An Interview with Mr. Tariq Hussain — FCMA, CA , FCIS, FPFA, MBA M. Phil (Eco) Corporate Laws, Business and Taxation Expert
- Widening tax base, funding human development, controlling imbalance, and atmosphere for conducive business a fiasco
Mr. Tariq Hussain gave his analytical perspective about the Federal Budget 2023-24 which is as follows:
The budgetary goals outlined in the budget documents are consequently unattainable since the federal budget paints an unrealistic picture of the state of the economy.
Finance Minister Mr. Ishaq Dar presented federal budget for the next fiscal year in the situation where one of three measures the International Monetary Fund (IMF) will gauge before releasing at least some of the $2.5 billion still pending under a lending programme expiring this month. The cash-strapped country, with reserves to barely meet a month’s worth of imports, is undertaking steps to secure a $1.1 billion loan, part of a $6.5 billion IMF bailout package, which has been delayed since November, with more than three months gone since the last staff-level mission to Pakistan.
In order to close the $6 billion gap, Pakistan needs to pass a fiscal year 2024 budget that is in line with programme goals and secure solid and reliable financing commitments, according to the IMF, who also noted that there was only enough time for one final IMF board review before the current bailout package expired. For the fiscal year 2023–24, Pakistan is aiming for GDP growth of 3.5%, expects inflation to be 21%, and will have a budget deficit of 6.54% of GDP, which is just under the current year’s revised forecast of 7%.
| Federal Budget 2023-24 Outlay In PKR Bn | |||
|---|---|---|---|
| Item | Inflows | Item | Outflows |
| Period | 2023-24 | Period | 2023-24 |
| Tax Revenue | 9,200 | Provincial Transfers | 5,276 |
| Non-Tax Revenue | 2,963 | Expenditure | |
| Total Revenue | 12,163 | Current | 17,928 |
| Public Account Receipts | 7 | Development | 1,609 |
| Total Resource | 12,170 | Total | 19,537 |
| Funding | |||
| Domestic Debt | 5,005 | ||
| Foreign Debt/Grants | 6,973 | ||
| Provincial Surplus | 650 | ||
| Privatization | 15 | ||
| Total Funding | 12,643 | ||
| Total Inflow | 24,813 | Total Outflow | 24,813 |
The revenue goal of Rs9,200 billion revenue not only seems challenging, but it could also have far-reaching adverse effects. “The goal for last year was Rs7,500 billion, but efforts to reach that goal are still failing. The economic growth rate was about 6% last year, but this year it has drastically decreased to only 0.29%. How therefore can there be a tax increase given the weak economic growth?
Where is expenditure is concerned a little rise of almost 5.5 percent over the revised allocation for the current fiscal year, the government’s allocation of Rs97.098 billion for Education Affairs and Services in the federal budget for the fiscal year 2023-24 has attracted attention and criticism. The majority of the funds, or Rs76.589 billion, have been allotted for Tertiary Education Affairs and Services, making up almost 79% of the whole budget for this area. Pre-primary and primary education-related expenditures would get Rs4.468 billion, an increase from the budget for the prior year. The Secondary Education Affairs and Services budget has been allocated Rs10.778 billion.
The government plans to spend Rs1,804 billion on defence over the next year, which is around 15.7 per cent higher than the revised allocation for the outgoing year Rs1,591 billion. A thorough examination of the budget details reveal that the Rs1,804 billion figure does not include Rs563 billion allocated for retired military personnel pensions and Rs280 billion for the initiative to develop the armed forces and other necessary expenses, and Rs58 billion for UN peacekeeping missions. Pakistan’s defence spending is currently 1.7% of its GDP, a decrease from the previous year. Due to the economy’s rebasing, the size of the country’s defence budget in 2022–2023 increased to almost 2% of GDP.
