PAKISTAN’S parliament last Friday (28) passed the government’s tax-heavy finance bill for the coming fiscal year amid an annual inflation projection of up to 13.5 per cent for June.
The bill comes ahead of more talks with the IMF for a loan of £4.7 billion to £6.3bn to avert a debt default for Pakistan, the slowestgrowing economy in south Asia.
Finance minister Muhammad Aurangzeb moved the finance bill in parliament, which was opened to seek amendments by the ruling alliance led by prime minister Shehbaz Sharif and its opposition.
“There are no sacred cows, everyone has to pay their taxes,” Aurangzeb said earlier in June.
Speaker Sardar Ayaz Sadiq announced the passing of the budget in a live TV telecast.
“It is a fact we had to prepare the budget jointly with the IMF because the prevailing circumstances were requiring it,” Sharif told parliament last Tuesday (25).
The government presented the national budget on June 12 with a challenging tax revenue target of 13 trillion rupees (£36.7bn) for the year starting July 1, up about 40 per cent from the current year, to strengthen the case for a new rescue deal with the International Monetary Fund (IMF).
40 per cent of Pakistan’s populationlives below the poverty line
The budget is gearing the country towards an era of sustainable and inclusive growth, said a finance ministry report issued last Friday, which projected annual consumer price inflation for June 2024 at 12.5 per cent to 13.5 per cent, up from 11.8 per cent in May.
“The government was implementing administrative, policy and relief measures to control inflationary pressures,” the report said.
The rise in the tax target is made up of a 48 per cent increase in direct taxes and a 35 per cent hike in indirect taxes over revised estimates of the year. Non-tax revenue, including petroleum levies, is seen increasing by 64 per cent.
The tax would increase to 18 per cent on textile and leather products as well as on mobile phones, besides a hike in the tax on capital gains from real estate investments. Workers will also get hit with more direct tax on income.
While around 40 per cent of the population already lives below the poverty line, the World Bank said in April it feared that 10 million additional Pakistanis would fall below this threshold.
“Existing taxpayers face new tax measures while the undertaxed remain unburdened,” Ali Hasanain, associate professor of economics at the Lahore University of Management Sciences said.
The austerity policies “will accelerate the exodus of highly skilled workers,” said Hasanain.
Opposition parties, mainly parliamentarians backed by the jailed former prime minister Imran Khan, have rejected the budget, saying it will be highly inflationary.
Pakistan has projected a drop in its fiscal deficit for the new financial year to 5.9 per cent of gross domestic product (GDP), from an upwardly revised estimate of 7.4 per cent for the current year.
Pakistan’s central bank has also warned of possible inflationary effects from the budget, saying limited progress in structural reforms to broaden the tax base meant increased revenue must come from hiking taxes.
The upcoming year’s growth target has been set at 3.6 per cent, with inflation projected at 12 per cent.
Analysts say Pakistan is encumbered by public debt – £190.8bn at the end of March – and is being forced to take new loans to cover interest payments.
The last loan – a nine-month £2.3bn IMF deal – proved a lifeline, in part because it bolstered other nations’ confidence in their ability to unlock their coffers and offer additional loans.
But the funding came on condition of unpopular austerity measures, including an end to subsidies cushioning consumer costs.
