(Asghar Ali Mubarak)
ISLAMABAD (TNS) The federal budget for the next fiscal year has been presented, which is an attempt to make the second IMF review of $7 billion in September a success. Federal Finance Minister Muhammad Aurangzeb, while hinting at bringing a mini budget in the absence of legislation for the implementation of taxes, has said that our request to the parliament will be to provide the legislation and amendments required for the implementation of taxes so that we do not have to take additional steps. If we cannot implement taxes, we will have to impose additional taxes of Rs 400 to 500 billion. Addressing the post-budget press conference, Finance Minister Muhammad Aurangzeb said that customs duty has been reduced in 2,700 tariff lines, out of which 2,000 tariff lines are directly related to raw materials. As a result, exporters will benefit because they will be able to compete and export more due to the reduction in costs.
Federal Finance Minister Muhammad Aurangzeb has presented a budget of Rs 17,573 billion for 2025-26, with Rs 2,550 billion allocated for the defense budget, major relief for the salaried class and significant reduction in all tax slabs.
The government wants to increase exports to $ 100 billion in 5 years under its Udan program, but this goal is not possible without increasing industrial productivity and attracting FDI. Many are expressing doubts about the government’s ability to achieve the growth target of 4.2 percent next year, which is because it has done insufficient work to address the deep-rooted problems of the economy.
Stability has returned. Will growth also come with stability? The government wants to reduce the overall budget deficit to 3.9 percent of the country’s gross domestic product (GDP), lower than the earlier target of 5.9 percent.
The provinces, which are generally accused of adding to the federal government’s fiscal problems because they receive a large share of the money under the NFC agreement, will now provide a cash surplus of about Rs1.5 trillion, 50 percent higher than the target of Rs1.0 trillion set last fiscal year, to help reduce the national deficit.
The government has also given some tax relief to the salaried class, but it could do so because it saved Rs1.0 trillion in debt repayments. These savings came because interest rates in the country fell last year. These savings have also allowed the authorities to give relief to the powerful real estate lobbies demanding tax breaks. The budget is a disappointment for those who were hoping that the economic stability that has come in the last year and a half would lead to major reforms that would help the economy grow in the long run.
The budget has tried to bring as many non-filers into the tax net as possible by imposing limits on things like buying shares above a certain amount or buying cars with engines larger than 850 cc, where non-filers will face problems if they do not pay taxes.
The budget also takes steps to phase out the sales tax exemption for businesses in the erstwhile FATA and PATA areas, with the aim of making the rules fairer across the country. Although the federal finance minister spoke about the difficulties of the compliant corporate sector, his budget speech failed to address the problem of unequal corporate tax rates, which is a major obstacle to investment and export growth.
Although the controversial super tax has been slightly reduced, the budget does not include significant measures to help businesses become more competitive or attract foreign investors.
This is a huge problem because industries, which account for only 18% of the economy, are paying about 60% of all taxes. This heavy tax burden is slowing down manufacturing on a large scale.
There are few hopes for major structural changes in the budget, but that does not mean that there is nothing positive in the budget document. For example, it announces long-awaited changes to customs and import taxes, which it hopes will gradually end the exemptions granted to certain industries that unfairly benefit from government support over the next five years.Muhammad Aurangzeb has said that in the coming years, the tariff reduction will be taken further and the entire tariff system will be reduced by 4 percent overall, such reforms have not been made in the last 30 years. It is a big step in terms of structural reform and we will take it further. He said that the Prime Minister and I wanted to give as much relief as we can to the salaried class, but the reality is that we can only go forward according to the financial capacity, this determines the direction of the journey where we want to take the salaried class, the salaried class, including the higher class, has been divided into different slabs. The Finance Minister said that we have started with mid-size corporates and have started reducing their super tax, even if it is 0.5 percent, this is an important indication. Our effort is to reduce the transaction cost, the seller then earns profit but the buyer should get relief, so the transaction cost has been reduced for the buyers, he said, similarly, the federal excise duty has also been abolished, so there is talk of reducing the transaction cost in it. The Finance Minister hinted at the soon introduction of a loan scheme for small houses and said that if someone wants to build their own house, especially a house smaller than 5 marla, then the issue of mortgage financing is very important in this, it will be decided together with the State Bank how much loan to provide, then this scheme is going to be launched soon. The Finance Minister, while talking about the agricultural sector, said that this year we had to impose additional tax on fertilizers and agricultural chemicals, this was a structural benchmark, the reason for this was that all the tax exemption systems should be abolished, but as per the Prime Minister’s instructions, we convinced the IMF not to impose agricultural tax. He said that in the last budget speech, there was talk of increasing credit in the agricultural sector, especially providing credit to small farmers is very important. The Finance Minister said that last year we had to impose additional taxes because when we were talking to international organizations, they were not ready to believe us that taxes can be implemented in this country, there are laws, legislation is being made, taxes are also there but we were not able to implement them, the taxes that we have implemented this year have exceeded 400 billion. This year, the ratio of taxes to GDP is 10.3%, which will be 10.9% next year, God willing, out of the 22 trillion that has been talked about, the additional taxes are only 312 billion rupees, think about it that out of 22 trillion, only 312 billion are additional taxes and the rest is the aspect of automatic growth and implementation. The Finance Minister said that in this regard, we will now move towards