Govt increases taxes on elite, gives relief to poor | Pakistan Today

Govt increases taxes on elite, gives relief to poor

–Finance minister says fiscal deficit to reach 7.2pc from 6.6pc if govt continues on present economic trajectory

–Federal development programme cut by almost Rs250bn to Rs725bn

–Rs6-7bn subsidy announced for farmers, minimum EOBI pension set at Rs10,000 

–Govt increases excise duty on 1800cc cars to 20pc

–CPEC, dam allocations to remain unchanged

–Tax relief granted by PML-N revoked from salaried persons earning more than Rs200,000 per month

ISLAMABAD: Finance Minister Asad Umar on Tuesday announced a “mini-budget” in the National Assembly, stressing that if the government continues in the present economic trajectory, the country will be doomed.

Presenting the amended budget speech in the Lower House, the finance minister stressed that the Pakistan Tehreek-e-Insaf (PTI) government had two priorities: protecting the poor and strengthening the export sector.

Those in attendance during Tuesday’s session were Prime Minister Imran Khan, ministers and members of treasury and opposition.

BUDGET IMBALANCES:

The finance minister began his speech with an assessment of the country’s economic situation, noting that the budget deficit had expanded to 6.6 per cent from 4.1 per cent at the start of the last government’s tenure.

“We need to decide — not the government alone, but the parliament together — if we want to continue like this,” he said.

In this spirit, he invited the opposition lawmakers to suggest proposals and amendments, saying that the government will accommodate these suggestions if possible.

Highlighting the previous government’s performance, Asad Umar informed lawmakers that when the PML-N government took over, the budget deficit had been 8.2% of which the PML-N had said 1.2% would go towards financing the circular debt. “Five years later, we are at that same position,” the minister said.

“We all remember the difficult decisions that the PML-N had to make to grapple with that situation. It is part of history now.”

“The government overestimated revenues by Rs350 billion and understated expenditures by Rs250bn,” he continued. “In total, there’s a Rs890bn difference in the projected and budgeted figures for the deficit which we have to contain.”

Highlighting the discrepancies in the estimation of total deficit, estimated at Rs2,293 billion, the minister elaborated that the power sector alone faced a shortfall of Rs450 billion over the last year despite receiving subsidies in the budget. “This number is not included in the deficit,” he added. Likewise, the gas sector faced a Rs100 billion shortfall, Umar explained.

“The most dangerous situation is that if we continue as we have, the budget deficit will expand 7.2% — Rs2,900bn — by the end of the ongoing year. This is the assessment of the Finance Ministry as well as economic experts,” Umar said.

The situation is worst in the external sector as the current account deficit had reached $18.1bn at present from $2.5bn in 2012-13, the finance minister said. “Consequently, our external debt, which was $60bn, reached $95bn by the end of the previous government’s tenure.”

Warning that the country’s foreign exchange reserves had depleted to only two months of import cover, and drawing attention to the fall in the rupee’s value against the dollar, the finance minister said that difficult decisions had to be made or inflationary pressures would build up to the point that they would become painful for the average consumer.

“These are difficult times, and they call for difficult measures,” Umar said. “But we also need to make sure the burden of our economic measures falls on those who can bear it. The poor are already resource stressed, and we cannot burden them further. Sure, we can seek bailouts from the IMF and other institutions, but that is not the solution: we can only grow when our economy grows, our industries and our people grow.”

RELIEF MEASURES:

Announcing the revenue measures aimed at providing relief to the poor, the minister said, “For farmers, we are ensuring the provision of urea by boosting local production and by importing 100,000 tons from abroad. A Rs6-7 billion subsidy has already been approved.”

“We will also provide Rs540,000 per family in FATA and Islamabad in the form of the Sehat Insaf Card to cover doctors’ fees and medicines. We have also instructed the Punjab government to introduce the facility in that province as well,” Umar said.

“We have also directed the release of Rs4.5bn for the completion of a housing scheme for the underprivileged,”

“Moreover, the minimum pension has been increased to Rs10,000 for EOBI pensioners.”

“The past government had projected that it would increase the petroleum levy from Rs185bn to Rs300bn, but we feel that this is highly unfair on the average customer. The government will absorb that impact.”

“The previous government had imposed regulatory duties on some goods, which we support as they have provided some relief on imports. However, we have decided to relieve duties on 82 tariff lines concerned with raw materials and inputs for export-oriented sectors. This will translate into a Rs5bn relief,” the minister said.

“The big decision we made yesterday was a Rs44bn benefit for the textile industry in Punjab. We will also work to ensure benefits for the zero-rated sectors in our electricity policy,” he added.

