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Tax-heavy budget fails to capture mounting fiscal deficit: Budget 2019-20

3 min read

ISLAMABAD: In the overall fiscal deficit for the period of 2019-20 the federal budget observes no major change regardless of a significant amount Rs 1.405 trillion tax plan, which is set to come in at a record Rs 3.15 trillion or 7.2 per cent of GDP.

Minister of State for Revenue Hammad Azhar presented this in the National Assembly on Tuesday, the PTI government’s first full-year budget proposed a vicious collection of taxes more or less from all sectors of the economy.

Income tax rates has increased to 10pc a maximum of 35pc from 25pc presently and decreased by half the taxable income fixed to Rs50,000 per month for salaried and Rs33,333 per month for non-salaried.

Removal of zero-rating facility to five export-oriented sectors, including textiles, and imposition of normal 17pc GST. In return, the government has promised speedy refund claims against actual exports. From sales taxes, the government is expecting to raise Rs250bn incremental revenue, via GST rate adjustments in various areas and elimination of zero-rating.

Moreover, the budget detached a restriction on sale and purchase of movable and immovable assets of tax non-filers. Also tax rates were increased on sugar, cement, steel and many edible items and facilitation has been offered on import of machinery and equipment for industrialization.

The minister expected the difficulties arising out of budgetary measures, including inflation, would subside over six months to a year period as the State Bank of Pakistan acts independently through monetary policy tools that point towards further hikes in interest rates, which he hoped will bring “long-term benefit to the nation through effective documentation of economy and expansion in the tax base”.

Good news is this that the budget promised 10pc rise in net pensions, 10pc ad hoc relief on running basic salaries for grade 1-16 employees of the civil government and equivalent army personnel and 5pc for grade 17-20 officers. The officers in grade 21 and above in civil and equivalent armed forces officers had agreed to not get any increase, while members of the federal cabinet had volunteered 10pc pay cuts as a symbolic gesture of solidarity.

The current civilian expenditure was assured to be cut by 5pc or Rs23bn to Rs437bn following year from revised estimates of Rs460bn, Mr Azhar said.

The defense expenditure for next year has been nailed at Rs1.153tr against Rs1.1tr of original budget allocation of current year, up 14pc.

And yet, the minister said the next year’s total deficit would be 7.1pc of GDP or Rs3.137tr, compared to 7.2pc of GDP during current year.

This was mainly because the government has committed to the IMF that it will undertake a fiscal adjustment equal to 0.6pc of GDP in the primary deficit given a massive bill of Rs2.891tr in interest payments due next year.

Mr Azhar said the government would continue import compression and try to increase exports to reduce external deficit to $6.5bn next year from $13bn during the outgoing fiscal year.

The budget has promised Rs100bn loans to the youth under the Kamyab Jawan Programme. The minister also said the federal and provincial governments would together provide Rs280bn agriculture support programme for the next five years.

The minister said the government would make every effort to ensure the budget measures had minimal impact on price increases and where unavoidable due to international market would ensure that consumers are protected to the extent possible through social safety programmes.

“We will tailor our fiscal and monetary policies, coordinate with the provinces and adopt administrative measures to fight this menace of inflation,” he said.

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