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Wednesday, May 22, 2024

Here is a summary of Pakistan’s budget for fiscal Year 2021-22

Imran Khan's government is due to present its third budget of value Rs8 trillion for the upcoming Fiscal Year 2021-22 and here are the updates as they come.

The incumbent government of Pakistan under Prime Minister Imran Khan has prested its third budget for the Fiscal Year 2021-22. This budget has a value of Rs8.49 trillion, an increase of Rs700 billion over the last budget, and a GDP growth rate target of 4.8 percent.

The 2021-22 budget is important as the country has presented positive economic indicators over the last 6 months of the FY21, and the Finance Minister in his speech yesterday on the release of the Pakistan Economic Survey for the outgoing fiscal year highlighted the focus on growth, no increased taxation on salaried class, the improvement in the IT, Industries and Agriculture sectors of Pakistan.

However, the figures today have revealed the actual targets set by the government for the upcoming fiscal year 2021-22.

Finance Minister’s Speech

The Finance minister talked about the wrong policies of the preceding governments and mentioned the reforms brought upon by the incumbent government.

He mentioned that the government has moved from stabilization to a growth policy. The policies by the government have gone from reactionary to proactive measures.

He mentioned the improvements in the agriculture and industrial sectors of Pakistan. The Economic growth is based on 2.77, 3.57, and 4.43 percent growth in the agriculture, industrial, and services sector, respectively, Minister said.

The minister mentioned the ‘prudent policies’ like that of smart lockdown, the help granted to 12 million families under the Ehsaas Programme.

The increase in remittances has proven the trust of overseas Pakistanis in Pakistan, the minister said, adding that Remittances clocked in at a record high, surpassing $26 billion during the year under review. The finance minister said they are expected to amount to $29 billion.

The minister said, that the reserves are equivalent to 3-months of import allowing the stabilization of the rupee.

He said that Pakistan faces inflation, and that too mainly on the food commodities as Pakistan has become a food-deficit country, due to the previous policy failures.

However, the wheat price rose 29% and had to raise it 29% as well, as we depend on the international prices, he said.

He mentioned that the sugar prices increased 56 percent in the international market while we increased them by 18 percent, even after importing.

The minister mentioned that the global crude oil price rose 119% and the government did not pass on the price to consumers.

The minister said that country has to focus on agriculture so that we can get the farmers out of their poverty circles, and control mechanisms that were once there in the past.

The budget 2021-22 is being presented with the aim of ‘inclusive and sustainable growth, and we have kept the target of 4.8 percent growth.

Unlike in the past, we won’t leave the poor to the mercy of the trickle-down economy, And this can only happen when growth is sustainable and continuous for 20-30 years. However, we will change the rules, Tarin said.

From next year, for the marginalized community of Pakistan, the government will help the 5-6 million marginalized families of Pakistan by giving every household up to Rs0.5 million interest-free loans.

For every crop-grower, we will give an Rs0.15 million interest-free loan. For tractor and machinery support Rs0.2 million interest-free loans will be given to the poor people.

These people will be given loans up to Rs2million of cheap loans for housing, and every person will be given a sehat card, under the promise of Rayasat-e-Madina.

The minister said that help the 65 percent youth bulge of Pakistan aged less than 30, this growth of GDP will reach 6-7 percent growth, by following these measures:

  • Transformational plan for increasing food security and helping the agriculture sector
  • To increase exports, we will incentivize different sectors
  • SEZs will be made operational and industries would be incentivized to move there
  • For Housing and Construction, mortgage financing and foreclosure laws are introduced and incentivizing private housing scheme

Under Ehsaas, more than 12 programs have been started by the government, including cash transfer, Kamyab jawan programme, interest-free loans, nutrition, safety, income, monetary support for small businesses, support for widows and orphans, food card, ration schemes, Langar, new kinds of carts for selling food.

The minister said that for the upcoming budget for the fiscal year 2021-22 Rs260 billion are suggested for the Ehsaas Programme.

Reforms in the power sector include the plans to decrease and eventually retire the circular debt. The government is planning to restructure the circular debt after negotiations with the IPPs, Shaukat Tarin said while addressing the assembly. He added that the government will invest in the national distribution network to improve infrastructure.

He added that the government is announcing the EV policy to promote the usage of electricity. To decrease the overall expense, investment in hydro and other renewable energy projects, to enable cheap and sustainable electricity for the country.

The Finance Minister said that the government will do further structural reforms over the next two years to improve the energy sector of Pakistan.

The government is ready to reform different sectors of the economy, like banking, public sector enterprises, and other such sectors of the economy. For that, the minister said that an Economic Advisory Council has been formed.

In the next weeks, the government will present plans with respect to these reforms.

He announced that the development budget is increasing to Rs900 billion. For the next year, the priorities of the government include the provision of food and water, protecting the energy sector, improving the road infrastructure of the economy, going ahead in the progress of CPEC, SEZ to be made operational, and reaching the UN’s SDGs.

