Fed­eral Bud­get 2018-19

The Pak Banker - - FRONT PAGE -

The Fed­eral bud­get for fis­cal 2018-19 is the swan song of a govern­ment on its way out. Over­loaded with prom­ises and empty pro­grammes, it tries to please ev­ery­one ahead of the com­ing elec­tions. The Rs5,932.5bn bud­get rep­re­sents a ten per­cent in­crease in spend­ing from last year. The em­pha­sis has shifted from de­vel­op­ment to ex­pen­di­ture, spe­cially cur­rent spend­ing as pro­vi­sions for ex­pen­di­tures, salaries, pen­sions have been in­creased gen­er­ously where they mat­ter most for the govern­ment. Given that this is PML-N's elec­tion year bud­get, with con­stituents and power play­ers to ap­pease, nearly all heads un­der cur­rent ex­pen­di­tures reg­is­ter marked in­creases from last year's bud­geted amounts.

Af­ter an in­crease last year, the fed­eral Pub­lic Sec­tor De­vel­op­ment Pro­gramme (PSDP) has been slashed by 20pc com­pared to last year's amount, fall­ing to Rs800bn this year. Although the govern­ment men­tions the to­tal fed­eral PSDP will be equal to Rs1,030bn, the ad­di­tional Rs230bn will not come out of the fed­eral govern­ment's pock­ets, in­stead be­ing pro­vided by "self fi­nanc­ing by cor­po­ra­tions and au­thor­i­ties". The prov­inces' share of PSDP has also been slashed by around 24pc to Rs850bn, bring­ing both the fed­eral and provin­cial PSDP closer to re­vised spend­ing in the cur­rent year of Rs750bn and Rs800bn, re­spec­tively.

The fed­eral health bud­get, on the other hand, has been jacked up by only 8.2pc to Rs13.89bn, of which hospi­tal ser­vices will eat up Rs11.66bn. The fed­eral ed­u­ca­tion bud­get has been en­hanced by Rs6.9bn (7.1pc) to Rs97.4bn, with the in­creases mainly pro­vi­sioned for pro­vi­sion of ser­vices from pre-pri­mary through ter­tiary ed­u­ca­tion. The ter­tiary ed­u­ca­tion bud­get on its own has been in­creased by only 5.23pc. Pen­sion pay­ments reg­is­ter a whop­ping 37.9pc in­crease to Rs342bn, of which mil­i­tary pen­sions will ac­count for Rs259.8bn (up 44.2pc from Rs180bn bud­geted last year) while civil pen­sions will ac­count for Rs82.2bn (up 21.2pc from Rs67.8bn last year).

On the rev­enue side, the govern­ment opted to re­duce the tax bur­den on the com­mon man - re­duc­ing in­come taxes sig­nif­i­cantly - while adopt­ing a car­rot and stick ap­proach to­wards non fil­ers and tax evaders. How­ever, some tax heads have been re­vised up­wards and peo­ple should ex­pect to pay sig­nif­i­cantly more on im­ported items and pe­tro­leum next year. The Fed­eral Board of Rev­enue's tax tar­get has been in­creased by 10.5pc (Rs422 bil­lion) to a to­tal of Rs4,435 tril­lion. Rs140bn of the in­crease will come from di­rect taxes, while indi­rect taxes will ac­count for the re­main­ing Rs282bn.

In ad­di­tion to in­creas­ing pe­tro­leum levy rates, the govern­ment also took some in­fla­tion­ary tax mea­sures. The most re­gres­sive mea­sure is the FBR's de­ci­sion to in­crease 1% ad­di­tional cus­tom duty on al­most all im­ported items ex­cept those that come on con­ces­sion­ary rates un­der the bi­lat­eral free trade agree­ments. The 1% ad­di­tional duty will be ap­pli­ca­ble on 7,200 im­ported tariff lines. The other re­gres­sive tax­a­tion mea­sure is the in­crease in fur­ther sales tax rate from 2% to 3%, which will gen­er­ate Rs12 bil­lion in ad­di­tional rev­enues. The fur­ther tax is charged from those who are not reg­is­tered sales tax per­sons and there are less than 150,000 reg­is­tered sales tax per­sons. The de­ci­sion will ef­fec­tively in­crease the stan­dard 17% Gen­eral Sales Tax Rate to 20%, which is in­fla­tion­ary.

Un­der the di­rect taxes head, the govern­ment ex­pects its low­ered in­come tax rates to re­sult in a sub­stan­tial broad­en­ing of the tax base and add an­other Rs132bn to in­come tax col­lec­tion. In per­cent­age terms, this re­flects a 8.36pc in­crease from the in­come tax tar­get for last year. Un­der the indi­rect taxes head, cus­toms du­ties will be Rs154bn higher than the pre­vi­ous year, re­flect­ing a 26.5pc in­crease. This will likely re­flect in higher prices on im­ported items. The re­main­ing in­crease in indi­rect taxes will come from a Rs95bn (5.9pc) in­crease in sales taxes and a Rs35bn (15.1) in­crease in fed­eral ex­cise du­ties over last year's bud­geted fig­ures. All said, the new bud­get faces an un­cer­tain fu­ture since no­body knows which party will win the next elec­tions.

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