Two weeks after Miftah Ismail hastily took oath as finance minister of Pakistan to announce the budget for the upcoming fiscal year, the consensus among most observers outside the ruling Pakistan Muslim League-Nawaz (PML-N) is that populist bait has been thrown to the masses.
This is hardly surprising. Any budget announcement that precedes a general election would be intrinsically crafted to woo the voters.
This is precisely why in the lead up to the budget announcement on April 27, both the Pakistan People’s Party (PPP) and Pakistan Tehreek-e-Insaf (PTI) had labelled it ‘pre-poll rigging.’
The Rs390 billion deficit budget that aims to generate Rs4,714 billion and spend Rs5,104 billion is founded upon unrealistic tax concessions. With direct taxes estimated at Rs1,595 billion and indirect taxes Rs2,418 billion, the government plans to reduce the corporate tax rate to 25 percent – down form the current 30 percent – over the next five years and completely eliminate the super tax by 2021.
“Although no data is provided, it is estimated that nearly half of the one million active tax payers will be out of the list as taxable income has increased from Rs400,000 to Rs1,200,000,” notes a budget analysis report by Centre for Peace and Development Initiatives’ (CPDI).
The tax concessions targeted towards businesses has been met with enthusiasm from many quarters.
“Enhancing the limit for income tax exemption, expansion of the development budget along with the agriculture and livestock sectors, removing duty on import of raw materials are all positive steps,” maintains Lahore Chamber of Commerce and Industry President Malik Tahir Javaid.
His Karachi Chamber of Commerce and Industry (KCCI) counterpart Mufasser Ata Malik echoed similar sentiments. “There is a lot of business incentive for agriculture, IT, banking and auto sectors along with stock markets,” he said, but conceded that the government would have their work cut out implementing the budget amidst politico-economic uncertainties.
Other than populism, and in turn lack of realism, the budget has come under severe scrutiny for its estimations. While the budget plans to overcome the underscored Rs390 billion deficit by borrowing from local banks, the current trade deficit numbers coupled with unrealistic projections might force the government to look elsewhere.
“Following three major non-discretionary expenses - debt, defense, and government expenditures - the shrinking revenues and development expenses, will aggravate the fiscal deficit, forcing the government to go to the International Monetary Fund,” says Sustainable Development Policy Institute Executive Director Abid Qaiyum Suleri.
This, however, not only contradicts the government’s pre (and post) budget rhetoric, with Miftah Ismail maintaining that there is no plan to go for an IMF programme, it would also underscore Pakistan’s failures in financial diplomacy as recent as last month.
Ismail’s visit to the United States in the lead up to the budget announcement was intended to get the World Bank and IMF to agree to a debt financing plan, multiple diplomatic sources have confirmed.
Senior financial journalist and FX Empire analyst Shahab Jafry says Pakistan needs a mammoth $13 billion to service previous debts. “That won’t come from the IMF, after Miftah Ismail’s failure to convince them that the 9.5 percent devaluation of the Pakistani rupee in the previous four months somehow addressed their concerns about rupee overvaluation.”
“Critics need to realise that the security environment Pakistan faces today and the economic determinants of security,” the Ministry of Defence said in a post-budget statement. Defence spending was raised to Rs1.1 trillion in the upcoming fiscal year – an 18 percent hike from the originally proposed Rs920 billion.
However the ministry maintains that the actual increase is 10.2 percent, factoring in “the routine yearly increase [ranging] between 10 percent and 12 percent which caters for inflation, depreciation and rise in pay.”
Former defence secretary and security analyst Lt Gen (r) Talat Masood says inflation alone should not be factored in the defence budget and the context of the overall economy and needs of the people should be prioritised.
“Since we do not have a central national authority which can truly take into account all the various challenges facing Pakistan and distribute funds accordingly to the institutions, the military will dominate the budget share,” he says.
