Finance Bill 2024 :

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Budget 2024-25: KP seeks inclusion of 91 projects in PSDP​

Mubarak Zeb Khan
June 9, 2024

ISLAMABAD: Ahead of the newly constituted National Economic Council (NEC) meeting on Monday, Chief Minister Khyber Pakhtunkhwa Ali Amin Gandapur has sent a letter to Prime Minister Shehbaz Sharif requesting the inclusion of 91 ongoing projects in the federal Public Sector Development Programme (PSDP) 2024-25.

The estimated throw-forward cost for these projects is Rs1.327 trillion. Many of the dropped projects were already 70 per cent complete, including highways, roads, health facilities, small dam buildings, the Peshawar expo centre and the renovation of existing energy facilities.

Mr Gandapur has also sent a letter to the Planning Minister Ahsan Iqbal. The KP chief minister urged the prime minister to address the genuine demands of the province. “A comprehensive review of the proposed budgetary allocations and inclusion of omitted projects in the final PSDP 2024-25 are paramount to ensure equitable development across the nation,” he said.

The letter to the prime minister claimed that these projects were dropped and that details were communicated barely two hours before the Annual Plan Coordination Committee (APCC) meeting on May 31.

Mr Gandapur said that the federal government had approved 279 new projects in PSDP 2024-25, excluding the KP province from the list. He stated that the province’s ongoing projects had been removed from the list.

He stated that the project’s cancellation contradicts the decision of the Special Investment Facilitation Council (SIFC) Apex Committee meeting on Jan 3, which determined that all ongoing projects will be completed to save previously invested funds.

He went on to say that the decision made by the National Economic Council (NEC) on Jan 29 confirmed the earlier decision that all ongoing projects could be finished. Authorisation of allotted money for such initiatives is required to ensure their timely implementation. “Violating both SIFC-Apex Committee and NEC decisions will undoubtedly jeopardise KP’s development trajectory,” the chief minister remarked.

 

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Pakistan’s budget will aim to set stage for IMF bailout: analysts​

It will also be the first test for the new finance minister considering the previous ones have shied away from thorny steps.

 

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Here are 3 things to watch out for in the upcoming budget​

The 2024-25 budget will ultimately boil down to how the sovereign, meaning the government, will make its ends meet.

Uzair M. Younus
June 10, 2024

Budget season is upon us once more and much like previous budgets, this one will once more have the usual slogans. The government will talk of how this budget is meant to course correct while protecting ordinary citizens, while the opposition will protest claiming that the government is breaking the back of Pakistanis.

The media will cover various aspects, probably focusing on the conditions of the International Monetary Fund (IMF) more so than in previous instances.

Given the ongoing economic crisis in the country and the need for sustained support from multilateral and bilateral creditors, this budget will ultimately boil down to how the sovereign, meaning the Government of Pakistan, will make ends meet.

Which is why to distill the signal from the noise, you should focus on these three things in the hours after the budget data is made public:

Tax target and its mechanisms​

We all know that the Federal Bureau of Revenue (FBR) loves to cut a cake every time it collects a record amount of taxes. The government is likely to once more set another record-breaking tax collection target and showcase this as a commitment to promoting economic stability. Data shows that tax revenue collection increased from Rs4.2 trillion in fiscal year 2019-20 to Rs7.2 trillion in 2022-23. In nominal terms that is an increase of 71 per cent, and perhaps worthy of lots of cakes. But in real terms, tax collection declined, considering the fact that the consumer price index grew by over 80pc during this period.

Another key element of every budget speech is about how the status quo tax structure can no longer be sustained. This author has been hearing these pronouncements since the time of Shaukat Aziz — my memory does not go back further than this — who highlighted decades ago that “every citizen must share the cost of governance by paying a share of his income”.

Finance Minister Muhammad Aurangzeb is likely to make a similar case during his speech, but as they say, the devil lies in the details.

So when you look at the tax revenue target, be careful about two things: what is the real growth in tax revenues compared to last year (this is the nominal growth minus the rate of inflation), and what are the mechanisms through which this target will be met.

