The response generated by the second mini-budget presented by the PTI government in its seven months stay at the helm of affairs is generally positive contrary to the much-hyped negative vibes about it. The expressed aim of the budget was that it would help generate more revenue for the government and the document appears to contain many steps devised for this purpose. Finance Minister Asad Umar has rightly termed the budget as a corrective package aimed at addressing various sectors of the economy.
The nature and scope of the budget could be summarised by looking at its salient features. It spells out that tax on income generated from loans to small businesses, agriculture sector and low-income housing will be reduced from 39% at present to 20% percent. It has brought to anvil an interest-free revolving credit of Rs.5 billion (qarz-i-husna) for the needy segments of the population. It further specifies that withholding tax on bank transactions is waived off for tax filers. It has advocated for ban on purchase of vehicles for non-filers lifted for new locally manufactured cars up till 1300CC capacity but higher taxes will apply.
It has also specified that small businesses are exempted from submitting withholding tax returns every month and henceforth they will do so only twice every year. It approves reduction of tax on marriage halls from Rs.20, 000 to Rs.5,000, a welcome step for families all over the country. It has announced pilot scheme to be introduced in Islamabad to facilitate traders in filing and paying taxes. As a sop to the growing relevance of media, duty on newsprint has been completely abolished.
The budget has recommended that investment in solar panels and wind turbines will be exempt from duties and taxation for five years. It has proposed reduction and abolishment (in some cases) of duties on raw materials to support export industries. It has decided to abolish Super tax on non-banking companies from 1 July, 2019. Moreover, it has proposed continuation of 1% per annum reduction in corporate income tax. It allows carrying-over capital loss for 3 years (stock trading). It has abolished 0.02 percent withholding tax on trading. Import duties on cars with engine capacity of 1800CC and above to be increased.
The budget has rationalised taxes and duties on mobile phones: taxes on budget sets to be reduced, high-end sets to become more expensive. Machinery for green-field projects (including renewables) are to be exempt of customs duty, sales tax and income tax (for five years). Tax refunds are to be worked out; promissory notes to be issued by mid-February. Gas Infrastructure Development Cess is to be removed from fertiliser production. Also duty on diesel engines for agricultural applications will be reduced from 17 percent to 5 percent.
The Finance Minister expressed his intention to eliminate all factors that necessitate a return to the International Monetary Fund for a bailout package by successive regimes.
He vowed to reduce the gap between the rich and the poor and cited measures in the budget specifically geared towards this goal. He emphasised that the earlier financial measures taken by PTI government have already seen that the deficit is reducing, exports are increasing and imports are declining. The measures are aimed to bring a balance in revenue and expenditure as it is vital for growth. He promised that years 2022 and 2023 will witness the highest growth as compared to the period from 2008 to 2023.
He said the PTI has given preference to the livelihood of youngsters. Considering that small and medium-sized businesses hold an important position for the growth of the economy, he announced a reduction in the tax on small and medium enterprises. A cut in interest rate was also announced on agricultural loans, along with a reduction in the low-incoming housing tax. He mentioned that Pakistan was 76th in the international ranking of ease of doing business but during the last decade, it fell to 136th rank. PTI government is taking steps for ease of doing business.
Finance Minister categorised the move of the previous government to tax investments as “cruelty” and promising to bring investments to the Special Economic Zones being set up as part of the China-Pakistan Economic Corridor, he announced that all equipment brought to the SEZs will now be duty-free. In what he said was the “only item” in the supplementary budget where the tax is being increased, Umar announced that the duty on import of vehicles with engine capacity of 1800CC and above would be raised. He mentioned that administrative issues of exporters were being resolved and would be “revealed later”. He added that for the benefit of farmers the price of urea will be reduced by Rs.200 per bag after legislation is passed by the parliament in this regard. In addition, production units are being increased by 50 percent to facilitate the issuance of loans to farmers.
The speculations about the budget mentioned earlier that it was expected to offer major incentives to boost the stock market, housing, agriculture and industrial sectors, besides imposing punitive duties on luxury imports. It was also expected that it would support ease of business processes, simplify procedures and facilitate business by reducing bureaucratic red-tape. It was also mentioned that the government was worried about the decline in stock market and was planning to reverse documentation reforms introduced for the equity markets with a view to stem the decline of stock market that fell from its high of 53,000 points in 2016 to around 38,000 points at present.
The package was also likely to include the reduction and removal of some tax rates, commissions and capital gains tax.
It is appropriate to mention that this is the Third Finance Bill for fiscal year 2019. The National Assembly had in May 2018 passed the Finance Bill 2019-20 during the previous PMLN government. When the PTI government took over, it announced amendments to the approved Bill in September 2018. The amended Bill included a cut in federal development programmes and measures to bring the budget deficit down to 5.1 percent. Tax rates were lower than the previous year and the tax relief that had been granted by the PMLN was revoked from salaried persons earning more than Rs200,000 per month. The tax rate in the highest income tax slab was raised from 15% to 30%. The rate of withholding tax on banking transactions for non-tax filers was increased to 0.6%.
Other specific points of the bill dealt with increase in federal excise duty on imports of luxury vehicles and duties on ‘expensive’ cell phones. Customs duty was also increased on more than 5,000 ‘luxury’ items. Regulatory duty was increased on the import of more than 900 items. Moreover, the Insaf Sehat Card facility was expanded to Fata and Islamabad Capital Territory.
As was expected the opposition has opposed the decision of the government to announce this mini-budget. Trying to steer the middle course the government on 16 January sought the support of the opposition for the impending bill and NA Speaker facilitated two meetings between the government and the opposition regarding ironing out various aspects of the Finance Bill. Despite such efforts, the opposition kept on disrupting the budget speech of the finance minister and made it difficult for him to present it but he soldiered on. The opposition has declared the mini-budget will add to the miseries of people and will bring in a spate of inflation. TW
Asrar Raouf is a former civil servant