Government increases minimum wage, hikes allocation for Public Sector Development Program in shift from economic stabilization
Finance Minister Shaukat Tarin on Friday presented in the National Assembly a Rs. 8.49 trillion budget for fiscal year 2021-22, stressing that it was aimed at sustainable and inclusive growth that catered to the most impoverished segments of society while encouraging revenue generation.
The budget speech was, per routine, marred by opposition lawmakers chanting slogans throughout it to protest what they have claimed is an “anti-people” budget. Addressing media after the speech, Pakistan Muslim League (Nawaz) President Shahbaz Sharif, who is also the Leader of the Opposition in the National Assembly, said that united opposition would “give a tough time” to the government and reveal how it had “distorted” the numbers to show economic growth.
“The poor man is dying, he can’t get bread for a one-time meal, there is a wave of poverty and unemployment in the country,” he said, while Pakistan Peoples Party Chairman Bilawal Bhutto-Zardari said his party would support Sharif in its resistance to the budget.
Focusing on development
During his speech, the finance minister admitted there had been a lot of difficulties for the government in its first three years, but stressed that the ground had been laid for economic revival and it was time to head toward “development and prosperity.” He recalled that the national economy had been nearing bankruptcy when the PTI came into power and lamented that the country had been burdened by loans and a current account deficit of $20 billion.
“Exports were contracting and there was over a 100 percent increase in imports,” he said and derided the outgoing government’s touting of a 5.5 percent growth rate despite these pressures. “It took time to stabilize the economy due to the pandemic but we achieved our targets. The $20 billion current account deficit has been turned into a surplus of $800 million while a 3.6 percent primary deficit has been reduced to 1 percent,” he said.
He said that the government had set a GDP growth target of 4.8 percent for the next fiscal. “We hope growth will be even higher than that due to the measures we have taken in this budget. Like in the past, we will not leave the weak segments of our society at mercy of the trickledown effect,” he said, reiterating that the government hoped to boost the growth rate to 6 or 7 percent in the next two years.
The budget, which the government stresses prioritizes pro-poor initiatives and increased development spending to boost job generation, has allocated the following sums for key areas:
- Total outlay – Rs. 8.49 trillion, nearly 19 percent higher than last year’s outlay, with Rs. 2.1 billion for the Public Sector Development Program, a 37 percent boost from last year
- Federal PSDP allocated with Rs. 900 billion, while provincial PSDP has been set at Rs. 1,235 billion, a boost of 45 percent over last year
- Current expenditure budgeted for FY21-22 at Rs. 7,523 billion, against last year’s Rs. 6,345 billion
- Minimum wage increased to Rs. 20,000, with pensions and federal government employees’ salaries to see a 10 percent increase
- 12 billion allocated for the agriculture sector
- 66 allocated for the Higher Education Commission for education initiatives, including Rs.44 billion under the development fund
- 118 billion allocated to sort the country’s power distribution issues
- 61 billion allocated for the Viability Gap Fund to aid Public-Private Partnerships
- 14 billion allocated for climate change mitigation
- $1.1 billion allocated to procure vaccines against the coronavirus in the upcoming fiscal
- 100 billion set aside for the COVID-19 Emergency Fund
- 12 billion allocated as a “special grant” for Sindh
- 1,370 billion allocated for Defense Services, 6.2 percent over last year
- 3,060 billion allocated for repayment of interest on loans
- Fiscal deficit for the upcoming fiscal has been budgeted at Rs. 3,420 billion
- From the federal PSDP, the government has allocated Rs. 628.224 billion for federal ministries; Rs. 183.235 billion for corporations such as the National Highway Authority; Rs. 70 billion for COVID-19 response and other natural calamities
- Similarly, the Water Resource Division has been allocated Rs. 103.472 billion; Rs. 3.55 billion for the Aviation Division; Rs. 80 million for the Board of Investment; Rs. 46.155 billion for the Cabinet Division; Rs. 1.613 billion for the Commerce Division; Rs. 451.32 million for the Communication Division; Rs. 1.977 billion for the Defense Division; Rs. 1.745 billion for Defense Production Division
