Hammad Azhar unveils Rs7.02tr budget for FY2019-20

He said US$7 billion reduction in Current Account Deficit will be achieved this year.

ISLAMABAD (Dunya News) – Minister of State for Revenue Hammad Azhar has unveiled the first budget for fiscal year 2019-20 of the Pakistan Tehreek-e-Insaf (PTI)-led federal government with an outlay of Rs7.02 trillion, in the National Assembly (NA) in Islamabad today (Tuesday).

The austerity-oriented budget, approved by the cabinet, has proposed a 10 per cent cut in ministers  salaries and a subsidy worth 40 billion Pakistani rupees (US $2.6 million) on gas and electricity. However, the salaries of government employees and the pension of retired ones will get a 10 percent hike.

Azhar, while presenting the budget, said that Pakistan s trade deficit has been reduced by US $4 billion and now stands at US $22 billion. The minister said that the governemnt has a brought a new thought, new commitment and new approach to governance. He said it is time to lift the people who have been left behind and recalled the economic situation the government has faced since coming into power.

Also Read: Full Speech by Hammad Azhar

Hammad Azhar said: "Pakistan s total debt has reach Rs31 trillion. We are deeply indebted thanks to high-interest loans. Foreign exchange reserves had dropped below $10 billion. The current account deficit had reached a historic peak of $20bn, while the trade deficit had reached $32bn. The fiscal deficit was more than Rs2.26tr."

He said: "US$7 billion reduction in Current Account Deficit will be achieved this year, which will be 6.5 billion dollars next year."

The minister said current account deficit will be reduced to 6.5pc in FY19-20 and exports will be boosted through a revised duty structure. "Power and gas will be cheapened and Free Trade Agreements will be re-evaluated," he said and added Pakistan will be made a part of the international value chain.

Azhad said we borrowed a total of $9.2 billion from China, Kingdom of Saudi Arabia, and the United Arab Emirates, adding that the government empowered State Bank of Pakistan (SBP). 

"A total of 11 per cent tax to GDP ratio currently, was the lowest in the region," he said and added there were only 50 percent of SECP registered companies paying tax. "We will have to change this culture."

The minister said that circular debt was reduced by Rs12 billion per month and it was brought down to 26 billion rupees from 38 billion rupees.

Given the current economic situation, Hammad Azhar said the government has acted with responsibility and taken steps for the economic stabilization, adding that we have increased import duty which helped us bring down imports from US$49 billion to US$45 billion.

He said remittances have witnessed an increase of US$2 billion, He said the IMF package will also help the country steer the economy towards stability.

Azhar went on to say that in Naya Pakistan, the culture of tax evasion will be overcome. Civil and Defense authorities have agreed to voluntary reduced in their budgets. The minister of state said our aim during the financial year 2019-20 will be to increase the tax net.

Regretting the low tax to GDP ratio, he said the country cannot make progress without payment of taxes. He appreciated the gesture of both the civilian government and the military leadership for voluntarily deciding to cut their expenditures.

The Asset Declaration Scheme will bring the undeclared assets into mainstream and help increase revenue of the government.

In the health sector, the key initiatives to widen the coverage of health care spending and achieve health targets include increase in the number of paramedical staff, expansion of lady health workers programme, strengthening of primary healthcare with backup of skilled personnel including women, medical officers in basic health units, establishment of health emergency surveillance and response system, implementation of a national plan for vaccination and establishing a health information and disease surveillance system.

Micro health insurance schemes will be made part of existing social safety nets to extend health coverage to the vulnerable segments of the society.

The government s planned initiatives for employment and skill development during the next year will help alleviate unemployment in the country. The plan focuses to provide and promote technical and vocational training by extending geographical access through the public private partnership in market demand trades.

Budget features

Budget Outlay

The outlay of the budget for Fiscal Year 2019-20 is Rs7.02 trillion which is 30 percent higher than the previous budget with targeted tax revenues of Rs5.55 trillion which will be 12.6 percent of the Gross Domestic Production (GDP).

“A challenging target of Rs5,555 billion FBR revenue collection will be combined with aggressive expenditure controls to reduce primary deficit to 0.6% of GDP. Both the civil and military governments have announced unprecedented reduction in expenditures”, he said.

Cold Drinks, Sugar, Oil, Jewellery Rates Increased

In order to discourage the consumption of sugary drinks, federal excise duty has been proposed to be 14 percent from existing 11.25 percent. It has also been recommended that the Federal Excise Duty on cooking oil/ghee be increased to 17 percent.