It is highly likely that the revenue goals will be met through a growth in regressive taxes and squeezing more out of existing taxpayers, such as salaried individuals and formal businesses. If this is the primary driver of tax revenue growth, then know that despite the rhetoric, the government is not going to make those who are out of the tax net pay a fair share of taxes to the government.

As a result, the tax-to-GDP ratio — a gauge of a nation’s tax revenue relative to the size of its economy — will barely change and the tradition of successive governments pursuing a status quo policy will continue. And it is worth reminding ourselves that it is status quo policies that have led Pakistan into the crisis the country is in today.

Debt servicing, interest payments​

The total tax revenue collected by the sovereign in fiscal year 2022-23 was almost Rs7,200 billion, out of which Rs5,200bn was spent on debt servicing, meaning that only 27pc of all tax receipts were left to pay for everything else, including defence, pensions, and development projects.



This is why it is critical to see what the debt servicing goal is for the upcoming year and compare that to the tax revenue targets for the government. Given the dire financial conditions of the sovereign and its continued reliance on debt to pay for even the most necessary of expenses, it is also critical to keep an eye on the expected interest payments the government is projecting in the coming year. This is also an indicator of the interest rate (and by extension inflation) projections of the finance ministry.

Both these figures are critical if you are a citizen: the interest rate will signal what the cost of capital is going to be in the country moving forward, which has all sorts of implications on growth, business investments, and job creation. Inflation projections are critical for ordinary citizens to pay for their own future and get a sense of what kind of salary raises they will need, in addition to planning for an increase in the cost of living over the course of the year.

Privatisation receipts and their contribution to public finances​

Much has been said about the need for aggressive privatisation in the past few months. The government is trying to make an aggressive push to privatise the Pakistan International Airlines (PIA), and the IMF along with other entities is encouraging the Sharif government to offload state-owned enterprises. The privatisation receipts target is a critical number to watch in the budget as it signals two key things: firstly, the sovereign’s commitment to offloading government assets and secondly, the overall contribution of these potential receipts to the government’s revenues.



Targets can be misleading, however, as evidenced in the past: the 2022-23 fiscal year projection was Rs96bn in privatisation receipts, but the actual amount realised was Rs1.3bn, a mere 1.4pc of the target.
Given the government’s credibility challenge, especially when it comes to privatisation, the target it sets for itself will be quite telling. How aggressive the finance minister is when it comes to this particular category will cement the government’s reputation when it comes to wholesale reform of the economy.

How the sovereign will pay for its expenses​

In conclusion, there is going to be a lot of noise created by plenty of announcements during the budget. The key issue at hand is the fiscal sustainability of the Islamic Republic of Pakistan. Best to focus on the signals about the sovereign’s fiscal trajectory and ignore the rest of the drama around the budget.

The budget and its credibility will determine how quickly the IMF programme will proceed. A budget that misses the mark will create uncertainty about macroeconomic stability. Given the nature and structure of this government, such an event is unlikely. However, keeping the IMF happy will mean that political capital will have to be spent, and given the broader political dynamics in Pakistan, the focus will quickly shift from the budget to politics as the government seeks to meet the targets it has set for itself.

 

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Editorial: ​

Govt must find a balance between stringent IMF demands and public expectations of relief​

 

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Govt to present federal budget today with aim to secure new IMF bailout​

Finance Minister Aurangzeb to lay out next year's financial plan at 4pm in NA.

 

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Ad-hoc relief​

Ad-hoc relief is when the government might give out a temporary bonus or raise to employees to help them get through financial challenges. It’s not a permanent raise, but just enough to keep you afloat until things get better.

Imagine you’re deep into Candy Crush, down to your last life, about to quit the game… and then bam! The game throws you a free boost, just what you need to keep going. That’s exactly what ad-hoc relief feels like for government employees — a sudden, unexpected lifeline when you need it the most.

Subsidy​

A subsidy is a certain amount of money granted — through taxpayers’ money — by the government to help an industry or business reduce the price of a commodity or service.

