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Mini budget: a growing economic fears among the poors

The government made fiscal adjustments of Rs815 billion or 2.1 percent of the GDP for bringing down the budget deficit from forecasted 7.2 percent to 5.1 percent of the GDP by striking out development outlay and raising tax rates for higher income groups and making imported products more costly in the revised budgetary estimates for 2018-19 before the Parliament. The government assesses to generate revenue to the tune of Rs5,309 billion in accordance with revised estimates against Rs5,246 billion. Total projected expenditures were estimated at Rs5,309 billion. The budget deficit was estimated at Rs1,979 billion or 5.1 percent of the GDP. Defence has retained its position as the second biggest expenditure at Rs1,100 billion. This includes a reduction of the federal Public Sector Development Programme (PSDP) from Rs800 billion to Rs575 billion. The overall financial allocation for the PSDP totaled Rs725 billion, with Rs575 billion included in the revised budget.

The revised version of Mini Budget Pakistan 2018-19 gives somewhat protection to the poor and imposed taxes on the affluent who earned more. Mini Budget proposes to increase customs duty on more than 5,000 items and regulatory duty on import of more than 900 items. It decided to increase taxes on cigarettes.

Its main objective is to raise agriculture production for creating more jobs and earning extensive amount of foreign exchange. Another aspect of the budget is that there will be no alteration in the CPEC project.

Rs 50 billion will be spent on Karachi projects. The ban in the past on non-filers purchasing new assets has been removed. Luxury cars, imported food, make-up, and sophisticated mobile phone will be raised. There will be subsidies of up to Rs 7 billion on fertilizer purchases.

Residents of Islamabad and FATA will be provided a subsidy of Rs 540,000 per family. Rs5 billion subsidy to be provided on duties removed from 82 imported items that are used in export-oriented industries. 10 percent pension has been increased for low-income pensioners.

It seems that the government wants to share new budgetary measures with IMF at the annual meetings of the Fund and the World Bank which are scheduled for October 8-14 in Bali, Indonesia. It is expected that the Finance Minister Asad Umar will engage with the top management of the IMF and World Bank to get the bailout package at the earliest. This has to be done to get rid of threatening crisis on internal and external fronts of the economy.

In this context it must be noticed that the budget was lacking in bringing good news for the poor and downtrodden people of Pakistan. Domestic and external debt servicing would remain the largest pressure current expenditure. This is due largely to the sharp depreciation of the rupee against the US dollar this year.

 

After several comments from different circles the government hints at partially restoring curbs on non-filers of tax returns. The government hinted at partially restoring the ban on purchase of new cars and property by non-filers of tax returns. The government assured that the government would find a middle ground. The government claims that it will boost economic growth to create jobs but on the other hand it has introduced fiscal stabilization measures that will stifle growth and increase unemployment.

The government wanted to make life difficult for the non-filers and was even considering imposing a ban on securing new commercial and industrial electricity connections by them.

The mini-budget was not providing remedy to the economic problems that the government cited as reasons for revising the budget, adding the mini-budget did not offer solution. Mini budget revised but offered no solution to poverty stricken people. Increase in gas, electricity and petroleum prices, hike in interest rate and cut in development spending would throw the country back into an era of low economic growth and high inflation.

The main focus of the budget was on stabilizing the economy as the country was in the midst of a severe economic crisis. It must be remembered that Pakistan had the largest-ever current account deficit of $18 billion and fiscal deficit of Rs2.3 trillion in the last fiscal year.

Tax efforts by new government were aimed at curtailing imports and recouping the tax losses caused by the last government’s decision to massively reduce the income tax rates. The regulatory duties had been imposed both to increase revenue collection and curtail imports.

The senate standing committee backed the government’s budget proposal to offer tax amnesty to about 900,000 people who had been automatically picked for audit after they failed to file income tax returns. It is necessary that the government send clear signals to taxpayers about the benefits of tax compliance. It must broaden the tax base and promote documentation of the economy. It must raise awareness about tax compliance and build a culture of filing returns. Many people are accustomed to not filing returns, and this habit that they have developed over several years needs to be broken.

There was no vision in the mini budget. The small business communities have expressed concern over this budget they say they were further burdened. Government says it raised the tax rates on imports of only luxury items to cut the import bill. The government would take concrete measures in consultation with stakeholders to bring the non-taxpayers into tax net. The government had tried to keep the income tax structure progressive through maintaining the low rate of tax on lower income groups.

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