Sugar prices are likely to go up as it has been recommended that the sales tax, which previously stood at 8.5 percent, now be increased to 17 percent.

Sales Tax on Chicken, Mutton and Fish

A total of 17 percent sales tax on marble industry has also been in the federal budget, while 17 percent sales tax has also been proposed for cooked chicken, mutton and beef and fish.

Minimum Wage

The PTI government has also increased minimum wage to Rs17500. The conveyance of disabled persons has been increased to Rs2000 from Rs1000 while special allowance of private secretaries attached with ministers and parliamentary secretaries has been enhanced to 25 percent.

The Minister of State announced ten per cent ad-hoc relief for the government employees from one to sixteen scales and all personnel of the defence forces.

Five percent increase has been announced for public sector employees of 17 to 20 grades, while no increase has been made in the salaries of the government employees of 21 and 22 grades.

He also announced increase of 10 percent for all the pensioners.  The minister of state said the Cabinet members have voluntarily agreed to 10 percent cut in their salaries.

Duty of Vehicles

The budget proposals introduce 2.5 percent FED on 1000 cc cars, 5 percent on up to 2000 cc and 7.5 percent on more than 2000 cc cars.

Through Finance Supplementary Second Amendment Act 2019 FED on cars 1700cc and above was introduced at 10 percent. Now it is proposed to enlarge the scope of FED and following slabs are being introduced as Cars from 0 to 1000cc at 2.5 percent, Cars from 1001cc to 2000cc at 5 percent and Cars from 2001cc and above at 7.5 percent.

Taxes for Salaried and Non-Salaried persons

Presently the tax rates for salaried persons are applicable to persons having 50 percent or more of their total income from salary. Now these tax rates for salaried persons are to be applicable to persons having 75 percent or more of their total income from salary.

Consequently for persons having salary income less than 75 percent of total income, the rates applicable to non-salaried individuals would apply. In the case of salaried individuals deriving income exceeding Rs.600,000, eleven taxable slabs with progressive tax rates ranging from 5 percent to 35 percent are being introduced.

Tax rates for both salaried and non-salaried persons were drastically reduced in the Finance Act, 2018. Previously, the threshold of taxable income was Rs.400,000. Through the Finance Act, 2018, the threshold was substantially increased three-fold to Rs.1, 200,000 which has resulted in huge shortfall of approximately Rs.80 billion in revenue collection.

The threshold of taxable income is generally a proportion of the per capita income of a country and such significant increase is unprecedented. It is therefore proposed that the threshold of taxable income may be revised and fixed at Rs.600,000 for salaried persons and Rs.400, 000 for non-salaried persons.

In the case of salaried individuals deriving income exceeding Rs.600, 000 it is proposed to introduce eleven taxable slabs with progressive tax rates ranging from 5% to 35%. For non-salaried persons deriving income exceeding Rs.400, 000 it is proposed to introduce eight taxable slabs of income with tax rates ranging from 5% to 35%.  

IMF Agreement

The state minister said a program of 6 billion dollars has been agreed with IMF. This will help us gain 2 to 3 billion dollars loan more at very economical rates. Oil payment deferred facility from Saudi Arabia will also help reduce pressure on the government.

He said the IMF package will also help the country steer the economy towards stability.

Defence Budget

The defense expenditure will be maintained at 1150 billion rupees. Azhar said we are firm for the defense and sovereignty of the country, and no compromise will be made on the defense capability of the country.

Civil and Defense authorities have agreed to voluntary reduce in their budgets.

Privatisation Program

The government has allocated Rs1800 billions for national development program, while the non-tax revenue target has been fixed at Rs894 billion. An amount of Rs5 billion, including foreign aid of 2.4 billion has been allocated for the governance sector in the next fiscal year. Capacity of public sector will be enhanced for improved public service delivery.

This year, Hammad Azhar said, two LNG-powered power plants and some small organizations will be privatized, which will help generate 2 billion dollars.

Development of Karachi, Balochistan

He said a sum of Rs45.5 billion will be spent on nine development projects in Karachi.  The minister of state for finance said an amount of 10.4 billion rupees for second phase of Quetta Development package will be earmarked as part of development of Balochistan.

