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Revised fy19 budget: can these measures turnaround the economy?

In an attempt to usher change in the way economy of Pakistan is managed, the incumbent government headed by Imran Khan has submitted some proposals to make some ‘desirable and people friendly changes in the budget 2018-19’ before the parliament for its formal approval. One must accept with open heart the effort being made by Asad Umar holding the office of Finance Minister to mobilize funds to contain budget and current account deficits. However, it has become imperative for all the political parties and every Pakistani to contribute its share to fine tune the proposals to come up with a more articulated system to pull Pakistan out of the problems that are becoming nightmares.

While falling short of the public expectations the proposals are in line with the manifesto of PTI that are aimed at balancing populism and pragmatism. Two of these must be looked again to determine the achievability and expected benefits. These are rationalization of FBR’s tax revenues, petroleum development levy and PSDP (Public Sector Development Program). It has been stated repeatedly that the shortfall in revenue collection by FBR is due to high incidence of tax rate. Agriculturalist and business tycoons don’t declare their real income and grease the palms of FBR officials to endorse their non-disclosures.

From an economic standpoint, removal of restrictions on purchase of property and autos and re-implementation of 0.6% WHT on banking transactions are filer regressive and may lead to negative fallbacks. At the same time, better FBR management and utilization of technology for increasing tax base, while positive from a longer term perspective, may not immediately depict results.

It is pertinent to mention that the government institutions lack capacity to undertake PSDP of the proposed magnitude. On top of all the governments find is the easiest to cut PSDP on the pretext of shortage of funds. However, the wiz kids fail to understand that with a depleted infrastructure boosting GDP growth is almost impossible. Worn out irrigation system does not allow supply of water to farmers. Lack of modern warehousing and logistic facilities stale around 20% of agri produce and in efficient railway adds to the cost of transportation. The country has added new generation capacity but depleted transmission and distribution system does low overcoming electricity outages.

It has been highlighted that extending any conceivable incentive can’t improve the performance of textiles and clothing industry. The industry suffers due to use of outdated technology, out of proportion wastages and myopic vision. The inefficiency of the industry prompt people to say that let us investment money in other ventures which can yield higher return.

Removal of filer condition offers only a temporary boost. Auto sale, especially vehicles to be used for public transport and logistics just can’t increase without financing facilities. Boosting sale of cars and motorcycles has added to traffic jams. The country need and efficient and cost effective public transport system.

 

Offering subsidy on fertilizer is a make shift arrangement. The last policy was announced in 2001 and since then little has been done to keep on running fertilizer plants on optimum capacity utilization. Closure of units on the pretext of non-availability of gas is the worst excuse.

From the stock market’s perspective, proposed budget measures are likely to result in a brief relief rally. However, it must also be kept in mind that market participants had priced in a much harsher budgetary measure. Recent budgetary developments including roll-back of tax brackets for upper class in tandem with the gas tariff hikes announced earlier do appear to set the stage for an external financing arrangement where long term market direction will likely take cue from the terms of such an arrangement.

Rationalizing budgetary measures announced by the previous government, the amendments have targeted balancing of populist measures with pragmatism. Deliverability remains a key question mark, particularly as increased revenue through technology utilization remains open ended. Key steps announced in the budget include:

Supplementary Budget: Key highlights.
  • New measures have been proposed to raise additional Rs183billion revenue with Rs92billion from administrative measures while rest would be primarily earned through Regulatory Duties on imports.
  • PSDP allocation of Rs725billion has been cut down by 9%.
  • Withdrawal of duties on inputs for export-oriented industries proposed.
  • Restriction on non-filers on purchase of cars and property has been removed.
  • Petroleum development levy collection has been reduced to Rs200billion from Rs300billion.
  • Payment of up to Rs7billion subsidy has been on urea, both on locally produced and imported.
  • Release of R4.5billion for the completion of housing schemes for underprivileged proposed.
  • Minimum pension increased by 10% for EOBI pensioners.
  • Import duty on 1800cc and above cars has been doubled.
  • Tax rates on salary up toRs200,000/month has been maintained.

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