Imagine you’re all set for a beach day with your squad, but the beach hut costs are higher than expected. Suddenly, a friend’s lifesaver parents step in and cover the expenses. That’s a subsidy in action — a government boost making things affordable for everyone, just like that cool parent swooping in with cash.

Fiscal deficit​

A fiscal deficit is a shortfall in the income of a government compared to its expenditure. It’s essentially when the government spends more money than it brings in through taxes.

Ever craved that shiny new iPhone but realised your bank account couldn’t handle it? So, you whip out your credit card, bridging the gap between desire and reality? Bingo! That’s the fiscal deficit vibe — when the government spends more than it earns, just like when you spend more than what’s in your wallet.

Divisible pool​

The divisible pool is the total revenue collected by the central government, divided between different levels of government based on an agreed formula. This ensures fair resource sharing across regions.

Suppose your group of friends collected all your money in a jar to buy a bunch of pizzas instead of each person buying their own. When the pizzas arrive, everyone gets a fair share based on how much they pitched in. That jar is basically like the divisible pool — pooled resources distributed fairly to ensure everyone gets their piece.

Default​

Default is when the government fails to make required interest or principal repayments on a debt, making it expensive or impossible for it to borrow money in the future.

Imagine lending your car to a friend who promises to return it next week. Weeks pass, and not only do they not return it, but they also start leaving your messages on read. So, now you have a friend who has disappeared into thin air, leaving you car-less and with trust issues. That’s your classic default scenario — when someone ghosts on repayments, making you, and everyone you know, rethink your lending policies.

 

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Debt servicing​

Debt servicing is the process by which a government makes regular payments of interest and principal on its loans or debts.

Do subscription services ring a bell? Each month, you cough up cash to keep your favourite shows streaming. Debt servicing is similar as you regularly pay back the money you owe, including both interest and principal, to keep things running smoothly.

Remittance​

Remittance is the non-commercial transfer of money from individuals working abroad back to their home countries. These transfers can include earnings from foreign workers, short-term employee income, and personal remittances, boosting the economy of the home country.

Suppose you’re at college, and your parents send you cash monthly to help you cover your food, books, and rent. Getting a monthly allowance from your folks that would keep you afloat during college is similar to remittance (of course, on a bigger scale). The money coming from abroad, often from citizens working in other countries, helps boost the economy and support families back home.

Tax net​

In government terms, the tax net refers to the total population or businesses subject to taxation within a particular jurisdiction.

You know those apps where you swipe through profiles looking for matches? Well, think of the tax net as a massive swipe where every taxpayer gets caught. Each swipe represents someone who has to pay up to keep things running smoothly. Just like how those apps find your perfect match, the tax net finds everyone who needs to chip in for the government’s services.

Fixed investment​

Fixed investment refers to spending on physical assets like infrastructure, machinery, and equipment that are expected to last for more than one year, like building new parks or upgrading public transportation.

Let’s assume you’re into fashion and you decide to splurge on a timeless wardrobe staple, like a classic leather jacket. Sure, it’s a bit pricey upfront, but it’s an investment piece that’ll never go out of style and will last you for years. Similarly, when the government makes fixed investments, they’re putting money into projects that would stand the test of time and benefit communities for generations to come.

Regressive taxes​

In a regressive tax system, individuals with lower incomes end up paying a larger share of their earnings in taxes than those with higher incomes. This is because taxes are calculated based on the value of assets purchased or owned, rather than on the individual’s income level, disproportionately affecting low-income earners.

Think of it like buying concert tickets. Say the ticket price is the same for everyone, but for someone earning minimum wage, it might represent a bigger chunk of their paycheck than for someone earning six figures. Even though they’re both paying the same ticket price, it affects the lower earner more. That’s the deal with regressive taxes — they hit harder on those with less to spare, even though the dollar amount may be the same for everyone.

 

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Can The 2024 Budget Stabilise Pakistan's Economy?

While immediate measures to control inflation are necessary, the budget should focus on long-term sustainable growth.

Syeda Alizeh Ahmed
June 11, 2024

The upcoming 2024 budget is more than a routine fiscal exercise for Pakistan; it is a litmus test of the government's ability to steer the country out of a dire economic crisis. With inflation spiralling out of control, decimating household incomes, and economic growth stagnating, the upcoming fiscal plan is not merely a set of numbers but a critical blueprint for survival.