Finance Bill Measures 2023-24
CUSTOMS ACT 1969
| S.No. | Proposal | Comments |
| Review Of Regulatory Regime: | ||
|---|---|---|
| Reduction of regulatory duty on 151 PCT codes pertaining to second hand clothing, fish, tiles, sports goods. | This is an encouraging step and will facilitate the importers to help out needy persons without tax burden. | |
| Removal of regulatory duty on IT related equipment to encourage Information Technology sector, Synthetic Filament Yarn of Polyester not manufactured locally, parts for flat panels, monitors, projectors, Silicon Steel Sheets, exemption of RD on special steel round bars and rods of non-alloy steel exceeding diameter 50 mm | Industry friendly steps. | |
| Increase / levy of regulatory duty on import of articles of glass to protect the local industry. | Yes, local industry may be protected and promoted. | |
| To discourage the use of inefficient Tungsten Filament Incandescent Bulbs, 20% RD imposed on these bulbs and their parts. | This will help the energy efficient products to capture the market. | |
| Export Regulatory Duty on the export of Molasses increased from 10% to 15%. | This will be a burden on Molasses exporters and may affect the export sector. | |
| S.No. | Proposal | Comments |
| Relief Measures: | ||
|---|---|---|
| Exemption of Customs duties on specific papers and Art card and board for Printing of Holy Quran. | A very encouraging step for printing industry. | |
| Incentive for Pharma sector by including one more API and 03 drugs in the existing duty free regime. | This will help for price control of the medicines | |
| Incentive for manufacturing of Solar Panels and allied equipment by exempting customs duties on import of machinery, equipment and inputs for manufacturing of solar panels, inverters and batteries. | This is encouraging step for alternative energy sources. | |
| Incentive for exporters of Information Technology (IT) and IT enabled services by allowing duty free import of IT related equipment equivalent to 1% value of their export proceeds. | This is again much needed step for IT Export oriented sector. | |
| Reduction of Customs duties and additional Customs duties on import of intermediary/ industrial inputs falling under 10 PCT codes. | This will help to improve industrial sector growth. | |
| Exemption of Customs duties on raw materials of Diapers, Sanitary Napkins and Adhesive Tape. | A public supported step. | |
| Concession of Customs duty on raw materials / inputs for manufacturers of Capacitors. | This will help local industry | |
| Reduction of Customs duty from 10% to 5% on non-localized (CKD) of Heavy Commercial Vehicles (HCVs). | This is again a favourable step to help local industry which need HCVs. | |
| Exemption of ACD on import of raw materials of Hemodialyzers fluid / powder. | A good relief step | |
| Extension in exemption on machinery and equipment imported by erstwhile FATA areas till June, 2024. | A supportive step for FATA | |
| Continuation of concession on import of Flavouring powders for food preparation for manufacturers of snacks till June, 2024. | This may not be as favourable if considered from health perspective. | |
| Exemption of Customs duty on Organic Composite Solvent and Thinners for manufacturers of Butyl Acetate and Dibutyl Orthophthalates. | A good step for industrial support. | |
| Reduction of Customs duty on import of pet scrap for manufactures of polyester filament yarn. | A support for textile industry. | |
| Exemption of Customs duties on Raw Materials for manufacturing of Moulds and Dies. | A good step for industrial support. | |
| Exemption of Customs duties on raw materials/ inputs for Mining machinery. | A good step for industrial support. | |
| Exemption of Customs duties on raw materials/ inputs for Rice mill machinery. | A good step for industrial support. | |
| Exemption of Customs duties on raw materials/ inputs for Machine tools. | A good step for industrial support. | |
| Exemption of Customs duties on import of seeds for sowing to promote growth in agricultural sector. | A good step for agricultural support. | |
| Exemption of Customs duties on import of shrimps/prawns/juvenile for breeding in commercial fish farms and hatcheries. | A good step for farming and fishing support. | |
| Exemption of Customs duties on roasted peanuts for manufacturing of ready to use supplementary foods (RUSF) by World Food Program certified manufacturers. | A good step | |
