The main taxation proposal was expected, and it came in the form of relief for the salaried, who have taxes withheld at source, making its members low-hanging fruit for the Federal Board of Revenue. Whenever targets were enhanced, the FBR proposed hikes in the income tax of salaried individuals, knowing that they would have lost the argument before it started. The organization employing them would have no incentive to fight their case, and would simply make the deduction and pass it on. At the end of a year, while filing a return, there was a chance of resisting, but what was the point? The deduction had already been made. It is worth noting that the relief has not been made by changing the slabs, but by changing the rates. That leaves the possibility of raising the rates once again in a mini-budget, and also means that non-salaried persons continue to be taxed as before. This measure was not something brought in because of inflation, as that would have meant raising the slabs. The Minister seemed optimistic when he said there would be a reduction in the surcharge of one percent, and salaries above Rs 1 million a month, when he said that it would slow the brain drain. The brain drain is being caused by young people not getting jobs commensurate with their qualifications, not because they have got a high-paying job and don’t like the surcharge on it.
Of course, one of the expected features of the budget was tariff reform. That was basically an end to protectionism, which has caused much heartburn within the industrial sector, which is sluggish as it is. At the same time, however, the Finance Minister used protectionist reasoning to explain why the sales tax exemption on solar panels was being ended, and the panels were slapped with an 18 percent sales tax. The desire to protect local industry, which is at best nascent, seems more a desire to discourage the solarization of domestic connections that has been sweeping the country and which has resisted efforts to reduce the buyback tariff at which the DISCOs must buy the electricity produced.
The benefits given, such as job creation and industrial progress, are roughly those which protected industries as they have given for so many years as they defended their existing protection and indeed demanded more. The automotive industry has not only been hit by the ending of protection by tariffs, but also by the introduction of a carbon development levy of Rs 2.50, which will go up to Rs 5 in the next year (fiscal 206-2027). Indeed, that carbon development levy was symbolic of the entire budgeting process. That was a tax levied basically to satisfy one of the IMF’s conditionalities for the loan of $1 billion from the Resilience and Sustainability Fund that was granted along with the first review of the current Extended Fund Facility programme. Without that approval, nothing can go forward. It is therefore a safe assumption that the revision of income tax rates was approved by the IMF.
