KARACHI: After a ruckus in the National Assembly and a walkout by the opposition, Dr Miftah Ismail, the day-old finance minister of Pakistan, announced the budget for fiscal year 2018-19.
The speech was preceded by a commotion with leader of the opposition Syed Khursheed Shah criticising the government for announcing the budget as its tenure is due to end next month.
Ismail, who was earlier the Board of Investment chairman before being appointed adviser to the prime minister on finance in December 2017, was sworn in as the country’s finance minister earlier today.
The move was meant to clear the hurdle in his way of announcing the federal budget in the National Assembly.
The announcement means the Pakistan Muslim League-Nawaz (PML-N) now becomes the country’s first political party to announce six budgets in its tenure.
The development comes even as the opposition voiced concern over the government’s move to announce a full-year fiscal budget. Its tenure is due to end in May, and the next fiscal year starts on July 1.
Opposition political parties have called the move “illegal and unconstitutional”, but the government has remained adamant that fiscal operations need to be announced for the entire year.
“Expenditure allocation takes place for a 12-month period. You cannot announce a budget for three or four months,” said Ismail while unveiling the Pakistan Economic Survey 2017-18 on Thursday.
Under the amnesty scheme, foreign assets will be charged a tax rate of 3%, while liquid assets – like foreign currency – will be taxed at 5%.
By 2023, the rate of corporate tax will be 25% through a percentage-point decrease each year.
Currently, the rate is 30%. In 2013, the rate was 35%.
The rate of super tax will decrease by a percentage point each fiscal year, says Ismail.
This way, the super tax on banks will end in four years, while non-banking companies will see its rate become zero in three years.
Non-filers of income tax returns will not be allowed to purchase property worth more than Rs4 million, says Ismail.
However, he adds that filers will pay only 1% tax on purchase of property.
The move is a huge negative for the real estate sector where a majority of transactions are ‘off-the-books’, greatly understated, and consist mostly of non-filers of income tax returns.
Ismail says the income tax exemption threshold would be increased to Rs1.2 million.
This means a salaried individual who earns Rs100,000 a month (Rs1.2 million a year) will be exempted from paying any income tax.
Additionally, companies would only be audited once every three years.
The proposal comes as the FBR struggles to conduct audits, and is faced with a huge backlog.
Brokerage income tax will be an adjustable 0.2%, a change from the previous regime of a fixed rate.
The demand will be a pleasant surprise for brokerage houses that had demanded an adjustable rate of income tax.
Salaries as well as pensions of military and civil servants will be increased by 10%.
Duty on the import of electric cars has been reduced to 25% from 50%. Regulatory duty has been removed, says Ismail.
The Benazir Income Support Programme will be allocated Rs125 billion, says Ismail.
Tax on bonus shares has been removed, says Ismail.
The move would be a huge boost for stock market investors. The Pakistan Stock Exchange (PSX), as part of its budget proposals, had urged the government to remove the tax.
The defence budget will stand at Rs1,100 billion, says Ismail. Another Rs100 billion has been allocated as the Armed Forces Development Programme.
Witnessing the recent boom in Pakistan’s film industry, Ismail says the budget will propose a 50% reduction in income tax rates for the next five years.
An amount of Rs25 billion has been allocated for Karachi, Sindh’s provincial capital, says Ismail.
“A desalination plant would also be set up in the industrial hub. It will provide the city 50 million gallons of water per day.”
The federal government will provide buses for school-going girls in a bid to promote education in the country’s remote areas, says the finance minister.
Budget deficit’s target has been set at 4.9% for next year. The current fiscal gap is 5.5% of GDP, says Ismail.
With huge exemptions on offer and low tax revenues, the target seems to be ambitious, say experts.
The government is targeting a tax-to-GDP ratio of 13.8%, says Ismail.
The Federal Board of Revenue (FBR) will target a revenue of Rs4,435 billion in the next fiscal year.
Pakistan will target 6.2% GDP growth in 2018-19, says Ismail.
The country’s economy grew at 5.8% in 2017-18, according to Pakistan Economic Survey 2017-18.
Remittances, for long Pakistan’s saving grace, are expected to hit the $20-billion mark, according to the finance minister.
Foreign exchange reserves of the State Bank of Pakistan (SBP) will be at a higher level than they are right now, says Ismail.
The current level is below $11 billion, which was at one point over $17 billion.
The finance minister says agriculture disbursement stood at Rs336 billion in 2012-13, which would increase to Rs800 billion in June this year.
Taking credit for low inflation figures, Ismail says food inflation in 2017-18 has been 2%.
However, the low inflation figure has come mainly on the back of low oil prices in the global market.
Ismail says the inflation target for 2018-19 has been set at below 6%.
Ismail says the country was on the verge of bankruptcy when the current government took over in 2013.
“Pakistan has now achieved a 13-year high in GDP growth and is currently the world’s 24th largest economy,” says the newly-appointed finance minister.