| Increase of Customs duty on Carbides of Calcium from 3% to 11% to protect the local industry. | A good move for local industry promotion. | |
| S.No. | Proposal | Comments |
| Revenue Measures: | ||
|---|---|---|
| Withdrawal of capping of the fixed duties and taxes on the import of old and used vehicles of Asian Makes above 1300 CC | This may increase revenue but may discourage the industry to import used vehicles above 1300 cc. | |
SALES TAX ACT 1990
| S.No. | Proposal | Comments |
| Relief Measures: | ||
|---|---|---|
| Extension in exemption of sales tax to NMDs (FATA/PATA) for another one year ending 30.06.2024. | This is a good move for merged areas as they are still under development phase. | |
| Grant of exemption of sales tax on contraceptives and accessories. | A good relief | |
| Grant of exemption of sales tax on plant saplings, combine harvesters, dryer for agricultural products, no-till-direct seeder, planters, trans-planters, other planters AND bovine semen. | Agriculture sector will be benefited from this relief. | |
| Grant of exemption of sales tax on import of IT equipment by exporters of IT and ITeS registered with Pakistan Software Export Board. | This is the area to give more and more relief to boost IT Exports. | |
| S.No. | Proposal | Comments |
| Revenue Measures: | ||
|---|---|---|
| Withdrawal of exemption of sales tax on edible products sold in bulk under brand names or trademarks. | This is a revenue measure but it may cause further inflation rate to increase. | |
| Enhancement in reduced rate of sales tax from 12% to 15% on supplies made by the POS retailers dealing in leather and textile products. | This is a revenue measure but it will reduce the purchasing power of the public with additional burden of taxes. | |
Income Tax Ordinance 2001
| S.No. | Proposal | Comments |
| Revenue Measures: | ||
|---|---|---|
| Rationalization of Super Tax under section 4C to apply on all persons across the board on income above Rs. 150 (m): insertion of additional three new income slabs of Rs. 350(m) to Rs. 400(m), Rs. 400(m) to Rs. 500(m) and Rs. 500(m) above to be taxed at 6%, 8% and 10% respectively. | This measure may improve the revenue but small businesses and newly established businesses may be burdened. There must be some relaxation for those business entities which need relief for their stability. | |
| Re-imposition of 0.6% advance adjustable withholding tax on non-ATL persons on cash withdrawal. | This is a streamlining measure but people may hold cash and avoid banking channels for their deposits. | |
| 1% increase in withholding tax rates on supply of goods other than sale of rice, cotton seed or edible oils, on rendering of services including service subject to concessionary tax rate of 3% but excluding electronic and print media advertising services and on execution of contracts excluding sports person. | Revenue may increase by this measure. | |
| 0.5% increase in withholding tax rate for commercial importer on import of goods falling in Part III of Twelfth Schedule to the Income Tax Ordinance, 2001. | Revenue may increase by this measure. | |
| Re-imposition of 10% final withholding tax on issuance of bonus shares by a company (20% for non-ATL). | This is a big move and may face resistance from the business sector. | |
| Increase in withholding tax rate from 1% to 5% on payment to non-resident through debit/credit or prepaid cards. (2% to 10% for Non-ATL person). | Revenue may increase by this measure. | |
| Imposition of an adjustable advance tax at Rs. 200,000 at the time of issuance of work permit/visa on employment of a foreign domestic helper. | Revenue may increase by this measure. | |
| Imposition of additional tax at the rate not exceeding fifty percent on income profit and gains of a person or class of persons on account of extraordinary gains due to exogenous factors. | Revenue may increase by this measure. | |
| S.No. | Proposal | Comments |
| Relief Measures: | ||
|---|---|---|
| Continuation of concessionary fixed tax rate of 0.25% for IT & ITeS exports for Tax years 2024, 2025 and 2026. | This is a good relief to boost export in IT sector. | |
| Withdrawal of Sales Tax return filing requirement for availing concessionary fixed tax rate of 0.25% for IT & ITeS exports. | This is also a good relief to boost export in IT sector. | |
| Increase in business turnover limit of a manufacturer from Rs. 250 (m) to Rs. 800(m) to qualify for concessionary tax regime for SMEs and inclusion of IT & ITeS in SMEs definition. | By this relief, more SMEs would take benefit of concessionary tax regime. | |
