Profit GOVT EXTENDS HAND TO IMF WITH RS18.9 TRILLION BUDGET In partnership with
Thursday, 13 June, 2024 I 6 Zil-Hajj, 1445
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Rs 20.00 | Vol XIV No 344 I 8 Pages I Islamabad Edition
PPP Chief avoids attending session, claims party may not necessarily vote in favour of budget. g Ambitious target of over Rs13tr set for tax collection in face of rising expenditures
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PROFIT
Staff RepoRt
INANCE Minister Muhammad Aurangzeb presented the first federal budget of the incumbent government on Wednesday with a total outlay of Rs 18.9 trillion amidst ruckus from the opposition benches as well as deepening fault lines within the government coalition. The budget session began two hours late because the Pakistan Peoples Party (PPP) expressed its discomfort with attending the session because they had not been consulted regarding the budget. A government delegation led by the Deputy Prime Minister managed to convince the PPP members to attend the session, but the party’s Chairman stayed away from proceedings. The budget for the upcoming year aims for a modest 3.6 per cent GDP growth, and
sets an ambitious Rs13tr tax collection target, raising taxes on salaried classes and removing tax exemptions for the rest. Aurangzeb acknowledged the challenges faced by Pakistan’s economy, which had been struggling with depleted foreign reserves, a 40 per cent depreciation of the rupee, stagnant economic growth, and soaring inflation that pushed citizens below the poverty line. The budget was an interesting one for Prime Minister Shehbaz Sharif in particular. The last federal budget was also presented by his government, but he was not around to see it through completely because of the six month stint of the caretaker setup. He is now following up with a budget that is quite similar to the last one in that it focuses almost entirely on meeting the conditions of the IMF, which Pakistan is pursuing an even larger bailout package with. REVENUES AND EXPENDITURES
Decoding Rs18.9tr federal budget PROFIT
ShahNawaz ali
Two businessmen discussion analysis sharing calculations about the company budget and financial planning together on desk at the office room. Every year, the federal government announces a federal budget and the news media reports on it. The budget itself is a bunch of numbers that may or may not
mean much to the people listening. However, these numbers have a huge impact on the lives of not only the taxpayers but every citizen of the country. Profit explains how a common man can make sense of the Rs 18.87 trillion budget announced today in the parliament house. Central to a country’s economic policy is the annual budget.
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The federal budget for fiscal year 2025 has a total outlay — the sum of expenditures and net lending of funds — of Rs 18.877 trillion, representing a 30pc increase from the previous year’s budget. The government has proposed Rs 17,203 billion for current expenditure in the FY25 budget, a substantial 29pc increase from the previous year. To meet these expenditures, they have set an ambitious target of over Rs 13 trillion from taxation. They have also tried to bolster non-tax revenue, a significant move being the increase of the Petroleum Development Levy (PDL) which the government increased by Rs 20 to Rs 80 at maximum capacity. The government is hoping to collect a massive Rs 1.3 trillion through the levy even though it will mean a significant increase in the price of petrol. Interest payments, or debt servicing, have surged 34pc to Rs9,775 billion, con-
Aurangzeb tries to prop up SIFC as foreign investment outlook remains bleak PROFIT
abdullah Niazi
As Muhammad Aurangzeb took the podium to deliver his budget speech, a lot would have been on his mind. Would the heckling from the opposition benches get to him? Would he manage to read through the entire speech without stumbling on the complications of fi-
Petrol prices doomed to spike as govt raises petroleum levy. Will govt be able to collect Rs1.3tr from it? ISLAMABAD
ahmad ahmadaNi
Petrol prices will rise as expected in the wake of the federal budget for the next fiscal year, mainly because the government has decided to increase the maximum petroleum levy on petroleum products by Rs 20 from Rs 60 to Rs 80. This target represents a significant increase of Rs 321 billion from the revised estimate of Rs 960 billion for the current fiscal year 2023-24. The petroleum levy is a major source of income for the government, While this hike will boost federal revenue, it is also expected to further raise the already high prices of petroleum products. Already inflationary pressures have caused the usage of petrol to fall over the past year, and as the Pakistan Economic Survey 2023-24 revealed, the usage of fuel dropped by nearly 8% in the past fiscal year. So how exactly will this increased levy mean for petrol prices? And was it the best route for the government to take? How the pricing works