REVENUE MEASURES: 

“We will also raise Rs183bn in additional revenue. Half of this will be raised merely through better administrative procedures that utilise technology to plug leakages in the system. The Federal Board of Revenue (FBR) has accepted this challenge.”

“The rate of withholding tax (WHT) on non-filers has been increased back to 0.6 per cent on banking transactions,” the finance minister said, adding that the government would also remove the bar on non-filers from buying property in Pakistan because a lot of Pakistanis living abroad had complained saying the measure prevented them from buying property in Pakistan even though they were not even obligated to file taxes in the country.

“We have also decided to increase taxes on cigarettes. This is something that is close to my heart, as my own brother passed away a few months ago from lung cancer.”

“We have also increased some taxes on the rich. We have doubled the federal excise duty on cars of 1800cc engine capacity or more from 10% to 20%. We have also decided to increase the duty on several imported luxury products. Likewise, the duty will be increased on expensive phones.”

“Last thing: we’ve deliberated this in detail. The last government had given sweeping tax relief to all kinds of people, including the richest. The final decision we’ve taken is that we’ll maintain the Rs1,200,000 limit on exemption. We are also maintaining the tax rate for those earning between Rs100,000 to Rs200,000. For all categories above that, we are increasing the tax rate that was applicable in May, but it will remain lower than what it was last year. We hope that the people who have the means will not oppose us on this.”

“And, since we’re asking the privileged to sacrifice for the sake of Pakistan, we have also decided to withdraw certain tax exemptions from prime ministers and ministers,” he added.

DEVELOPMENT BUDGET REALLOCATED:

Asad Umar assured lawmakers that allocations related to CPEC-related projects would be kept intact. He also said that the budget for dams will also remain unaltered and said that the government will try to complete the two dams — Diamer Bhasha and Mohmand — in five or six years, instead of eight or nine.

“Rs661bn was spent on development last year, and we will spend Rs725bn this year. Out of this, we will be spending Rs50bn on development in Karachi. This is a joint venture between the federal and Sindh governments.”

“We have also identified infrastructure priorities for the National Highway Authority, on which we will spend Rs100bn. We will spend another Rs500bn on PSDP.”

Saying that he was sure past governments had done whatever they believed was necessary for the benefit of the country, Umar said the nation collectively needed to acknowledge that those measures had not worked.

“This nation was given to us by God. There is so much potential in this country, and we will, God-willing, take it to new heights.”

Prior to the commencement of the NA session, a meeting of the federal cabinet had approved the proposed amendments to the Finance Bill.

According to sources, the cabinet had decided to cut the federal development programme by almost Rs250 billion to Rs725 billion, whereas the budget deficit will be brought down to 5.1 per cent of the growth rate.

The government has also decided to increase regulatory duties on imports of vehicles and cell phones. It is also going to reduce the tax relief accorded to salaried persons as well as individual taxpayers.

According to sources, the government has also decided to raise the tax rate in the highest income tax slab from 15% to 29%. They said customs duty will also be increased on more than 5,000 items, whereas regulatory duty will be increased on the import of more than 900 items.

The ‘mini-budget’ will also increase the rate of withholding tax on banking transactions for non-tax filers.

The cabinet also approved the issuance of health cards.

Sources said that the government is looking at a fiscal adjustment of 1.5 to 2% of gross domestic product (GDP), or Rs600-750bn, through amendments to the federal budget 2018-19.

The government is aiming at a massive cut in development expenditure to the extent of over one per cent of GDP and through the withdrawal of tax and duty exemptions.

Consultative sessions continued until the last moment to deliberate completely banning the import of some 130-150 unnecessary items such as second-hand cars, while increasing duty rates on others including luxury items such as expensive phones, jewellery and food items. These trade measures are estimated to have an impact of over $1 billion on the current account deficit.

The current cumulative cost of tax and duty exemptions is estimated to be to the tune of Rs550bn which the government aims to bring down to around Rs200bn, thus transferring an impact of almost Rs350bn back to the people.

Salient features of mini-budget:

  • Federal development programme cut by almost Rs250bn to Rs725bn, with federal PSDP being target of most of the cuts
  • Budget deficit to be brought down to 5.1%
  • Tax relief granted by PML-N revoked from salaried persons earning more than Rs200,000 per month; tax rates still lower than last year
  • Tax rate in highest income tax slab raised from 15% to 30%
  • Increased federal excise duty on imports of luxury vehicles and duties on ‘expensive’ cell phones
  • Customs duty increased on more than 5,000 ‘luxury’ items. Regulatory duty increased on import of more than 900 items
  • Rate of withholding tax on banking transactions for non-tax filers increased to 0.6%
  • Expansion of Insaf Sehat Card facility to FATA and Islamabad Capital Territory


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