Budget and Pakistan Economy; A report by laymen
Table of Contents
The first federal government of PTI has unveiled its first annual budget for the fiscal year 2019-2020 on June 11. This budget is passed on June 28. The delay of 17 days was due to the strong resistance from the opposition in the parliament. The opposition was planning and threatening the government over supposed economic mismanagement.
The economic situation in Pakistan is indeed disturbing. But Federal Government has confidently presented its first annual budget by setting a meagre 2.4% economic growth rate and a forecast of double-digit inflation.
Critics say that this budget is only a burden and there is no relief for laymen. But how you can believe on it, what is there for you, and what are the real effects of this budget on Pakistan Economy? Here we will try to discuss the relief part and some positive things in the budget, more taxes and brace for inflation, what government has planned, government needs, and what to expect from the budget for us and our economy. Let’s discuss this one by one:
Budget & Relief Part
Non-Filer can buy a property worth more than Rs5 million.
Government has reduced the Withholding Tax on the property from 2% to 1%
There is another good step, and that is the increase of minimum wage to Rs17,500.
Government has ended the 3% value-added tax on mobile phone imports.
The raw material that is used to make medicines about 19 items is exempt from the 3% duty.
The government will give tax incentives to employers ready to hire fresh graduates especially those who graduated after June 1, 2017
Budget 2019-20 & More Taxes
By analyzing our traditional budgeting, policy design patterns and the next IMF bailout, the budget of this nature were more or less expected.
Taxes have been increased on everyday use commodities, new tax exemptions on the import of LNG, on the current exporting industries, and new taxes are imposed on salaried class.
The direct and the visible effects of these new taxes will decrease the purchasing power of the common man. After these new taxes, the production cost will increase as the removal of exemptions for LNG and current exporting industries will badly effect on production industry and that will make our goods less competitive in the global market.
After every major IMF bailout, we face a decrease in demand and reduce the rate of exports that always hurt our economy. And if we want to free us from international dependencies, our economy needs to avoid it.
Our government desperately needs the money, and they have set a target of Rs5,555 billion; that is why they are trying every possible trick to raise more revenue. And this budget is all about taxes. Recently the government has signed an agreement with the IMF, and the increase in more taxes is the part of that agreement.
Government has presented this budget with very high revenue goal when economic growth is completely slowed down. And if the government will fail to achieve this revenue, the situation will become worse. We fear that it will reduce economic growth further.
It is clear that the coming year is not easy for us at all and it is not only for the government to achieve their targets but also for the people. As people will now have to make do with the slowing economy and will have to pay the bulk of taxes.
New Taxes & Economy
The increase of taxes on a person making Rs 50,000 a month along with the increase of his expenses due to the increase in sales taxes and because of the devaluation of the rupee. It will also decrease a person’s spending capacity.
Another significant impact is the dramatic decrease in higher education spending (via the PSDP) that can affect the quality of research centers and universities. It will have the worst results.
This budget effects on the real estate as it is now allowing the non-tax filers to buy a property worth Rs5 million or more. This will push people to move their investments towards the non-tradable sector. With these changes, now people will move their investments away from productive sectors.
The price of sugar is increased by Rs. 3.5 per kilo and now everything that uses sugar will become more expensive.
Government has increased 17% sales tax on processed food like meat, chicken, fish and cooked and semi-cooked meals as in the belief of government these items are mostly consumed by financially stable people.
The duty on carbonated drinks is also increased from 11.25% to 13%. Well, the increase in duty will discourage people from consuming sugary drinks. So here we can take this increase in a positive way.
The government is ending Rs1 per kg tax on the household edible oils, but instead of that, the govt is also increasing FED on the same items to 17%.
The government has also increased the duty on tobacco, so now, smoking will also become expensive.
Government has increased the federal excise duty (FED) on all automobiles, so buying motorcycles and cars will also cost more. This FED will be charged as 2.5%, 5%, and 7.5%.
The prices of CNG will also increase after the increase in taxes.
Planning to construct your house, the government has proposed to increase FED on cement from Rs1.5 per kg to Rs2 per kg, so be ready to pay an additional Rs70 on a 50kg bag of cement as many companies have already increased the prices.
All these new taxes and increases in the previous will create inflationary pressure.
The government has also proposed 11 progressive tax slabs for salaried persons with an annual income of Rs 6 lacs or more, and there are eight slabs for non-salaried people as well.
Government Plans To Spend? On what & From Where They Will Get It?
The government has a plan to spend Rs. 7036b and this will be spent on interest payments, government salaries and pensions, developments, security, and defence while the remaining will be on other major goals.
Where will the money come from?
The government will get the money through loans and other incomes while the major portion will be fulfilled through FBR Taxes.
What Government Needs & Need To Do?
Today our government urgently needs money to fight the trade and budgetary losses, as these losses are driving the economy towards failure, and this money will come from our taxes. To meet the revenue targets, the government needs to restructure the tax system as well as structural improvements that provide the right incentives for higher tax collection by increasing operational capacity
We need to make positive changes to increase export capacity, and there is also a need to increase the investment in new export industries. It is the macro, long-term perception that we need to be kept the front, and mostly focused.
These higher taxes and lower spending will help the government to reduce budget shortage and save enough money to spend on the country’s development projects like power plants, roads, schools, dams, & hospitals, etc.
Here government will need to reduce fiscal and trade losses, need to sell or fix off loss-making government companies and leave the exchange rates free of the central bank’s interference, no matter, the rate of dollar increases. As soon as the government succeeds to stable the economy, there will be more jobs and business will grow better, the salaried person will not only get promotions. And people will spend on food, clothing, automobile, and recreational activities.
But still, we have to prepare ourselves for another difficult year as this budget has brought a number of new taxes with the policy measures that will create inflationary pressures and will also slow down the economic growth of the country.