This budget is the government's last-ditch effort to pull the economy back from the brink, offering a lifeline to millions grappling with the soaring cost of living and the pervasive sense of economic despair. It is a moment of reckoning, demanding bold, innovative, and decisive action to stabilise the economy, restore public confidence, and pave the way for sustainable growth.

Inflation in Pakistan has been alarmingly high, with recent reports indicating it hovered around 24% on average for the fiscal year ending June 2024, down from a peak of 29.2% the previous year. The steep rise in prices, particularly for essential goods, has eroded the purchasing power of ordinary Pakistanis, leading to widespread public discontent. The root causes of this inflation are multifaceted: chronic fiscal deficits, a depreciating rupee, rising global commodity prices, and significant supply chain disruptions.

The 2024 budget must prioritise measures to tame this rampant inflation. One approach could be to tighten monetary policy further; however, this comes with the risk of stifling economic growth. Another is to address the supply-side constraints by improving logistics, reducing import tariffs on essential goods, and increasing subsidies for key agricultural inputs. Unfortunately, these measures alone might not be sufficient given the structural issues plaguing Pakistan’s economy.

On the growth front, Pakistan’s economy is projected to grow by a modest 2.6% for the current fiscal year. This growth rate is far below the potential of a country with a young and dynamic population. For sustained economic growth, Pakistan needs to invest heavily in infrastructure, education, and technology. The 2024 budget should, therefore, include substantial allocations for these sectors.

However, increasing public expenditure to stimulate growth without exacerbating the fiscal deficit is a tightrope walk. The government must be prudent in its spending, ensuring that funds are allocated to high-impact projects that can deliver long-term economic benefits. The focus should be on public-private partnerships, especially in infrastructure development, to leverage private sector efficiency and funding.

Pakistan’s economic instability is not just a result of short-term policy failures but also a consequence of deep-rooted structural issues. The energy sector, for example, continues to bleed cash, contributing significantly to the fiscal deficit. The 2024 budget must prioritise the restructuring of state-owned enterprises, especially those in the energy sector, to reduce losses and improve efficiency. Privatisation, albeit a politically sensitive topic, should be back on the agenda for loss-making entities like Pakistan International Airlines (PIA) and Pakistan Steel Mills.

Tax reforms are another critical area. Pakistan’s tax-to-GDP ratio remains abysmally low, partly due to a narrow tax base and widespread tax evasion. The budget should introduce measures to broaden the tax base and improve tax compliance. This could include leveraging technology to track transactions more effectively and reducing the tax burden on compliant businesses to incentivise formalisation.

The role of the International Monetary Fund (IMF) cannot be understated in Pakistan’s economic scenario. With the IMF set to approve a $1.1 billion tranche as part of a $3 billion Stand-By Arrangement (SBA), there is some fiscal relief on the horizon. However, reliance on IMF funds is not a sustainable long-term strategy. The government needs to use this period of fiscal respite to implement the necessary reforms that can put the economy on a more stable footing.

Moreover, Pakistan should explore other avenues of international aid and investment, particularly in green energy and sustainable development projects. Climate financing could be a significant opportunity, given Pakistan’s vulnerability to climate change and the global push for green investments.

The 2024 budget is a critical juncture for Pakistan. It offers an opportunity to stabilise the economy through prudent fiscal management and strategic investments. While immediate measures to control inflation are necessary, the budget must not lose sight of the long-term goal of sustainable economic growth. Structural reforms, investment in infrastructure and human capital, and a broader tax base are essential components of a robust economic strategy.

