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Budget 2018-19: Standout features and key talking points – Pakistan

The government’s budget for fiscal 2018-19 was announced on Friday, revealing a strategy that sees the PML-N trying to please almost everyone ahead of the crucial election scheduled in a few months’ time.

The biggest difference from last year is a hard reprioritisation of expenditures from development to current spending, as provisions for expenditures, salaries, pensions were increased generously, particularly where they matter most for the government.

On the revenue side, the government opted to reduce the tax burden on the common man — reducing income taxes significantly — while adopting a carrot and stick approach to herd in non filers and tax evaders into the tax net.

However, some tax heads have been provisioned to record substantial levies, and people should expect to pay significantly more on imported items and petroleum next year.

Taxes

The Federal Board of Revenue’s tax target has been increased by 10.5pc (Rs422 billion) to a total of Rs4,435 trillion.

Rs140bn of the increase will come from direct taxes, while indirect taxes will account for the remaining Rs282bn.

The government had mentioned yesterday that it was attempting to rein in burgeoning imports through regulatory duties.

Under the direct taxes head, the government expects its lowered income tax rates to result in a substantial broadening of the tax base and add another Rs132bn to income tax collection. In percentage terms, this reflects a 8.36pc increase from the income tax target for last year.

It remains to be seen how realistic the government has been in provisioning for that increase, given that some observes have predicted an almost Rs100bn negative impact on tax collection due to the lowered overall income tax rates.

Under the indirect taxes head, customs duties will be Rs154bn higher than the previous year, reflecting a 26.5pc increase. This will likely reflect in higher prices on imported items.

The remaining increase in indirect taxes will come from a Rs95bn (5.9pc) increase in sales taxes and a Rs35bn (15.1) increase in federal excise duties over last year’s budgeted figures.

Under the ‘Other Taxes’ head, the government will be cutting the Natural Gas Development Surcharge from Rs43bn to Rs16bn, but nearly doubling the petroleum levy to Rs300bn from Rs160bn. Expect to pay more for fuel in the coming year.

Capital receipts and payments

The government expects to raise nearly Rs406bn through public debt, which represents a Rs91bn (28.9pc) increase over the previous year under this head.

Floating debt will account for the greater part of public debt, with the government expecting to raise a total Rs292.5bn under this head. Rs200bn of this will come from treasury bill auctions — which represents a 344pc increase over last year — and the remaining from prize bonds.

Permanent debt will be cut to Rs113.55bn from Rs184.93bn last year, with the most significant cut provisioned for ijara sukuk bonds, through which the government expects to raise only Rs10.62bn compared to Rs60bn last year.

The government also expects to settle Rs174bn of short term credit (compared to only Rs39.77bn last year).

Current expenditures

Given that this is PML-N’s election year budget, with constituents and power players to appease, nearly all heads under current expenditures register marked increases from last year’s budgeted amounts.

The government’s interest obligations on both foreign and domestic debts are also higher — to Rs229bn and Rs1,391bn — representing increases of 73.5pc and 13pc respectively.

Pension payments register a whopping 37.9pc increase to Rs342bn, of which military pensions will account for Rs259.8bn (up 44.2pc from Rs180bn budgeted last year) while civil pensions will account for Rs82.2bn (up 21.2pc from Rs67.8bn last year).

Defence affairs and services are similarly up 19.6pc to Rs1,100bn from the budgeted Rs920.2bn last year, mostly due to a 19.6pc increase in defence services, which account for employee-related expenses, operating expenses, physical assets and civil works, will swallow up Rs1,098bn of the budget.

Separately, subsidies have also been jacked up 25.9pc.

For itself, the government has budgeted a 23pc increase for the running of the civil government. Salary disbursements will be 15.2pc higher to Rs242.7bn and non salary expenses will be jacked up 33.3pc.

Law courts have been given a 8.8pc increase in their budget, which now stands at Rs5.63bn. Meanwhile, the allocation for police has been bumped up by 21.5pc to Rs122.9bn from Rs101.1bn a year ago.

The federal health budget, on the other hand, has been bumped up by only 8.2pc to Rs13.89bn, of which hospital services will eat up Rs11.66bn.

The federal education budget has been enhanced by Rs6.9bn (7.1pc) to Rs97.4bn, with the increases mainly provisioned for provision of services from pre-primary through tertiary education. The tertiary education budget on its own has been increased by only 5.23pc.

Public Sector Development Programme

After being jacked up last year, the federal Public Sector Development Programme (PSDP) has been slashed by 20pc compared to last year’s budgeted amount, falling to Rs800bn this year.

Although the government mentions the total federal PSDP will be equal to Rs1,030bn, the additional Rs230bn will not come out of the federal government’s pockets, instead being provided by “self financing by corporations and authorities”.

The allocation for the water division has been more than doubled to Rs79bn in 2018-19, with the announcement coming just days after the provinces and the federation agreed to a national water policy.
The Clean Drinking Water for All programme, with a Rs12.5bn allocation in the current year’s budget, has been scrapped completely.

The allocation for the National Highway Authority (NHA) has also been cut by a significant 34pc as major projects including the Karachi-Hyderabad and Sukkur-Multan motorway near completion. The power division also gets a Rs24bn cut, and is down to Rs36bn in the upcoming budget.

The provinces’ share of PSDP has also been slashed by around 24pc to Rs850bn, bringing both the federal and provincial PSDP closer to revised spending in the current year of Rs750bn and Rs800bn, respectively.

Meanwhile, the Capital Administration and Development Division will get 2.6 times the current amount in the coming fiscal year. The Interior Division, which had a Rs15.7bn budget this year, will get an additional Rs8.3bn.

Among other divisions gaining generous bumps next year is the Pakistan Atomic Energy Commission, the budget of which has been hiked by a whopping 88pc to Rs28.3bn.

A new allocation of Rs10bn has also been made for the Federally Administered Tribal Areas (Fata) 10 Year Plan.

Meanwhile, the allocation for the housing and works division has been cut by almost half to Rs5.4bn. The budget for the national health services has also been reduced by 49pc from Rs48.7bn to Rs25bn.

Railways would also get Rs8.5bn less than the current year, which could be because of a reduction in its losses. However, it could also be because the division used only Rs22bn from this year’s budget, leaving Rs20bn unspent.

Pakistan will also spend less on ensuring Sustainable Development Goals (SGDs) are met, as the allocation under this head has been slashed massively from Rs30bn to only Rs5bn.

Meanwhile, the Special Federal Development programme and Energy for All programmes have been completely scrapped.

Among other interesting figures is the spending by the petroleum division this year, the budget for which overshot by Rs16bn while the original allocation had only been Rs554m.

On the other hand, the planning, development and reform division was unable to spend Rs12.6bn out of its allocated Rs16.8bn.


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