Interview with Mr. Zia Ul Mustafa Awan — President, House of Professionals Inc and chairman, Strategic Board ICMA Pakistan
Profile:
Mr Zia Ul Mustafa Awan is a Chartered Management Accountant from ICMA Pakistan with more than 25 years of experience in corporate and public sector in leading positions. He is the President of House of Professionals Inc. and the Chairman of the Strategic Board of ICMA Pakistan. Previously, he was CFO and Business Administrator of Pakistan Expo Centres Private Limited and was awarded for his work by Prime Minister of Pakistan at the inauguration of Expo Centre Lahore.
During his tenure as the President of ICMA, ICMA Pakistan twice received the FPCCI Excellence Award from President of Pakistan on the basis of its phenomenal growth.
He has held C-level positions at notable organisations such as Rustam Group of Industries, Descon Engineering Limited, Pakistan Expo Centres, and House of Professionals Inc. He has also made significant contributions as a Director at the Agriculture Development Bank of Pakistan, the Pakistan Institute of Corporate Governance, the Ignite National Technology Fund, and the Pakistan Institute of Public Finance Accountants.
He is a Chartered Management Accountant from ICMA Pakistan, a Certified Management Accountant from IMA USA, a Fellow Financial Accountant from IFA UK, a Fellow Public Accountant from IPA Australia, and a Chartered Management Professional from ICMP USA.
Pakistan & Gulf Economist sought perspective of Mr Zia Ul Mustafa Awan on Federal Budget 2024-25. He analysed Pakistan’s 2024-25 Budget: A Path to Economic Resilience and Growth. The excerpts are as follows:
Amid challenging political and economic conditions, the Pakistani government has unveiled its budget for the fiscal year 2024-25. This budget lays out ambitious plans to stimulate the economy through enhanced fiscal management, broadening tax bases, increasing non-tax revenues, accelerating privatisation, and reforming state-owned enterprises (SOEs). The budget projects a modest real GDP growth rate of 3.6 per cent, adopting a conservative rather than a bold approach. Below, we explore the strategic priorities and financial allocations outlined in this budget, reflecting on how the government aims to navigate through the challenges and steer the country towards sustainable economic growth.
The key highlights of the budget are as follows:
- Revenue targets: The government has set a challenging tax revenue target of Rs13 trillion, representing a nearly 40 per cent increase from the current year’s target. This significant increase is aimed at supporting ambitious public expenditures. Enhanced revenue collection strategies include the digitisation of tax collection processes, leveraging artificial intelligence, and a new compliance risk management system to bolster adherence to tax laws.
- Expenditures: The budget proposes an expenditure plan of Rs18.87 trillion, anticipating a 21 per cent increase in current spending. This includes significant allocations of Rs1400 billion towards the Public Sector Development Programme (PSDP) to spearhead infrastructure projects essential for long-term economic stability, focusing on critical sectors such as public development, education, energy, water, IT, and healthcare.
- External financing: The budget outlines significant reliance on external financing, with the government planning to acquire substantial funds of Rs5.906 trillion through foreign loans. This includes a detailed repayment plan, underlining the government’s strategy to manage external debt amidst ongoing economic challenges.
- Major tax changes for industry: Key adjustments have been made in the budget, including an elevation in the General Sales Tax (GST) on specific products and a reformation of the income tax brackets. The GST on textile and leather items has been elevated from 15 to 18 per cent. Furthermore, a sales withholding tax regime has been applied to industries such as coal and paper scrap.
- Sector specific changes: Withdrawal of tax exemptions for Ex-FATA/PATA regions, and the imposition of a 50 per cent increase in Federal Excise Duty on cement are notable. The government also removed tax exemptions on imported hybrid cars, likely affecting car prices.
- Salaried class: For the salaried class, a 15 to 20 per cent increase is proposed. A new bracket in the income tax structure has been introduced, which subjects the salaried class to a tax rate of up to 35 per cent. An increase in the minimum wage to Rs37,000 is proposed, up from Rs32,000, to help cope with inflation. Pensions for government retired employees are also expected to see a 10 per cent increase.
- Privatisation and SOE reforms: The budget emphasises accelerating the privatisation process and reforming SOEs to enhance their efficiency and governance. This is seen as crucial for reducing the fiscal burden on the state and attracting private investment, which is key to revitalising the economy.
Comments:
1. The budget’s reliance on indirect taxes, like a 36 per cent increase in sales tax and a 33 per cent rise in the Petroleum Development Levy, is criticised for their inflationary impact, which disproportionately affects lower-income households. The increase in withholding taxes, intended to improve tax compliance, is seen as ineffective and possibly encouraging the growth of an informal cash economy.
2. The budget faces criticism for not adequately addressing fundamental economic issues such as export enhancement and comprehensive tax reform. Criticism was voiced about the increase in taxation on industries such as cement, which may increase the overall cost of doing business and fuel inflation.
3. The budget lacks specific measures to incorporate agricultural income and real estate sectors into the tax net, which could limit potential revenue streams. Additionally, there’s a focus on improving sectors like tourism and digital infrastructure, which are expected to contribute to economic stability and growth.
4. Steps towards the digitalisation of the economy were welcomed, suggesting a positive move towards modernising economic frameworks. While there are steps towards encouraging sectors like solar energy manufacturing, the focus remains on managing immediate fiscal challenges, with long-term economic strategies appearing to need further development.
5. The budget also aims to maintain stability achieved over the last year through fiscal consolidation, though sustainable recovery depends on foreign funding from multilateral and bilateral sources. Although a new IMF deal may unlock these funds and improve Pakistan’s credit ratings, there is little indication of a substantial near-term increase in foreign flows, leaving significant challenges ahead for the economy.