The stakes are high, and the margin for error is slim. The government’s ability to navigate these complex economic challenges will determine whether Pakistan can emerge from its current economic quagmire or sink deeper into instability. It is a time for bold decisions, strategic planning, and unwavering commitment to economic reforms.`

 

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Govt unveils Rs18.877 trillion budget with record development fund, salary hikes​

Income tax rates increased for salaried class, with individuals earning Rs50,000 per month exempted from income tax

Ghazanfar Ali/Salman Siddiqui/Javeria Ilyas/SHAZIA FAROOQ
IJune 12, 2024

Finance Minister Muhammad Aurangzeb is presenting budget 2024-25 in National Assembly on Wednesday, June 12, 2024. PHOTO: PID

Federal Minister for Finance Muhammad Aurangzeb has unveiled a budget of Rs18.877 trillion for the fiscal year 2024-25, a 30% increase over the previous year.

While presenting the budget in National Assembly on Wednesday, Aurangzeb described the budget as balanced, with resources matching expenditures at Rs18.877 trillion.

On the parliament floor, Aurangzeb announced a historic development budget (PSDP) of Rs1.5 trillion. He also declared a 25% salary increase for government employees in grades 1-16 and a 22% increase for those in grades 17-22. Pensions will rise by 15%.

Minimum wages in the private sector will increase to Rs36,000 per month, up from Rs32,000 last year. Funds for the Benazir Income Support Programme will grow by 27% to Rs593 billion for FY25.

The government has also increased income tax rates for salaried individuals in the budget.
Individuals earning Rs50,000 per month will be exempt from income tax. For those earning between Rs600,000 and Rs1.2 million annually, the income tax rate has been set at 5%. This means that individuals earning up to Rs100,000 per month will now pay a monthly tax of Rs2,500, up from Rs1,250.

For annual incomes between Rs1.2 million and Rs2.2 million, the tax rate has been increased to 15%. Thus, individuals with a monthly salary of Rs183,344 will now face a monthly tax of Rs15,000, up from Rs11,667.

 

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Incomes between Rs2.2 million and Rs3.2 million annually will be taxed at 25%. Monthly salaries of Rs267,667 will see their tax rise to Rs35,834, up from Rs28,770.

For those earning between Rs3.2 million and Rs4.1 million annually, the tax rate has been set at 30%. This means that individuals with a monthly salary of Rs341,667 will now pay a monthly tax of Rs53,333, up from Rs47,408.

Meanwhile, an income tax rate of 35% will be applied to annual salaries exceeding Rs4.1 million.

The budget presentation was marked by opposition uproar in the National Assembly.

Aurangzeb expressed gratitude to Prime Minister Shehbaz Sharif, PML-N leader Nawaz Sharif, and other coalition leaders for their guidance in preparing the budget.

"Mr Speaker, despite political and economic challenges, our progress over the past year has been impressive," Aurangzeb said, urging the nation to revitalise the economy.

 

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Aurangzeb praised the government’s determination in addressing economic challenges and pledged to accelerate development under Shehbaz's leadership. He highlighted a homegrown agenda that has navigated economic difficulties and stimulated development.

Aurangzeb acknowledged hurdles such as depleted foreign reserves, a 40% rupee depreciation, stagnant growth, and soaring inflation pushing citizens below the poverty line.

He credited the previous PDM government for securing a crucial nine-month IMF programme in June 2023, which averted economic collapse.

"The previous IMF programme was ending, and a new deal was essential to prevent a default. I commend Shehbaz Sharif’s government for their efforts," he said.

Aurangzeb noted improvements in economic indicators, attributing these successes to the efforts of the PM and his team.

"Inflation stood at 11.8% in May, a notable achievement considering the challenges. We’re on the right track, and inflation is likely to decrease further," he said.

He highlighted bolstered foreign exchange reserves and growing international investor interest. He applauded the State Bank's decision to cut interest rates to combat inflation, congratulating Shehbaz Sharif and his team.

"These achievements are not ordinary. As a result, the country has exited a difficult time," he said.

Aurangzeb emphasised patience and collective effort for sustainable economic development, cautioning that progress cannot be accelerated overnight.

 

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"There is a need for patience and extreme hard work, combined with homegrown corrective plans. The public must work together with institutions to achieve our economic goals," he said.

Aurangzeb highlighted several key measures and reforms. The FBR’s tax policies and digitisation efforts have registered 3,400 retailers, with PM Shehbaz Sharif closely monitoring these initiatives.

