Pakistan election-year budget to boost economy, FDI
The new Pakistan budget for financial year 2017-18 aims to strengthen the economic uptick and foreign direct investment (FDI) and is key to win elections for Prime Minister Nawaz Sharif.
Finance Minister Ishaq Dar unveiled the Rs4.75 trillion budget for 2017-18 that starts on July 1, 2017, as against the Rs4.06 trillion budget in 2016-17. The new budget is 16 per cent bigger than last year. It sets the tax collection target at Rs3.52 trillion.
Dar projects the inflation rate to be less than six per cent. The budget indicates the fiscal deficit to be less than 4.1 per cent of gross domestic product (GDP) while the tax-to-GDP ratio will be at 13.2 per cent. The budget raises the defence spending by seven per cent to Rs920 billion from Rs860 billion in 2016-17.
The principal reason for the budget deficit is a big public sector spend the government plans to undertake during the election year — 2018. The national parliamentary elections will be held before May 31, 2018. Another reason for the big deficit include a 20 per cent increase in salary and pensions of military personnel and 10 per cent for civilian government employees.
“The budget levies Rs120 billion as new taxes”, which Dar said would help meet the development targets in 2017-18. He said these taxes will be received from an enhanced rate of withholding tax from non-filers or those who do not file tax returns, revised capital gains tax on securities, imposition of regulatory duty on 505 luxury items, extension in super tax for one more year and withdrawal of the fixed tax regime on real estate builders.
These tax categories will include the revised zero-rated regime for five export-oriented sectors, an increase in federal excise duty on cement and cigarettes and six per cent sales tax on commercial imports of fabrics.
The budget provides less-thanfeared taxes, promises to check food prices and to continue the fight against terrorism. This fight has cost Pakistan close to $122 billion a year for the past 17 years following 9/11 in 2001. During this period, over 70,000 Pakistanis have lost their lives. Success in this war will boost Pakistan’s stagnated economy, expand exports and imports, and, above all, bring in more FDI, which is already rising in the wake of a substantial reduction in terrorism.
The budget tried to silence opposition political parties, especially targeting the Big 2 — Pakistan People’s Party led by Asif Ali Zardari and Pakistan Tehrik-e–Insaaf headed by cricketer-turned politician Imran Khan.
Dar extended a hand of cooperation to the two parties. He requested them to shun agitation and help boost the economy over the next five years. Such cooperation is considered essential to get the maximum benefits from the fast-track implementation of the $57 billion China Pakistan Economic Corridor (CPEC). Its implementation will generate nearly three million jobs, half of them in the domestic economy, and the other half in CPECrelated projects. The CPEC is the foundation for the much bigger One Belt-One Road project which will link more than 64 countries in Asia, Central Asia, Middle East, Africa and Europe, according to the just-concluded Silk Summit at Shanghai. Chinese president Xi Jinping hosted the summit.
Dar’s budget speech also indicated that the government would be able to sell some state-owned units for Rs50 billion. The budget announced several incentives for the fast-expanding telecom, IT and mobile phone sectors, ordering a reduction of federal excise duty from 18.5 per cent to 17 per cent on telecom services, reduction in withholding tax for mobile subscribers from 14 per cent to 12.5 per cent and custom duty reduction from Rs1,000 to Rs650 on smart and Android phones. But the government did not accept the sector’s demand to give it the same status as that of industry.
Zubair Tufail, president of the Federation of Pakistan Chambers of Commerce & Industry, said the decision to resolve the problems relating to refund of sales tax claims is good for the business community. He also hailed the government’s decision to reduce sales tax on import of machinery for the poultry industry from 17 per cent to seven per cent.
Mohammad Sohail, a capital market analyst, said the budgetary increase in tax on dividend and capital gains tax would have a negative impact.
Asad Umar, PTI leader and member of the National Assembly, was critical of Sharif ’s failure to end electricity outages and the high internal and external debt.