That the hike in defence budget contradicts the PML-N’s anti-establishment alignment should be seen as a ‘completely different stream’ Lt Gen (r) Talat Masood believes. “The budget is never truly under civilian control anyway.”
This is hardly surprising. Any budget announcement that precedes a general election would be intrinsically crafted to woo the voters.
This is precisely why in the lead up to the budget announcement on April 27, both the Pakistan People’s Party (PPP) and Pakistan Tehreek-e-Insaf (PTI) had labelled it ‘pre-poll rigging.’
The Rs390 billion deficit budget that aims to generate Rs4,714 billion and spend Rs5,104 billion is founded upon unrealistic tax concessions. With direct taxes estimated at Rs1,595 billion and indirect taxes Rs2,418 billion, the government plans to reduce the corporate tax rate to 25 percent – down form the current 30 percent – over the next five years and completely eliminate the super tax by 2021.
“Although no data is provided, it is estimated that nearly half of the one million active tax payers will be out of the list as taxable income has increased from Rs400,000 to Rs1,200,000,” notes a budget analysis report by Centre for Peace and Development Initiatives’ (CPDI).
The tax concessions targeted towards businesses has been met with enthusiasm from many quarters.
“Enhancing the limit for income tax exemption, expansion of the development budget along with the agriculture and livestock sectors, removing duty on import of raw materials are all positive steps,” maintains Lahore Chamber of Commerce and Industry President Malik Tahir Javaid.
His Karachi Chamber of Commerce and Industry (KCCI) counterpart Mufasser Ata Malik echoed similar sentiments. “There is a lot of business incentive for agriculture, IT, banking and auto sectors along with stock markets,” he said, but conceded that the government would have their work cut out implementing the budget amidst politico-economic uncertainties.
Other than populism, and in turn lack of realism, the budget has come under severe scrutiny for its estimations. While the budget plans to overcome the underscored Rs390 billion deficit by borrowing from local banks, the current trade deficit numbers coupled with unrealistic projections might force the government to look elsewhere.
“Following three major non-discretionary expenses - debt, defense, and government expenditures - the shrinking revenues and development expenses, will aggravate the fiscal deficit, forcing the government to go to the International Monetary Fund,” says Sustainable Development Policy Institute Executive Director Abid Qaiyum Suleri.
This, however, not only contradicts the government’s pre (and post) budget rhetoric, with Miftah Ismail maintaining that there is no plan to go for an IMF programme, it would also underscore Pakistan’s failures in financial diplomacy as recent as last month.
Ismail’s visit to the United States in the lead up to the budget announcement was intended to get the World Bank and IMF to agree to a debt financing plan, multiple diplomatic sources have confirmed.
Senior financial journalist and FX Empire analyst Shahab Jafry says Pakistan needs a mammoth $13 billion to service previous debts. “That won’t come from the IMF, after Miftah Ismail’s failure to convince them that the 9.5 percent devaluation of the Pakistani rupee in the previous four months somehow addressed their concerns about rupee overvaluation.”
“Critics need to realise that the security environment Pakistan faces today and the economic determinants of security,” the Ministry of Defence said in a post-budget statement. Defence spending was raised to Rs1.1 trillion in the upcoming fiscal year – an 18 percent hike from the originally proposed Rs920 billion.
However the ministry maintains that the actual increase is 10.2 percent, factoring in “the routine yearly increase [ranging] between 10 percent and 12 percent which caters for inflation, depreciation and rise in pay.”
Former defence secretary and security analyst Lt Gen (r) Talat Masood says inflation alone should not be factored in the defence budget and the context of the overall economy and needs of the people should be prioritised.
“Since we do not have a central national authority which can truly take into account all the various challenges facing Pakistan and distribute funds accordingly to the institutions, the military will dominate the budget share,” he says.
That the hike in defence budget contradicts the PML-N’s anti-establishment alignment should be seen as a ‘completely different stream’ Lt Gen (r) Talat Masood believes. “The budget is never truly under civilian control anyway.”