Budget 2018-19: Expenditure up, development down

ISLAMABAD: Amid rumpus and shouting of ‘liar, liar’ by the opposition and later a walkout, the Finance Minister, Miftah Ismail, on Friday unveiled the federal budget 2018-19 with an outlay of Rs5,932 billion. The opposition termed the budget ‘politically motivated’ to win over the support of voters in the upcoming general election. The major focus of the budget is on stimulating the economic growth by doling out billion of rupees for development projects, social safety nets, and agriculture and industrial sectors.

Interestingly, Miftah took oath as the finance minister hours before presenting the federal budget in the National Assembly. The opposition, especially the PTI and PPP, lambasted the move and termed it ‘snatching ‘Vote Ko Izzat Do’ [give respect to vote].

This is a deficit budget targeting fiscal deficit [income-expenditures gap] of 4.9 percent, which is equivalent to Rs1.890 trillion that is 5.5 percent of the GDP for fiscal year 2017/18. This worrisome figure would be funded by domestic sources [banks and non-banks] of Rs1.548 trillion while Rs342 billion would be arranged from external sources. Besides, to get the deficit figure in control, the provinces would throw surplus of Rs285.6 billion, as the government is encouraging them to generate up to 1 percent of GDP and in return get the financial benefit.

In this election year, the government has also unveiled Rs800 billion federal Public Sector Development Programme (PSDP), with three-fifth proposed to be spent on infrastructure projects including China-Pakistan Economic Corridor (CPEC).

In this figure, Rs100 billion has been earmarked as blocked allocation which the next government can expend on their behalf on projects what that suggest. It is worth-mentioning that for debt financing [repayment of interest and principal amount] of already amassed Rs23.608 trillion public debt, the government would spend Rs2.22 trillion in fiscal year 2018/19.

Defense expenditures have been earmarked at Rs1,100 billion (Rs1.1 trillion).

The combine of these two major heads of expenditures constitutes the figure of Rs3.3 trillion, indicating that next year both would eat up three-fifth (62.9pc) of the total budget outlay. Besides, for running civil government Rs463.4 billion would be spent.

The government has fixed the GDP growth target of 6.2 percent and contain inflation below 6 percent in 2018/19.

On the revenue side, tax revenues have been estimated at Rs4.888 trillion of which the FBR tax revenues would be Rs4,435 billion (Rs4.435 trillion). In non-tax revenues, the provincial share has been estimated at Rs2.59 trillion.

Interestingly, this government extended the ‘super tax’ [collected from banks and companies for rehabilitation of internally displaced people due to military operations] for the fourth year; however, it announced to reduce it by one percentage point every year and would be abolished in three years.

This tax is charged at 4pc on banks and 3pc on non-banking companies who have income more than half a billion. Petroleum levy has been fixed on petrol, diesel, kerosene, light diesel at Rs30 per liter. It would not only increase the revenue of government but also increase its prices in the local market.

Corporate tax that is currently 30 pc has been reduced to 29 pc for tax year 2019 and every year it would be reduced by one percentage point to 25 pc in tax year 2023.

Currently, tax on undistributed profit that is charged at 7.5pc on accounting profit, if at least 40pc of after-tax profit is not distributed within six months of the end of the year. This tax has been reduced from 7.5pc to 5pc and the condition of distributing 40 pc after–tax profits have been reduced to 20pc.

In order to promote Real Estate Investment Trust (REIT), the rate of tax on dividends issued to the unit holders by REIT has been reduced from 12.5pc to 7.5pc. The tax rate on bank transaction by the non-filers has been reduced from 0.6pc to 0.4pc on a permanent basis.

Threshold of taxable money for payment on services has been increased from existing 10,000 to Rs30,000 and on payment for goods, it has been increased to 75,000 from earlier Rs25,000.

Currently, tax credits are allowed for establishing a new industrial undertaking, purchase of machinery through equity and extension, expansion and BMR of machinery. Now this facility has been extended to June 2021.

To encourage establishment of crude oil refineries having capacity of minimum 0.1 million barrels a day have been exempted from income tax for 10 years. This facility is also allowed for the existing refineries in case where capacity is expanded by installing deep conversion unit capacity of at least 0.1 million capacity.