He said the Prime Minister has already inaugurated the project of constructing 25000 housing units in Rawalpindi/Islamabad and 110000 units in Balochistan. Giving a breakdown of road infrastructure, he said Rs24 billion are being allocated for Havelia-Thakot, Rs13 billion for Burhan-Hakla motorway and Rs19 billion rupees for Sukkur-Multan section of Peshawar-Karachi motorway.

Education

Higher Education Commission (HEC) has been allocated an amount of over 28,646 million rupees for the ongoing and new schemes in the next fiscal year.  Allocation for the projects proposed by "Task Force on Technology Driven Knowledge Development" will be in addition to regular HEC budget.

The HEC budget will be used to transform the universities into world class institutions and encourage innovative ideas of researchers. Hammad Azhar said Rs93 billion are being allocated for education, nutrition, health and clean drinking water.

Water Resources and Non-Development Expenditures

Out of total water sector s development budget, amounting to 71.9 billion rupees, an amount of about 56.5 billion rupees has been proposed for system augmentation for the next fiscal year.  Hammad Azhar said the main focus of the development budget is water related projects including dams.

During the next fiscal year, the government plans new initiatives such as District Equalization Plan, interventions in the agriculture sector to ensure food security, prioritization of construction of mega dams for water conservancy, interventions in the field of knowledge economy and skilled development on the youth.

Subsidy

The Minister of State said the government is giving incentives and subsidies for the promotion of industrial sector in order to create employment opportunities for the youth.

On protection of vulnerable segments of society, Hammad said a subsidy of Rs216 billion will be earmarked for 75 percent consumers using less than 300 units of electricity.

The steps include 40 billion rupees each subsidies for energy and export sector. He said the government will maintain the long-term trade financing facility for the industrial sector.

He said during the period, remittances were increased by $2 billion, and electricity circular debt which had reached Rs.38 billion per month, was brought down by Rs.12 billion to Rs.26 billion per month.

The Minister of State said the government is commencing 280 billion rupees five year programme for the uplift of agriculture sector. On agriculture tube wells, 6.85 rupees per unit subsidy will be given to the farmers.

Sales Tax Restaurants and Bakery items

The minister for revenue has announced that the general sales tax on goods will remain unchanged and will stand at 17 percent for FY2019-20. Food items supplied to bakeries and restaurants will be taxed at 4.5 pc.

Economic Situation 

He said with respect to the worst economic situation, inherited by the incumbent government around 10 months ago, when total debt and liabilities had reached to over Rs 31,000 billion, foreign debt and liabilities were around US$97 billion, foreign exchange reserves with State Bank of Pakistan had fallen from $18 billion to less than $10 billion and Current Account Deficit touched the historical mark of $20 billion, it had to take measures to control the situation.

Presenting the measures taken by the government to stabilize economy, Hammad Azhar said imports duties were increased to cut trade deficit by $4 billion in 10 months. He said during the period, remittances were increased by $2 billion, and electricity circular debt which had reached Rs.38 billion per month, was brought down by Rs.12 billion to Rs.26 billion per month. Besides, he said the government also managed to mobilize $ 9.2 billion from China, UAE and Saudi Arabia to support balance of payment situation.

Import Duties, Circular Debt

He said that the government took a number of steps to correct the course of economy.

Import duties were increased and imports reduced from 49 billion dollars to 45 billion dollars. Remittances increased by 2 billion dollars.

Circular debt was reduced by 12 billion rupees per month and it was brought down to 26 billion rupees from 38 billion rupees. Financial aid from China, UAE and Saudi Arabia helped stabilize the economy. Incentives for export sector were increased for three more years.

Increase in FED on Cigarettes

Azhar said, "Federal Excise Duty (FED) on cigarettes is levied on fixed rate basis. The rates need to be increased each year to account for increase in prices. FED is proposed to be increased. Traditionally cigarettes are taxed in two slabs but during 2017 a third tier was introduced to attract low priced illicit market which did not yield desired results. The upper slab will be taxed from Rs 4500 per 1000 sticks to Rs 5200 per 1000 sticks. For lower slab the existing two slabs will be merged to Rs 1650 per 1000 sticks." 

Withdrawal of Restriction on Purchase of Property

He said: "Previous government has imposed a restriction on registration or transfers of property exceeding rupees five million in the name of a non-filer. It has been observed that the provision of placing restriction on purchase of property has not achieved the desired goal of increasing filers and rather such restriction has been legally challenged in courts of law on the point of jurisdiction. Therefore, restrictions placed on purchase of immovable property may be withdrawn."