Home ›› 11 Jun 2023 ›› Asia Biz
Pakistan presented its federal budget for the next fiscal year, one of three measures the International Monetary Fund (IMF) will gauge before releasing at least some of the $2.5 billion still pending under a lending programme expiring this month.
The cash-strapped country, with reserves to barely meet a month’s worth of imports, is undertaking steps to secure a $1.1 billion loan, part of a $6.5 billion IMF bailout package, which has been delayed since November, with more than 100 days gone since the last staff-level mission to Pakistan, the longest such delay since at least 2008.
On Thursday, the resident representative for Pakistan told Reuters that Pakistan needs to restore the proper functioning of the FX market, pass a fiscal year 2024 budget consistent with programme objectives, and secure firm and credible financing commitments to close the $6 billion gap, adding that there was only time for one last IMF board review before the end of the current bailout package.
Pakistan is eyeing GDP growth of 3.5%, expecting inflation at 21%, and targeting a fiscal deficit of 6.54% of GDP for the 2023-24 fiscal year, slightly below the current year’s revised estimate of 7%. Experts have mixed reactions on whether the budget will meet IMF requirements and the impact on the economy.
Ghias Khan, President and CEO, Engro Corp
“Our ongoing economic challenges call for bold action to address our deep-rooted problems. The announced budget 2023-24 falls short of tackling critical issues like expanding the tax net, investing in education and human development, managing the mounting fiscal deficit, and creating an enabling business environment.
“Pakistan cannot prosper till we generate higher exports and equitable tax revenues from real estate, agriculture, and retail sectors. The budget has enhanced the tax burden on the already compliant formal sectors, which will limit capital formation and growth-oriented initiatives in the manufacturing sector.”
Ehsan Malik, CEO of the Pakistan Business Council
“It’s a budget ‘as usual’ at times ‘unusual’. It fails to take the opportunity of fundamental reforms by taxing the untaxed and under-taxed sectors - wholesale, retail and real estate. Nor is there a mention of steps to harvest data on non filers and NADRA to widen the tax base. Nothing on stemming under-invoicing. The ‘No new Taxes on Industry’ claim is belied by increase in super tax and that too in not a fully progressive way.
“Having said that there are a few good measures. The focus on agriculture, especially on seeds and mechanisation is good as is on promoting IT and IT-enabled exports. The reduction in minimum tax on listed companies is a step in the right direction. However the opportunity of encouraging consolidation and widening the shareholder base by removing double taxation of intercorporate taxes was missed.
“Business will derive confidence from the limited mention of steps taken to revive the IMF program especially also as there was no mention of how debts would be reprofiled.
“What will change? Will more than 3% of tax payers contribute 90% or more to direct taxation? Will retailers and the agri sectors that together contribute 40% contribute more than 2% as a result of the budget? No.
“The tax collection targets look unrealistic and the increase in government salaries and pensions will put pressure on the fiscal deficit. A mini budget is inevitable.”
Shahis Habib, Chief Executive Officer of Arif Habib Limited
“It will be very difficult to achieve revenue targets of 9.2 trillion rupees without taking serious taxation measures on agriculture, retail and wholesale trading, and real estate; and relying only on the industrial sector.
“The government should not have allocated a high number on the public sector development programme, and should not have proposed such a steep increase in salaries and pensions for all employment grades.”
Musadaq Zulqarnain, Director at Pakistan Textile Council and Chairman at Interloop Holdings
“The budget appears to be a balancing act. Incentives for (the) agricultural sector are encouraging. Company reserves have not been taxed which is a relief.
“Apparently, the scope and extent of super tax has been increased at the same time undocumented Real estate and trade sectors have not been adequately taxed. This is counterproductive in the long run as increasing tax burden on existing tax payers without bringing untaxed sectors into (the) tax net is not going to strengthen the economy.
“In addition, the provision of empowering the federal government to impose up to 50% additional tax on so-called unexpected gains during tax year 2023 and five preceding years, is arbitrary and uncalled for when any such income is already being taxed.
“On the whole (the) budget appears to be reasonable under the given circumstances.”
M Abdul Aleem, Chief Executive Officer and Secretary General of the Overseas Investors Chambers of Commerce and Industry in Pakistan
“Based on first assessment of the budgetary tax measures announced today, it appears to be an interim budget with short-term measures for certain sectors but lacking on measures to stabilize the economy. However, positive measures for (the) IT and agriculture sector as well as for promotion of SMEs are appreciated.
“There is absence of measures to incentivize investment in manufacturing and other job-creating sectors, while there are no special measures to attract large foreign investment in the country.
