Pakistan’s parliament has approved the government’s tax-heavy finance bill for the upcoming fiscal year, setting the stage for further discussions with the International Monetary Fund (IMF) regarding a potential bailout. This move comes as Pakistan aims to avoid a default of debt for an economy that is experiencing slower growth compared to other South Asian countries.
The budget, which was presented by the government two weeks ago, has faced criticism from opposition parties and business entities. Concerns have been raised about the escalating government expenditures and the limited fiscal space for economic expansion.
Finance Minister Muhammad Aurangzeb introduced the finance bill in parliament, and it garnered support from the ruling alliance, headed by Prime Minister Shehbaz Sharif. While the Pakistan Muslim League-Nawaz (PML-N) secured backing from its main coalition partner, the Pakistan Peoples Party, the budgetary measures initially sparked disagreements.
Pl, watch video and subscribe to the YouTube channel of republicpolicy.com
Addressing the National Assembly, Finance Minister Aurangzeb highlighted positive economic indicators, noting a significant decrease in the current account deficit, controlled fiscal deficit, and stabilized currency. He also emphasized the need to boost the tax-to-GDP ratio from the current 9.5% to 13% over the next three years. Additionally, he underscored efforts to increase tax rates to encourage non-filers to pay taxes, albeit at punitive levels.
The government has set a challenging tax revenue target of Rs13 trillion ($46.66 billion) for the new fiscal year, representing a substantial 40% increase from the current year. This budget aligns with the country’s engagement with the IMF for a potential loan program ranging from $6 billion to $8 billion.
To achieve the heightened tax target, policymakers have proposed a 48% increase in direct taxes and a 35% hike in indirect taxes. Moreover, non-tax revenue, including petroleum levies, is anticipated to surge by 64%. The proposed measures include raising the tax on textile and leather products, mobile phones, and capital gains from real estate, while also imposing higher direct taxes on income earned by workers.
However, the budget has faced opposition from parliamentarians aligned with the incarcerated former Prime Minister Imran Khan, who have voiced concerns about its potentially inflationary impact.
The fiscal deficit for the upcoming financial year is projected to decrease to 5.9% of the gross domestic product (GDP), down from an upwardly revised estimate of 7.4% for the current year. Nevertheless, Pakistan’s central bank has cautioned about potential inflationary effects resulting from the budget, citing limited progress in structural reforms to broaden the tax base as a factor necessitating increased tax rates.
The growth target for the next year has been set at 3.6%, with inflation projected at 12%.
