A balanced budget

An extremely-challenging environment -- and yet a balanced budget. Tough IMF parameters -- and yet a fairly balanced budget. In some aspects it is a breath of fresh air and a new set of priorities.

The previous government had imposed sales tax on solar panels. Budget 2022-23 proposes an exemption of sales tax on the import and local supply chain of solar panels. The previous government had imposed a tax on agricultural machinery. Budget 2022-23 proposes withdrawing tax on agriculture machinery including tractors and the supply of wheat, maize, canola, sunflower and rice. So the new priorities are renewable energy and the agriculture sector. The previous government owed exporters Rs40 billion in tax refunds. Under the instructions of PM Shehbaz Sharif, despite financial difficulties, sales tax refunds are being released immediately. The previous government had imposed customs duty on certain pharmaceutical ingredients. This duty is being withdrawn (read: certain medicines will become cheaper).

Budget 2022-23 has increased the income tax threshold from Rs600,000 per year to Rs1.2 million per year, which means that individuals earning up to Rs100,000 per month will only pay Rs100 in income tax. Tax slabs for the salaried class are being reduced from 12 to 7 while the 'ultra rich' will have new taxation slabs. For the 'ultra poor', the allocation for the Benazir Income Support Programme (BISP) goes up from Rs246 billion to Rs360 billion.

Dr Miftah Ismail said in his budget speech that the 'banking sector has earned windfall gains due to higher interest rates and risk-free investment in government securities'. Budget 2022-23 increases the tax rate for the banking sector from 38 percent to 45 percent.

At the retail front, a fixed tax -- old wine in a new bottle -- has been proposed. On the face of it, this new fixed tax is not practical.

Lo and behold, there is a new Petroleum Levy of Rs750 billion which roughly converts to an increase in the price of petroleum products to the tune of Rs37 per litre. Plus, the Gas Infrastructure Development Cess (CIDC) goes up from Rs130 billion to Rs200 billion. That means a higher rate of inflation.

Lo and behold, there are targets that have been set but will be difficult to meet. The target for the rate of inflation has been set at 11.5 percent which, I believe, will not be met. The GDP growth target of 5 percent will be a tough one to meet. The non-tax revenue of Rs2,000 billion will be a tough one to meet. This means we should expect a mini-budget in the not too distant future.

Budget 2022-23 has proposed a 'disincentive' for the real estate sector by imposing 'deemed income' from unutilised real estate assets. Will it stand the test of time? Only time will tell. There’s no good news on privatisation where the budget expects proceeds of Rs96 billion. If there is no good news on privatisation, then there is no good news on debt reduction.

The federal government, after collecting Rs7 trillion in taxes, will dole out 57 percent to the provinces. After paying Rs4 trillion in debt servicing and Rs1.5 trillion for defence, the federal government will be left with nothing. Running of the civil government is to cost Rs550 billion. Grants Rs1.2 trillion. Subsidies Rs699 billion. Pensions Rs530 billion. Public Sector Development Programme Rs727 billion. There’s absolutely no money for any of that.

For the record, Rs1.5 trillion spent on ‘defense’ is not just for defending Islamabad. For the record, Rs4 trillion in debt servicing is done on the behalf of the whole country. The current budgetary deficit is not sustainable. The National Finance Award needs to be reviewed.

Over all, it is a balanced budget in the most challenging of circumstances.