Budget 2023 – a silver lining to the sombre clouds

Amidst the current political and economic turmoil, the much-awaited budget was announced with a lot going in the background. The current government is known for its populist approach when it comes to economic policies, and this time yet again, it was a people pleasing budget as expected.

The budget is clearly depictive of the government’s efforts to retain a place in next elections. But, the question arises would this budget be able to steer Pakistan’s economy out of tumultuous waters with a total outlay of Rs14.46 trillion?

This time when there was a dire need to reduce the fiscal deficit and bring inflation under control, the budget has successfully been designed to achieve targets mainly funded by debt. Massive increase in salaries will definitely serve as fuel for inflation.

The economy is intended to steer with reduced taxation, import duties and easy loans for productive activities. There are many encouraging initiatives, such as eliminating import duty on solar panel batteries and imported seeds and agricultural machines, freelancer and IT exports will not be taxed. IT will be getting small and medium-sized enterprises (SME) status and pay a very concessional amount as tax. However, the typical but very celebrated unnecessary measures, like the laptop scheme and an increase in the development budget of Higher Education Commission (HEC), could have been avoided. Some simple steps like reviewing net metering, domestic incentives for solar or free one-time facility or subsidising 10-marla house for solar panels should have been introduced.

Or simply, it could have been better to dedicate this budget towards education in areas terribly affected by the floods instead of a massive increase in Benazir Income Support Programme. I cannot shudder this thought off mind why are we still promoting begging mindset, and when are we going to break the chains. How about this chunk is dedicated in setting up new industries and giving them employment opportunities, so that they could support themselves by earning and not begging?

This could have brought massive foreign reserves too. Why are we depending on loans and not exports? This was for sure a typical pro-election move. Long-term vision and far sightedness was certainly missing.

This is a time when the country needs a closure on the roadmap that the government has decided. The finance minister, while presenting the budget, chose to blame our problems on an opposition removed from power. Nothing much was done for export-oriented sectors, higher Super Tax, hefty retrospective tax on “extra ordinary earnings” and tax on bonus shares. There is enhancement in reduced rate of Sales Tax from 12pc to 15pc on supplies made by the POS retailers dealing in leather and textile products. This would be negative for textile companies with a domestic footprint.

The government has earmarked Rs1.07 trillion in subsidies for the fiscal year, a slight decline from the previous year’s Rs1.10 trillion. Rs579 billion is allocated to WAPDA/PEPCO, of which Rs310 billion is allocated for IPPs, likely to clear the sector’s overdue receivables.

Notably, the industrial support package was removed, from the Rs7.0 billion allocated the previous year.

Moreover, the recently withdrawn zero-rated industrial subsidy will not be reinstated, as the budget did not allocate any amount to the head, compared to Rs64 billion the year prior. The subsidy on RLNG was also withdrawn against the Rs40 billion allocated the year prior. Rs30 billion has been allocated to fertilizer plants for subsidised gas and removal of 5pc regulatory duty on synthetic filament yarn of polyester not manufactured locally. An additional tax up to 50pc has been imposed on income profit and gains on account of extraordinary gains due to exogenous factors.

The Federal Board of Revenue (FBR) has proposed an enhanced rate of Super Tax across the board by adding three more thresholds with an increased rate from 6 to 10 percent.

Now, the Super Tax has been rationalised under Section 4C and would apply on all persons across the board earning income above Rs150 million. The FBR should not legalise the taboos. The unregistered vehicles should be banned, and at least there should be a practical roadmap to bring non taxpayers into the tax net. Increasing the slabs may cause no difference. There has to be something done substantially.

The Income Law provides the applicability of tax withholding rates by a direct exporter or export house registered under the Duty and Tax Remission for Exports Rules 2001 provided in sub-chapter 7 of Chapter XII of the Custom Rules 2001 to an indirect exporter at par with the rates applicable on exporter.

The Bill proposes to prescribe this applicability of lower rates whilst making payment to indirect exporter, will, henceforth apply to those direct exporter or export house registered under Duty and Tax Remission for Exports Rules 2001 and Export Facilitation Scheme, 2021.

As a consequence of this change, the registration under Duty and Tax Remission for Exports Rules 2001 and also under the Export Facilitation Scheme, 2021 will now be applicable.

It is a good measure to reinstate the adjustable advance tax on cash withdrawals from the bank in the case of non-filer. The tax is to be withheld on sum total of cash withdrawals exceeding Rs50,000 in a day from individuals not appearing in the active taxpayers' list (ATL) and aims to bring these non-filers to tax net. This amendment may increase the tax collection, but on the other hand, can also result in cash dealing and avoiding banking activities.

Now is the time to act and act decisively and sanely. The budget is more of the same with the IMF at the backdrop this time; high on promises and low to actually deliver. The IMF and international banks are encouraging Pakistan to drastically transform its economic policies and priorities in order to unlock the funds.

These policies must review subsidies on commodities, a stagnant tax collection and tax base, costly borrowing to pay off previous loans, bailing out state companies that operate at a loss and generally poor governance and corruption.

We have time and again failed to implement unflawed economic reforms and decisions such as artificially controlling the rupee, dollar rate when reserves are not even enough.

The government needs to realise severity of situation and how we are standing at the verge of devastation. A single blow will depredate us forever. This budget is “do or die” game. Everyone needs to sit down together and be on the same page to draw a roadmap to take Pakistan out of the current economic paralysis.