legislation and talk to both houses and amend the law for the implementation of taxes because if we cannot implement taxes, we will have to take additional measures of Rs 400 to 500 billion. Our request to the Parliament will be to provide the necessary legislation and amendments for the implementation of taxes so that we do not have to take additional measures and leakage in the system can be stopped. The Finance Minister said that the increase in salaries and pensions has been linked to the rate of inflation, he said that it is wrong to say that agriculture is not related to the federal government, agriculture is and will remain the engine of economic growth, we will work together with the provinces to increase the supply of credit to storage and false farmers. Muhammad Aurangzeb said on a question regarding the insufficient increase in salaries and pensions that all over the world, whether it is the private sector or the government, salaries and pensions are linked to the rate of inflation. He said that we are under pressure and it is true that when taxes are being increased, why are government expenses not decreasing and this is a legitimate pressure. This time, government expenses have increased by 1.9 percent. The credit for this goes to the Secretary of Finance. The tax-paying salaried class who used to object that why the federal government’s expenses are not being brought under control, our answer to them is that the increase in government expenses has been less than 2 percent. The rest of the things are in their place, but if there is financial capacity, we can do something, we can spread our legs according to the amount of money we have. He clarified that whatever the federal government is still giving, it is giving by taking loans, because we started with a deficit. On this occasion, the Secretary of Finance said that government expenses could not have been reduced more than this. In the sectors where expenses have increased, there was a dire need. The federal government’s expenses have increased by only 2 percent, financial management cannot be shown.The Finance Secretary said that in the fiscal year 2022-23, the federal government’s expenditure increased by 15.9%, in 2023-24, the federal government’s expenditure increased by 23.6%, in 2024-25, government expenditure increased by 12.2%. Right now, our expenditure has increased by 10.3%, which includes 7.5% inflation and salary increases. No more financial management can be shown than this. He said that we are very clear that a cash-based economy of Rs. 9.4 trillion or more has to be documented, and work is underway on several proposals in this regard. Two very concrete steps have been taken in this regard. We will gradually move forward with these steps. In response to a question regarding the delinking of NFC, the Finance Minister said that no work will be done without consulting the provinces. I have said two things regarding NFC. One is that nominations have been requested for NFC and the other is that the Prime Minister himself has said that an NFC meeting will be convened in August. It may happen before that. Everything, including the National Fiscal Agreement, has been done and will be done in consultation with the provinces. In response to a question, the Chairman FBR clarified that no surcharge is being imposed on electricity. The government has directed to reduce electricity rates. There has been no discussion or decision to impose additional surcharge. On this occasion, the Finance Secretary said that the cap on electricity is being removed. On the question of increasing the salaries of the Speaker of the National Assembly and the Chairman of the Senate from Rs. 25,000 to Rs. 2.15 million, the Finance Minister said that the salaries of members of the assembly and federal ministers have increased after 2016. If they had increased every year, it would not have been a one-time thing. A one-time thing happens when nothing has happened for 9 years. On the question of the implementation of sales tax on online purchases, Chairman FBR Rashid Mahmood Langrial said that in order to create a level playing field between the formal retail sector and the online sector, an 18 percent sales tax has been implemented on online purchases because people from the formal retail sector have come to us thousands of times that our market is getting out of hand due to the 18 percent sales tax. If we create a difference of 18 percent, we will eliminate the level playing field. This step has been taken to restore the level playing field. The tax on online purchases has been implemented under the principle of profit volume. The profit margin on groceries and electronics products is low, while the profit rate on clothes is high. The Chairman FBR said that no surcharge has been imposed in the electricity sector, only the limit has been adjusted, no change is being made in the rate. Finance Minister Muhammad Aurangzeb explained that last year we tried hard to tell the financial institutions that we are going to implement taxes, so there is no need to take additional measures, but they did not listen to us and said, “Show us, this time we have done it, that is why they have agreed to 389 billion for next year. If the financial institutions did not agree, we would have had to take additional measures of 389 billion.” He said that this is why I am requesting my parliamentary friends and sisters to help us in the legislation that we are taking, because on the basis of this, we will be able to implement taxes, if you do not help, then know that we will have to impose additional taxes of 400, 500 billion. On the question of not increasing the minimum wage, the Finance Minister advised the journalist to go to the business organizations and get their opinion, saying that I think we are at the right place at the moment. On the question regarding the imposition of sales tax on solar panels, the Chairman FBR said that two types of solar panels are imported into Pakistan, one type of solar panels were imported in raw state in which value addition was done locally on which sales tax was already imposed, while no tax was applicable on solar panels imported in assembled state, due to which local production was facing losses and not only the existing local industry was suffering losses but we had closed the way for local production for the future. He said that we could not give exemption to local production because there is no scope for exemption in the loan program, our only option was to remove the exemption and provide a level playing field. But the Finance Minister said that the government wants to empower the youth, so it is very important to provide them with education, so that today they can code for $8 to $10 per hour, and God willing, just as LUMS received a $15 million grant for Web 3.0 and blockchain, other institutions will also receive it. This needs to be done for boys and girls.
