A Business Budget
PML-N’s second budget since the party’s coming into power has been the subject of considerable debate. Speculations were rife about the seemingly taxheavy budget in the offing and its after effects. According to Finance Minister Ishaq Dar, this year’s federal budget is pro-business with measures in place to sustain the economy, resolution of the energy crisis and aggressive plans for infrastructural development. The budget was presented amidst the challenges that the Pakistani economy is facing with the key intention of boosting growth, providing employment and enhancing welfare.
Over the last year since the PML-N government came into power, the country’s GDP has gone up for the first time in the last six years (4.1 per cent). This target has been revised to 5.1 per cent for the coming year. Similarly, the industrial sector has shown an impressive growth of 5.8 per cent, surpassing the growth target for the year by one per cent.
Already, trade and industry leaders are describing the current budget as growthoriented and are optimistic that it will bring in investment, promote exports and generate more revenue for the national exchequer. The measures introduced in the budget will encourage industrialization and create more jobs for the youth. Consider, for example, the incentives given to the textile sector – the largest industrial sector in the country – that allows for the provision of a two per cent duty drawback to processed fabric on 10 per cent incremental value. Experts say this measure will boost exports. Similarly, the two-year extension of customs duty exemption on the import of textile machinery is likely to bring in more investment for the sector.
The reduction in the export refinance rate also bodes well for trade and industry since the exports will go up once the costs come down. Also commendable is the government’s move to bring retailers under the tax net by registering them with under the sales tax act. This will yield a huge amount of revenue and help document the economy better – comprising some 2.2 million retailers across the country that have yet to be brought under the tax bracket. Under the given circumstances, the suggestion of taxing at a flat rate is a wise move since it will increase the trust and understanding of the tax payer and will generate revenue.
This year’s federal budget also brought relief for the dairy sector as the latter continues to enjoy zero tax rating (that is, the absence of value added tax on the commodity). This move will positively impact the dairy sector, reducing the costs of the milk processing industry and keeping the prices of packaged milk in check. The decision to maintain zero rating will increase government revenues coming from the processed milk industry to rise substantially, especially since around 96 per cent of the country’s milk industry is represented by the unprocessed milk producers who do not pay taxes. Had zero rating been removed on milk and related items, the price of one liter of unprocessed/unpackaged milk would have increased considerably, which would have translated into an increase in the price of processed/packaged milk. Some 600,000 dairy farmers, mostly located in Punjab and Sindh, would have suffered as there would have been a decrease in the demand for milk as a result of the price hike. The sector is hopeful that this move will help with its exponential growth, thus making a significant contribution to the economy.
When Pakistan began emulating the zero-rating model for the dairy industry, its processing capacity doubled and investors thought it lucrative to invest in corporate dairy farming. It also led to the development of related industries related to the breeding and feeding of milk producing animals, and installation of modern milking equipment. As a result, the sector brought in some $500 million in foreign direct investment. Continuing with the zero tax regime will ensure that all this progress does not go to waste and further contribute to the national exchequer. At the end of the day, the benefits of zero tax rating on the dairy sector are immense since it is likely to bring in more capital to the industry.
Even though naysayers claim that the federal budget sounds ambitious (with possibly unattainable targets) on paper, but it is likely to induce trade and industrial growth – a promising sign for the overall economic health of the country.