He pointed out that Pakistan's tax-to-GDP ratio is very low and requires reforms, with the federal government collaborating with provincial governments for fiscal stability.

The government is introducing pension reforms to save Rs45 billion and has approved right-sizing in PWE, which has been closed. A high-level committee will examine the government's structure and provide recommendations in two and a half months.

State units like PIA and the Roosevelt Hotel will be privatised to promote the private sector, with Rs622 billion in liabilities transferred from PIA's balance sheet to a holding company set up in March 2024. Major airports, starting with Islamabad International Airport, will be outsourced by July 2024.

The BISP funds will be raised by 27%, with 500,000 new households included in the programme.

 

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Aurangzeb noted Rs5 billion allocated for an agriculture mark-up scheme, with financing to boost the sector, which constitutes 24% of GDP.

The energy sector will receive Rs253 billion, focusing on reducing losses and promoting wind and solar power. Efforts are underway to freeze debt from power reforms and involve the private sector.

The IT sector will receive Rs79 billion, with plans for an IT park in Karachi and efforts to increase exports to $3.5 billion this year.

A national digital commission will be introduced to advance digital solutions. The social welfare and education sectors will see Rs206 billion allocated for water resources, Rs8 billion for an IT park in Karachi, and Rs206 billion for drinking water projects.

Smart screens, tablets, blended learning, and e-libraries will be provided in schools, with six-month IT courses offered to students.

Overseas Pakistanis will be facilitated in sending remittances, with Rs90 billion allocated for this purpose, recognising their crucial role in the economy.

Aurangzeb presented a positive economic outlook, expecting 3.6% growth in the next fiscal year and keeping inflation around 12%. Significant allocations include defence (Rs2,015 billion), pensions (Rs1,014 billion), and power sector subsidies (Rs1,363 billion).

Efforts are being made to attract global climate finance and improve Pakistan's economic growth through a homegrown reform agenda. The PSDP allocation of Rs1,500 billion will focus on infrastructure, social sector development, and strategic projects.

In FY25, Rs50 billion has been earmarked for the production sector, with a comprehensive Karachi package introducing special projects for Karachi, Hyderabad, Sukkur, and Benazirabad.

The tax-to-GDP ratio will be increased through economic digitisation and a progressive tax system. The undocumented economy will be brought under the tax net through digitisation, with the FBR introducing personal income tax reforms.

Under these reforms, tax exemptions will remain unchanged at Rs600,000 for salaried individuals. The minimum wage is set at Rs36,000.

 

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Salaried, non-salaried taxpayers to cough up Rs225b​

Budget increases tax rates in both categories, minimum threshold maintained at Rs600,000

Irshad Ansari
June 13, 2024

ISLAMABAD: The federal government increased the tax rate for both salaried and non-salaried taxpayers in the federal budget for the next financial year, placing a cumulative burden of Rs75 billion on the salaried person, Rs150 billion on the non-salaried individuals.

The budget proposed a maximum tax rate of 35% for the salaried persons, and 45% for non-salaried individuals. The minimum threshold of Rs50,000 monthly income had been maintained for both the categories, while the number of tax slabs would also remain at 6.

The salaried people in the first tax slab with the income of up to 600,000 per annum or Rs50,000 per month had been exempted from income tax. In the second tax slab, the income tax for those earning between 600,000 and 1.2 million per annum would be 5%.

This 5% tax, according to the Finance Bill, would be charged on the amount after deducting Rs600,000 from the total annual income. Hence, in this category, the monthly income tax would increase from Rs1,250 per month during the current fiscal year to Rs2,500 per month in the next fiscal year.

Under the third slab, which covered individuals, having the annual income of Rs1.2 million to Rs2.2 million, a fixed tax of Rs30,000 would be levied along with 15% income tax. The tax payment in this category would increase from the current Rs11,667 to Rs15,000 per month.

In the fourth tax slab, which covered individuals having the annual income of Rs2.2 million to Rs3.2 million, the fixed tax would be Rs180,000, besides 25% tax on the remaining amount after deducting Rs2.2 million. Overall, the per-month tax in this slab would increase from Rs28,770 to Rs35,834.