He added the fight against climate change, development of the IT sector, and IT-related educational programs in the country, decreasing the rural-urban divide.

We will invest in the more impactful projects that will improve the livelihoods of the people and these plans will be completed at an efficient speed.

The finance minister announced a National Agriculture Emergency Programme. The purpose is to innovate and develop the livestock and the agriculture sector of the economy. This program will encompass fishing and other agriculture-related industries as well.

In the next year, Rs12 billion have been allotted to agriculture.

In the water sector, the Government is focusing on small, medium, and long-sized projects, with Mohmand, Diamer, Bhasha, and Dasu Dams have been the large dams under the focus of the government. For Dasu Rs57 billion are allocated, for Diamer Bhasha Rs23 billion are allocated, Rs6 billion for Mohmand dam, and Neelum-Jehlum Rs14 billion are allocated.

In CPEC, $13 billion major projects have been completed, and a further $21 billion are kept for the ongoing 21 projects. Other than this 26 strategic projects are undergoing planning, with the value of $28 billion, Mr. Tarin said.

ML-1 which is valued at $9.6 billion will be completed in three phases. The first phase began in March 2020, and the second will begin in July 2021, and the third will begin in July 2022.

Rs118 billion have been dedicated in the fiscal year 2021-22 to improving the infrastructure of distribution of the electricity, which government has in excess but is unable to distribute.

For Islamabad and Lahore’s transmission lines, Rs7.5 billion will be allocated, and other such projects will allow improvement in distribution infrastructure in different cities of Pakistan.

The minister then talked about ending the social inequality in society and said, for the development of marginalized areas and bringing the poor areas to the level of developed areas. Rs100 billion will be given for the package.

The plan for development in Southern Balochistan will be Rs601 billion in value to fund 199 projects in the areas.

Karachi’s transformation plan will be implemented with PPP and government support. The plan will be allocated PKR 98 billion from the PSDP

GB’s socio-economic development will get Rs40 billion from this budget.

Similarly, there are development projects worth Rs19.5 billion for the Fiscal Year 2021-22 for the uplifting and infrastructure development of the 14 districts of Sindh.

For the new districts of KPK, Rs54 billion are being allocated for the development of the areas.

Talking about the Public-Private Partnership, he mentioned that the government will be approving 14 high-impact PPP transactions worth over Rs978 billion from April to October 2021. He added that for the first time, the government had allocated an amount of Rs 61 billion for an innovative Viability Gap Fund (VGF).

Rs14 billion are being allocated to fight the important war against climate change in the country.

For the development social sector Rs118 billion allocated for the fund in the Fiscal Year 2021-22.

According to the national media reports, the documents for the budget have reached the legislative assembly, and some media outlets are revealing information prior to the budget being officially presented in the assembly.

Budget Statistics

According to the information available until now, the revenue collection target has been set at Rs5.83 trillion for the upcoming fiscal year 2022 and is less than the IMF recommendations of Rs6 trillion. This collection, if achieved, will be a 24 percent increase YoY on the Rs4.7 trillion target surpassed by the revenue collection agency FBR.

The non-tax collection target will be set at Rs1.42tr, an increase of 22 percent. The proportion of provincial taxation will be Rs3.41tr, thus an increase of 25 percent revenue given to provinces.

The government spending will increase to Rs8.497tr from Rs7.341tr, an increase of 15 percent in the Fiscal Year 2021-22.

Read More: JP Morgan points to improved economic situation in Pakistan: Farrukh

According to the budget documents the budget deficit will remain Rs3.5 trillion for the upcoming year, and the fiscal deficit will remain at 6.3 percent of GDP for the upcoming year, compared to 7.1 percent in the Fiscal year 2020-21.

The government has successfully reduced the primary deficit of Pakistan by 3.2 percent in over three years, which was 3.8 percent in 2018.

There is going to be Rs680 billion worth of subsidies, including on the flour and sugar industry of the economy.

For Covid-19 vaccination import, $1.1 billion will be spent by the government in the fiscal year 2021-22. Under this, according to the minister, the government will be vaccinating 100 million people by June 2022.

For the Covid-emergency fund, the budget for the fiscal year 2021-22 suggests Rs100 billion.

To support SMEs Rs12 billion will be allocated. Rs10 Billion for the Kamyab Jawan program will be allocated.

The anti-rape fund will get Rs100 billion, the minister said.

For higher education, HEC will get Rs66 billion, and Rs44 billion for the development fund, and later Rs15 billion will be added.

Export-sector support fund, being the Public Sector Enterprise PIA, Steel Mill to get Rs20 and Rs16 billion aid.

For AJK Rs60 billion is allocated, and Rs47 billion is suggested for Gilgit Baltistan in the fiscal year 2021-22.

