Budget targets big rise in tax revenues

ISLAMABAD: Pakistan is targeting a near 16 percent rise in tax revenues in the fiscal year ending June 2017, Finance Minister Ishaq Dar said on Friday as he unveiled a budget aimed at shoring up the South Asian country’s finances.

Dar said Pakistan would cut its fiscal deficit to 3.8 percent of gross domestic product for the coming financial year, down from the 4.3 percent envisaged for this year, and helped by a planned rise in tax collection to 3.95 trillion rupees ($37.8 billion).

Pakistan’s economy is growing at its quickest rate in eight years after a slide in oil prices and expansion in industry and services boosted demand. Investor confidence has slowly returned to a country that was battered by the global financial crisis.

“The dangers to the economy are now far behind us. Economic growth has hit an eight year high. This would have been even better if it had not been for a 28 percent fall in the cotton crop,” Dar told parliament.

Still, the economy remains structurally weak, hamstrung by poor infrastructure, struggling exports, the threat of militant violence and a very narrow tax base.

The GDP growth rate of 4.7 percent in the year to June 2016 was less than the government’s 5.5 percent target, and a contraction in the agricultural sector this year meant many Pakistanis do not feel much better off.

Pakistan’s economy needs to grow at more than 6-percent per annum to absorb new entrants coming into the workforce, experts say.

Dar said Prime Minister Nawaz Sharif’s government’s priority in the year ahead was to push Pakistan’s persistently low tax-to-GDP ratio to above 10 percent and raise taxation revenues. Pakistan’s financial year runs from July to June.

Khurram Husain, a Karachi-based analyst, said the government was proposing to raise taxes on turnover and financial transactions, which could hurt economic activity. It had largely left income and consumption taxes alone, he said.

“I see it more as a fire-fighting budget. The government is having a very hard time transiting out of fire-fighting mode into producing a growth-inducing budget. And this budget speech appears to confirm that,” Husain told Reuters.

Successive governments have promised to rein in tax evaders and boost revenues but face fierce resistance to change, including from the many politicians and businessmen believed to be among those dodging their taxes.

Fewer than one percent of Pakistan’s 190 million people pay income tax.

The low level of collection and the hefty cost of funding its military has left Pakistan with insufficient money to spend on modernising its schools and hospitals, to the dismay of donors who end up financing much of the social infrastructure.

Dar said total spending for the 2016/17 year was estimated at 5.08 trillion rupees, while the defence budget would rise 11 percent year-on-year to 860 billion rupees.

Some economists predict that Pakistan will miss its fiscal deficit targets over the coming years and start hiking spending after it exits an International Monetary Fund programme later this year and heads into a general election in 2018.


Highlight of the budget

  • Economic Growth 4.71%, highest in past eight years
  • Per Capita income up to $1,561, growth of 17%
  • Inflation 2.82%; lowest in a decade
  • FBR Revenue target of Rs 3104 to be achieved; 60% increase in three years
  • Fiscal Deficit down to 4.3% in 2015-16
  • Exports declined by 11% recorded at $18.2 billion
  • Imports at $32.7 billion; savings from oil import around 40%; diverted to increased import of machinery.
  • Cumulative growth of 40% in machinery over last three years.
  • Remittances were $16 billion in 2015-16; target for 2016-17 $19 billion
  • Exchange Rate stable at Rs 104.70 per dollar
  • Foreign Exchange Reserves increased to historic $21.6 billion
  • Current Account Deficit maintained at 1% of GDP over three years
  • Sales tax may be exempted on import of laptops, PCs
  • Broadband to be expanded to over 56,000 new subscribers: Dar
  • Rs 188 bln to be spent on construction of roads, highways, bridges
  • Duties relaxed on import of LED lights, solar panels
  • 10 % increase announced for pensioners
  • Abolishment of 7% sales tax on pesticides proposed
  • Concession of custom duty for dairy, poultry sectors proposed
  • Custom Duty for fish farming slashes to 2%
  • Rs 100 billion for rehabilitation of Temporary Displaced Persons (TDPs) and security enhancement
  • 10 % increase for all the pensioners of federal government with effect from July 01, 2016.
  • 25 % increase in net pension will be given to all pensioners of federal government above the age of 85.
  • Rs 188 billion have been allocated for construction of roads, highways and bridges.
  • Rs 34 billion had been allocated for Lahore-Abdul Hakeem section which was about 230 km long.
  • Rs 19 billion had been provided for Multan-Sukkur section which was 387 kilometres.
  • Rs 2.5 billion had been allocated in the PSDP.
  • Burhan-Hakla would be allocated Rs 22 billion which would usher in socio-economic development of the area
  • Pakistan’s economy grew at an estimated 4.7 percent in the year to June 2016 – short of the government’s 5.5 percent target but the highest rate for eight years – after a slide in oil prices and growth in industry and services boosted demand.