as the costs of adopting solar energy are likely to go down for the average consumer.
Among other notable exemptions in customs duties or relief in sales tax, the budget proposed:
· Exemption of customs duties on raw materials of diapers and sanitary napkins.
· Exemption of customs duties on import of shrimps/prawns/juveniles for breeding in commercial fish farms and hatcheries.
· Removal of regulatory duty on second hand clothing.
· Grant of exemption of sales tax on contraceptives and accessories.
· Waiver of 2pc final withholding tax on purchase of immovable property for nonresident individual National Identify Card for Overseas Pakistanis/Pakistan Origin Card holder where immovable property is acquired through foreign remittances remitted from abroad.
· Ten per cent reduction in tax liability or Rs5m, whichever is lower, for a builder and 10pc reduction or Rs1m, whichever is lower, for an individual for own construction of house for three years.
Conversely, there were some moves which are likely to hurt the common man’s pocket:
· Withdrawal of exemption of sales tax on edible products sold in bulk under brand names or trademarks.
· Enhancement in reduced rate of sales tax from 12pc to 15pc on supplies made by point of sale retailers dealing in leather and textile products.
· Electric power transmission services are proposed to be taxed at 15pc.
· Re-imposition of 0.6pc advance adjustable withholding tax on cash withdrawal for non-active taxpayers.
· Increase in withholding tax rate from 1pc to 5pc on payment to non-resident through debit/credit or prepaid cards. (Two per cent to 10pc for non-active taxpayers).
· Imposition of federal excise duty on energy inefficient fans at Rs2,000 per fan and incandescent bulbs at 20pc of value is proposed.
Syed Talal Ahsan also contributed to this report
Published in Dawn, June 10th, 2023