Petrol prices in Pakistan are determined by a number of factors. The main input is the international price of crude oil, which is imported into the country by oil refineries which then process it and turn it into fuel. The price of fuel after processing is what is known as the ex-refinery price. But then other things get tagged along onto this. A margin is added to make sure the price is uniform throughout the country and not cheaper in areas close to the refinery, distributors naturally take a cut, and then dealers and petrol pumps also charge their own service premiums. On top of this, the government also takes a cut. The current petroleum levy is Rs 40, which up until this budget could have gone up to a maximum of Rs 60. The government has now increased this maximum levy by Rs 20 to Rs 80 per litre. As we mentioned at the beginning, the government is not good at collecting taxes because there is only one tax collector with not enough infrastructure to keep an eye on everything. So the levy is charged to the end consumer and directly trans-
ferred to the FBR. Will the IMF be happy with this? The IMF has long held, and correctly so, that this is a counterproductive system. The fund’s argument is that a VAT system should be implemented in which the value added at each stage of a product getting to the end consumer should be taxed. Without getting into too many details, this would mean the refinery would be charged a tax first, then the transporters, then the distributors and so on and so forth until the final price hits the markets and the tax is passed on to the consumer. This would not just mean that the tax on petrol would not be arbitrarily set (as the petrol levy is right now), it would also help document the economy better. As part of this, the IMF wants the government to increase the sales tax on petrol at different stages. In the previous budget, the fund had recommended 18% GST be charged on petrol products. But this poses a problem for the government.
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PTI, JI, businessmen dub ‘IMF dictated’ budget lethal, poisonous ISLAMABAD/LAHORE/KARACHI Staff RepoRt
Reacting to the federal budget, main opposition parties, including Pakistan Tehreek-e-Insaf (PTI) and Jamaat-iIslami, All-Pakistan Anjuman-e-Tajran, and chambers of commerce of different major cities including Karachi, Faisalabad, Sialkot and Rawalpindi rejected the budget. They termed the IMF-dictated and tax-heavy Federal Budget 2024-25, as a lethal and poisonous for the inflation-stricken people, which would have devastating effects on the economy and the common man, triggering a storm of inflation. ‘BUDGET NOTHING BUT ECONOMIC MURDER OF PEOPLE’ The PTI Spokesperson, in a statement, said that the anti-people budget of the federal government was nothing but an economic murder of the people as it would badly impact the routine life of ordinary people of the country because it would result in a sharp increase in prices, unemployment and poverty. He said that the current budget was actually an IMF dictated budget and the government had no role in its preparation that was the reason there was no relief for the countrymen rather it would further exacerbate the public woes, adding that an ambitious target of GDP
suming more than half of total budget outlay and becoming, like last few years, the government’s single largest expense. Of that, defence expenditure constitutes Rs2,122bn, 17.6pc higher than last year’s budget, making up 1.71pc of GDP, largely unchanged from last year. Pakistan’s total revenue for fiscal year 2025 is budgeted at Rs17,815 billion. After accounting for provincial transfers of Rs7,438 billion, the net revenue stands at Rs10,377 billion, representing a significant
growth rate of 3.6% had been set for the next fiscal year, whereas the World Bank predicted the growth rate would not exceed 2.4 percent. PTI spokesperson noted that the target of 12 percent inflation rate was completely unrealistic and unachievable.
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nancial terms in Urdu? How would the IMF react to his ministry’s proposed budget for the next one year? But one question that might just have been front and centre in his mind was his recent trip to China. In fact, Mr Aurangzeb’s budget speech was originally slated for Friday.
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48.7pc increase from the previous year. Aurangzeb highlighted the urgency of tax system reforms, citing Pakistan’s lagging tax-to-GDP ratio compared to other countries. “The prime minister is closely monitoring the digitalisation of tax policies and FBR’s administrative reforms. Our goal is to broaden the tax net without burdening existing taxpayers,” Aurangzeb said.
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Govt does away with sales tax exemptions. How hard will this hit industry? PROFIT
Staff RepoRt
In his budget speech Wednesday, the Finance Minister said that the zero ratings, exemptions and reduced rates were going to be eliminated. These exemptions are a burden on the government as their revenues are reduced while it also has an impact on the socio
economic development of the country. Due to this, there is a proposal being made to eliminate these exemptions on many of the items. Some of these items are going to go to a reduced rate while the standard rate of 17% will be implemented on the others. The details will come when the Finance Bill is published later.
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