| Concessionary tax rate of 20% on banking company’s income from additional advances to IT & ITeS sector instead of standard rate of 39%. | This is a big support for banking companies and for the promotion of IT Sector. | |
| Enhancement of monetary limit of foreign remittance remitted from outside Pakistan from five million rupees to rupee equivalent of USD 100,000 for the purpose of section 111(4) which places bar on asking nature and source of unexplained income/assets. | This will attract dollars inflow in Pakistan but this will safe guard elite class to bring back their monies without explaining source of income. This will also discourage HAWALA/HUNDI. | |
| Waiver of 2% final withholding tax on purchase of immovable property for non- resident individual POC/NICOP holder where immovable property is acquired through foreign remittances remitted from abroad. | This will improve foreign investment in real estate. | |
| 10% reduction in tax liability or Rs. 5 (m) whichever is lower for a builder and 10% reduction or Rs. 1 (m) whichever is lower for an individual for own construction of house for three years. | A good relief for public and builders for new projects. | |
| 50% reduction in tax liability for three years for youth entrepreneurship (maximum limit of Rs 2 million for Individual / AOP and Rs 5 million for a company). Youth is defined as a natural person upto the age of 30 years. | Encouraging step for young entrepreneurs. | |
| Extension for two years for the purpose of concessionary tax rate of 20% for banking company’s income from additional advances to low cost housing, agriculture, and SMEs including IT & ITeS. | This is again a big support for banking companies and for the promotion of IT Sector. | |
| Encouraging export of commodities (Agriculture produce, gems, metals etc) through online platform by providing 1% concessionary final tax rate to indirect exporters. | Good measure for online business platforms. | |
| Reduction of minimum tax liability on turnover from 1.25% to 1.0% for companies listed on Pakistan Stock Exchange. | This will encourage companies for listing. | |
| Extension of exemption for one-year granted to a person to profits and gains on sale of immovable property or share of special purpose vehicle to any type of REIT scheme i.e. upto 30th June, 2024. | This is already in practice. | |
| Extension of Income Tax exemption for one year i.e. upto 30th June, 2024 for resident persons of FATA/PATA. | FATA/PATA residents needs such relaxations as they are still facing problems for their development. | |
| Five years tax holiday for agro based industries being SMEs set up on or after 1st July, 2023 from tax year 2024 to tax year 2028. | This is an encouraging step for SMEs in agro based industry. | |
FEDERAL EXCISE ACT 2005
| S.No. | Proposal | Comments |
| Revenue Measures: | ||
|---|---|---|
| Imposition of FED on energy inefficient fans @ Rs. 2000 per fan and incandescent bulbs @ 20% ad valorem is proposed. | This revenue measure is on energy inefficient fans and incandescent bulbs which will encourage buyers to go for substitute products i.e. energy efficient option. So, this measure may not help to improve revenue from these 2 categories. | |
| The scope of FED on services is proposed to be enhanced by adding royalty and fee for technical services. | This measure will further add burden on the consumers. | |
The proposed budget for 2023-24 falls short of addressing important concerns including widening the tax base, funding human development and education, controlling the growing fiscal imbalance, and fostering an atmosphere that is conducive to business. Until we increase exports and collect fair tax money from the real estate, agricultural, and retail sectors, Pakistan cannot develop. The budget has increased the tax burden on the formal sectors, which are already in compliance, which will impede manufacturing sector capital formation and growth-oriented efforts. It’s wonderful that there is a focus on agriculture, particularly on seeds and mechanization, as well as on marketing IT and exports that are made possible by IT.
A positive development is the minimum tax rate reduction for publicly listed companies. While the undocumented real estate and trade sectors have not been properly taxed, the scope and extent of the super tax have expanded. Long-term, this is unproductive because raising taxes on current taxpayers without also bringing tax-exempt industries under the tax net would not help the economy.