ISLAMABAD: On Friday afternoon, the parliament approved the government’s Finance Bill 2024-25 for the upcoming fiscal year. Experts claim this budget is crucial for the country’s negotiations with the International Monetary Fund (IMF) for a potential bailout to prevent a debt default.
Finance Minister Muhammad Aurangzeb introduced the bill, aiming to significantly boost tax revenues to tackle economic challenges. However, it faced changes due to widespread criticism of its heavy taxation policies.
Intense Debate and Support from PPP
The bill’s approval followed intense debate and criticism from opposition parties and business groups over increased government spending and limited economic growth. To pass the bill, Prime Minister Shehbaz Sharif’s ruling alliance secured support from its main coalition partner, the Pakistan Peoples Party (PPP), despite initial disagreements.
Positive Economic Indicators and Fiscal Goals
Finance Minister Aurangzeb highlighted positive economic indicators, including a decreased current account deficit, controlled fiscal deficit, and stabilized currency. He noted a significant drop in the inflation rate from 38% to 11% and emphasized increasing the tax-to-GDP ratio from 9.5% to 13% over the next three years. He also discussed measures to compel tax compliance, including higher tax rates for non-filers.
Budget Amendments and Key Measures
The approved budget includes several amendments from the original proposal:
- Tax on Hybrid Vehicles: Reduced tax rates for hybrid vehicles will continue until June 30, 2026. Vehicles with engine capacities up to 1800cc and between 1801-2500cc will be taxed at 8.5% and 12.75%, respectively.
- Increased FED on Cement: The Federal Excise Duty (FED) on cement has increased from Rs3 per kg to Rs4 per kg.
- Extension of Sales Tax Benefits to FATA PATA: Sales tax benefits for FATA PATA have been extended until June 30, 2025.
- Corporate Tax on Exporters: Exporters will now be subject to the standard corporate tax rate of 29% plus applicable super tax.
- Surcharge on Income Tax: Individuals or AOPs earning over Rs10 million per year will pay a 10% surcharge on their income tax.
Revenue and Expenditure Projections
Policymakers have set an ambitious tax revenue target of Rs13 trillion ($46.66 billion) for the fiscal year starting July 1, a 40% increase from the current year. This includes a 48% rise in direct taxes and a 35% hike in indirect taxes. Non-tax revenue, particularly petroleum levies, is expected to increase by 64%.
The budget projects a reduction in the fiscal deficit to 5.9% of GDP from 7.4% in the current year. The growth target for the upcoming year is set at 3.6%, with inflation projected at 12%.
Opposition’s Concerns and Economic Implications
Opposition parties, especially those aligned with jailed former Prime Minister Imran Khan, have rejected the budget, arguing it will worsen inflation. The central bank has also warned of potential inflationary effects, stressing the need for structural reforms to broaden the tax base.
Despite these challenges, the government views the budget as essential for securing a new IMF loan program worth $6 billion to $8 billion. Finance Minister Aurangzeb reiterated the importance of maintaining economic stability for further growth, despite the tough measures outlined in the budget.
A detailed budget report by Topline Research highlights the necessity of these measures to secure IMF support and address the country’s fiscal challenges.
