Pakistan sets ambitious Rs13 trillion revenue target in new budget

Pakistan has set a challenging tax revenue target of Rs13 trillion ($46.66 billion) for the year starting July 1, a near 40% jump from the current year, to strengthen the case for a new bailout deal with the International Monetary Fund.

The ambitious revenue targets for the fiscal year through June 2025 were in line with analyst expectations.

Key objectives for the upcoming fiscal year included bringing the public debt-to-GDP ratio to sustainable levels and prioritising improvements in the balance of payments position, the government’s budget document showed.

Country targets 3.6% economic growth; total spending estimated to be Rs18.9tr; expects debt servicing of Rs9.8tr, pension payments seen at Rs1 trillion and total subsidies projected at Rs1.4 trillion

Pakistan has projected a sharp drop in its fiscal deficit for the new financial year at 5.9% of GDP, from an upwardly revised estimate of 7.4% for the current year.

GDP would expand 2.4% in the current year, missing the budgeted target of 3.5%, the government said in its economic review on Tuesday, despite revenues being up 30% on the year, and the fiscal and current account deficits being under control.

Pakistan will look to widen the tax base to avoid burdening existing tax payers to meet its targets, Finance Minister Muhammad Aurangzeb said while presenting the budget.

In his speech, Aurangzeb announced that a five percent federal excise duty (FED) has been imposed on the sale/purchase of plots and residential and commercial property.

The minimum wage was increased to Rs35,000 from Rs32,000. An increase of 25% was introduced in the salaries of grade 1 to 16 government employees. A raise of 20% was given to the officers falling in grade 17 to grade 22. Pension of government employees was raised by 15%.

Taxes were imposed on illegal cigarettes, mobile phones, imported vehicles and some other items. Non-filer of tax returns were given a tough time.

The budget is aimed at unlocking a fresh long-term International Monetary Fund (IMF) bailout package.

“Despite the financial and political challenges during the past one year, the government’s progress on the economic front has been impressive,” the finance minister said in his opening remarks. We have heard the talk of all political parties to sit together in the country’s interest several times. Today, the nature has provided Pakistan with another chance to walk on the path of economic progress and we can’t afford to waste this opportunity,” the finance minister said while requesting all the MPs to cooperate with the government putting the country on the path of progress.

“A while ago, Pakistan’s economy faced a difficult situation as the State Bank’s reserves were enough for only less than two weeks of imports. The value of the rupee depreciated by 40%, economic progress was almost nil, and inflation had reached a level that the people were going below the poverty line at a fast pace. Coming out of this situation seemed difficult,” said the minister.

He said the GDP growth rate is expected to remain 3.6%, in the next fiscal year while the inflation is expected to come down to 12%. He said the budget deficit is 6.9% of the GDP and the primary surplus to remain at 1% of the GDP.

The tax collection by the Federal Board of Revenue (FBR) is estimated at Rs12,970 billion which is 38% more than the current fiscal year. Therefore, the province’s share in the federal tax collection will be Rs7,438 billion.

The federal government has set a non-revenue target at Rs3,587 billion, while the Centre’s net income is Rs9,119 billion, the finance minister said adding that total federal expenditures have been estimated at Rs18,877 billion of Rs9775 billion will be spent on interest payments.

He also praised the previous government for striking a short-term standby agreement with the IMF, which he said paved the way for economic stability and ended uncertainty “at a point when the previous IMF programme was about to end and reaching agreement on the new IMF programme was uncertain”.

“Prime Minister Shehbaz Sharif-led coalition government deserves felicitations for untiring efforts for the revival of the economy,” he added.

Aurangzeb stated that inflation, which was the centre of attention of Prime Minister Shehbaz Sharif and his team, came down to almost 12% in May leading to a decrease in the prices of essential commodities.

“It is not an ordinary achievement in the light of existing challenges,” he said, predicting further drop in inflation. The minister further stated that the foreign exchange reserves have also been stable.

He said that the recent cut in the interest rate by the SBP was proof of the government’s efforts to bring down inflation. He said that the Public Sector Development Programme (PSDP) plays a key role in the development, prosperity and social welfare of the country. “This works as a catalyst for the modernisation, expansion, basic infrastructure and sustainable development,” he added.

Tariq Butt