- 800 million has been allocated for the Establishment Division; Rs. 9.7 billion for the Federal Education and Professional Training Division; Rs. 123.13 billion for the Finance Division; Rs. 24.2 billion for the Housing and Works Division; Rs. 279 million for the Human Rights Division; Rs. 2.9 billion for the Industries and Production Division; Rs. 1.899 billion for the Information and Broadcasting Division; and Rs. 9.36 billion for the Information Technology and Telecom Division
- In significant sectors, the government has also allocated Rs. 200 million for the Pakistan Nuclear Regulatory Authority; Rs. 2.35 billion for the Petroleum Division; Rs. 19.245 billion for the Planning, Development and Reforms Division; Rs. 590 million for the Poverty Alleviation and Social Safety Division; Rs. 30.025 billion for the Railways Division; Rs. 493 million for the Religious Affairs and Interfaith Harmony Division; Rs. 4.025 billion for the Revenue Division; Rs. 8.3 billion for the Science and Technological Research Division; Rs. 7.36 billion for SUPARCO
Additionally, the budget documents show special development packages for deprives areas such as southern Balochistan, Gilgit-Baltistan, rural Sindh, and the erstwhile tribal areas. The government has set the inflation target at 8.2 percent; significantly higher than the 6.5 percent targeted for the last fiscal. To meet revenue targets, the tax collection target has been set at Rs. 5,829 billion, which is 17.4 percent higher than last year’s collection of Rs. 4,963 billion.
Tarin stressed in his speech the government was not imposing any new taxes on the salaried class, noting withholding tax was being reduced or removed on several sectors and taxation slabs were also being altered. However, nearly Rs. 383 billion in additional taxes have been imposed. The most controversial was a clause calling for Rs. 5 tax on the use of 1 gigabyte of internet data, but the government has claimed that this has been rejected by Prime Minister Imran Khan and would not be included in the final budget.
Among the commodities facing new taxes are sugar and mobile phones—on which the government has proposed increased regulatory duties. Customs duty on the import of petrol has been increased to 10 percent, while that on high-speed diesel has been decreased to 10 percent. Among the relief offered to industrialists, customs duties have been reduced on items imported by the textile sector, the construction sector, and chemical importers.
However, customs duty has been reduced on 850cc cars to 15 percent, while 7 percent additional customs duty, and 15 percent regulatory duty have been abolished. The regulatory duty on tyres has been doubled to 10 percent. Imports of electric vehicles have been exempted from value-added tax, while sales tax on locally manufactured electric cars has been reduced to 1 percent.
The government has withdrawn tax concessions on new investments by industries to generate Rs. 65 billion in taxes. The export of services would be taxed at 1 percent rate to generate Rs. 5 billion, while electricity bills of non-filers in excess of Rs. 25,000 would be subject to 7.5 percent income tax. The minimum turnover tax has been reduced by 0.25 percent to 1.25 percent, with refineries down to 0.5 percent and fast moving consumer goods to 0.25 percent.
Capital gains tax on the stock market has been reduced to 12.5 percent, which would pose Rs. 2 billion in revenue loss. Overall, the government has abolished 12 types of withholding taxes, including on banking transactions, air travel, stock exchange, CNG stations, petroleum products, international credit card transactions and extraction of minerals and sale of spices.
Subsidies and levies
The budget increases subsidy allocations by 226 percent, with proposed hikes to surcharges and levies on oil and gas, including a 36 percent increase in petroleum levy, raising concerns of an impending hike in petroleum prices. A Rs. 1 per tax had been proposed for all cell phone calls over 3 minutes and 10 paisas on every SMS, but this has been rejected by the federal cabinet. The government has also proposed 17 percent sales tax on cereals, milk and cream, frozen meat and sausages, and fat filled milk. Online retail outlets would face 17 percent sales tax.