Sindh will get a special grant of Rs12 billion and Balochistan to get Rs10 billion other than NFC awards.

For census in 2022, Rs5 billion is allocated on part of the federal government’s contribution to the budget.

For local government elections, according to the finance minister, Rs5 billion is allocated.

Tax regime restructuring will be the priority of the government. Taxpayers will be protected. Self-assessment scheme will be introduced, where everyone will be filing their returns themselves. e-audit of a small number will be done.

Taxpayers will not be harassed, and non-payers will be punished, and the process will be as automated as possible. The progressive scheme will be announced.

There will be no new tax on the salaried class. Every wholesale and retail product will be taxed. A new cell is created to monitor and reward taxpayers and incentivize people to enter the tax net.

Under the Single Window Project, import and export clearance will be done using one portal, and the cargo clearance will be made efficient.

Reduction in turnover tax from 1.50% to 1.25% and withholding tax will be decreased by 40 percent.

Withholding tax will be removed from banking transactions, PSX, air travel services, debit credit car international transactions, and a decrease in withholding tax on mobile service to 8 percent.

It is suggested that withholding tax on oilfield services, warehousing services, collateral management services, travel, and tourism services, and security services will decrease from 8 percent to 3 percent in the fiscal year 2021-22.

For sales tax on services, work is being done in collaboration with provinces. To make the tax system simpler, a simpler return form and other reforms are being introduced.

Turnover tax ceiling for small businesses raised from PKR 3 billion to PKR 10 billion.

For SMEs, special tax regimes are introduced, where the SMEs with a turnover of up to Rs100 million, will pay 0.25 percent or 7.5 percent of income. For those with a ceiling of Rs250 million will have to pay 15 percent of taxable income.

Pensions and salaries for the public sector are increasing by around 10 percent, as decided by the federal cabinet.

A decrease in the tax levied on cars less than 800cc has been suggested in the documents, and no excise duty will be charged on it, which will decrease the price of the cars by 10 percent.

IT-related products and services will be given zero-rating.

The minister said, that to promote EV production, many incentives are being promoted, as already reported by GVS.

Exemption from VAT on import of electric vehicles, CKD kits for a small car, 2-3 wheelers, HCVs, and all these vehicles in CBU conditions

Telecom services will be exempt from federal excise duty(FED).

No FED will be levied on the merchant discount rate.

In income tax, income tax authorities’ authority is being decreased. Third-party audit to be ensured to decrease harassment of businessmen, and automation of refunds to be ensured.

It is suggested that block tax should be eliminated from property tax.

The capital gain taxes, such as in PSX will be decreased from 15 percent to 12.5 percent in the FY22, and this will be further decreased in coming years.

Pakistan’s overall development budget, as already stated by Asad Umer, will increase by 36.4 percent, with the allocation of Rs2,102 billion for the country’s development program, including Rs87 billion for the China Pakistan Economic Corridor (CPEC), for 2021-22 against Rs1,527 billion for 2020-21.

The federal development budget is Rs900 billion for 2021-22 against Rs650 billion for 2020-21, showing an increase of 38.5 percent YoY, while the provincial development budget is of Rs1.2 trillion for 2021-22 against Rs867 billion for 2020-21, an increase of 38.6 percent.

According to the NEC decision, the development budget of Punjab is Rs500 billion for 2021-22 against Rs310 billion for 2020-21 an increase of 61.3 percent, Sindh’s Rs321 billion against Rs194 billion, an increase of 65.5 percent, Balochistan’s Rs133 billion against Rs89 billion, an increase of 49.4 percent and Khyber Pakhtunkhwa’s Rs248 billion against Rs274 billion, a decrease of 9.5 percent year-on-year.

The defense budget will be Rs1.33 trillion according to the media reports, and an exorbitant Rs3.1 trillion will go towards interest payments for the government loans.

The government has decided to keep the inflation fixed at 8 percent for the upcoming fiscal year 2021-22.

Read More: Economic Survey out: Pakistan shows strong growth among world economies despite pandemic

The industrial growth shall be suggested to be kept at 8.6 percent according to the documents obtained by the media outlets, and specifically manufacturing sector growth target shall by 6.2 percent in the upcoming budget for the fiscal year 2021-22.

Similarly, the agricultural growth rate target shall be 3.5 percent in the upcoming fiscal year. The Ministry of Industries and Production will get Rs3 billion of the development budget.

The cabinet division shall be allotted Rs33 billion, the aviation division shall be allotted Rs14 billion, The trade ministry shall get Rs17 billion and communication shall get Rs239 billion.

The Education ministry will get Rs22 billion, Foreign Ministry to get Rs94 billion development budget.

The customs duty on import of capital goods will go down from 20 percent to 3, percent in the upcoming budget for the fiscal year 2021-22.

(This is a developing story, and will be updated accordingly)