Islamabad: Pakistan’s National Assembly has approved a hefty Rs 18,877 billion federal budget for the next fiscal year, heavily reliant on taxes, before further talks with the International Monetary Fund (IMF) on a new loan program. The move comes as Pakistan, the slowest-growing economy in South Asia, struggles to avoid defaulting on its external debt payments.
The approval of the Finance Bill 25-2024 was followed by supplementary demands for grants in the House. The National Assembly approved 25 supplementary demands for grants worth over Rs 477 billion four crore 43 lakh for the current fiscal year.
The National Assembly had earlier approved 53 supplementary demands for grants worth over Rs 740 billion 72 crore for the fiscal year 23-2022, along with 26 additional supplementary demands for grants worth over Rs 141 billion 20 crore.
The opposition staged a walkout during the budget approval, while government members thumped their desks and congratulated Finance Minister Senator Mohammad Aurangzeb.
The government had presented the tax-laden budget in the National Assembly two weeks ago, drawing strong criticism from opposition parties, particularly the PTI, as well as from within the allied Pakistan Peoples Party (PPP).
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Finance Minister Mohammad Aurangzeb presented the Finance Bill in the National Assembly, which was endorsed by Prime Minister Shehbaz Sharif. Opposition parties, particularly parliamentarians backed by former Prime Minister Imran Khan, rejected the budget, calling it a recipe for hyperinflation.
On Tuesday, the PPP, which had initially boycotted the budget debate, also decided to vote in favor of the Finance Bill despite reservations.
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Members of another allied party, the Muttahida Qaumi Movement-Pakistan (MQM-P), besides the PPP, also expressed concerns over the government’s move to impose taxes on salaried and middle-class people, saying the budget would further fuel inflation in the country.
Earlier, Finance Minister Senator Mohammad Aurangzeb told the House that we should talk about the reality of how the current account deficit is, the currency is stable and will remain so, investors are returning, food inflation was at 2% last month. He said that the economy has stabilized, we are further improving it, we are moving towards growth. He said that the tax-to-GDP ratio in the country cannot remain at 9.5%, we cannot afford it, those who talk about relief, we have to take it to 13.5%, for this leakage, corruption and theft have to be stopped. FBR has to be reformed, it has to be digitized.
Proposal to Increase Petroleum Product Levies Considered,
The National Assembly has begun deliberations on a proposal to increase levies on petroleum products, presented by Finance Minister Mohammad Aurangzeb during a recent session. The minister highlighted concerns over non-filers and proposed measures to encourage tax compliance in the country.
Addressing the House, Aurangzeb emphasized the development budget’s focus on welfare initiatives for vulnerable segments, including discussions on minimum wages and utility store enhancements. He also outlined a long-term privatization plan spanning two to three years, alongside reforms aimed at improving tax-to-GDP ratios and revitalizing state institutions and the energy sector.
The proposal includes raising the levy to Rs 70 per liter on high octane and Rs 50 per liter on regular petrol, with an additional levy of Rs 30,000 per metric ton on LPG. However, following debates, the federal government withdrew an initial proposal to hike petrol and diesel levies by Rs 20, opting instead for a Rs 10 per liter increase as part of amendments to the Finance Bill.
Under the revised plan, the levy ceiling for petrol and high-speed diesel has been adjusted from Rs 60 to Rs 70 per liter. The proposal to increase the levy on light diesel from Rs 50 to Rs 75 per liter was scrapped, maintaining it at Rs 50 per liter. Similarly, the proposed increase on high octane from Rs 50 to Rs 75 per liter was withdrawn, settling at Rs 70 per liter, while the levy on kerosene remains unchanged at Rs 50 per liter. The discussions underscored ongoing efforts to balance fiscal measures with economic sustainability amid evolving domestic and global challenges.
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Approval given to Increase MPs ‘ Salaries and Allowances,
The National Assembly has passed amendments pertaining to the salaries and privileges of its members through a majority vote. The amendment, proposed by Abdul Qadir Patel of the Pakistan People’s Party (PPP), sought to enhance various allowances under the Members of Parliament Salaries and Fees Act, integrated into the Finance Bill deliberations.
Following approval, the amendment includes an increase in the traveling allowance for assembly members from Rs. 10 to Rs. 25 per kilometer. Additionally, it stipulates that any unused annual air tickets allotted to parliamentarians will rollover to the subsequent year instead of being forfeited.
While the amendment garnered majority support, it faced opposition from the parliamentary opposition, which voiced concerns regarding the escalation of members’ privileges amidst broader economic challenges. The approved amendments reflect ongoing legislative efforts to review and adjust parliamentary benefits within the framework of national fiscal policies.
Federal Excise Duty on International Air Tickets Increased Over 100%
The government has introduced significant amendments in the Finance Amendment Bill 2024, resulting in a more than 100% increase in federal excise duty (FED) on international air tickets.
Under the revised provisions, the FED on economy class international air tickets has been set at Rs. 12,500 per ticket. For business class, first class, and club class travelers to the Middle East and Africa, the FED is now Rs. 150,000 per ticket. Similarly, for business class to Europe, and first class and club class tickets, the FED stands at Rs. 210,000 per ticket.
The highest increase applies to travel to America, where the FED on business class, first class, and club class tickets has been raised to Rs. 350,000 per ticket. Travel to Australia and New Zealand in business class, first class, or club class now incurs a FED of Rs. 210,000 per ticket.
These amendments mark a substantial shift in the taxation structure related to international air travel, aimed at bolstering government revenue amidst fiscal challenges.
Taxes Increased Instead of Reduced in Finance Amendment Bill
In a notable shift from expectations, the Finance Amendment Bill 2024 has proposed increases in various taxes rather than reductions, affecting a range of goods and transactions across Pakistan.
One of the significant changes includes the abolition of sales tax exemptions on stationery items, with a new 10% sales tax proposed on sets of color pencils and pen ink. Additionally, rubbers, pencils, sharpeners will now incur a 20% sales tax, while pens, ball pens, and markers will be subject to a 10% sales tax.
Importantly, sales tax exemptions have been introduced on specific components related to solar panels, aiming to encourage local manufacturing. Parts such as backsheet film, connectors, corner blocks, polythene compounds, and plate sheets will also benefit from this exemption, as will parts of solar inverters and lithium batteries. In a first-time imposition, a federal excise duty (FED) of 3% has been introduced on the sale of real estate properties by builders and developers. FED rates vary based on tax compliance, with 5% for late filers and 7% for non-filers.
Moreover, under Section Seven E, a capital value tax of Rs. 5 lakh has been imposed on farmhouses and large houses in Islamabad upon sale. This tax increases to Rs. 10 lakh for properties exceeding 4,000 square yards. The amendments aim to bolster government revenue streams amidst economic challenges, although they have sparked debate and concerns over potential impacts on consumer prices and business operations across the country.
Tax Fraud Investigation Wing Established in FBR’s Inland Revenue,
In a significant move aimed at combating tax fraud and enhancing revenue collection, the National Assembly has approved the establishment of a dedicated tax fraud investigation wing within the Inland Revenue of the Federal Board of Revenue (FBR). Under the newly passed amendment, the tax fraud investigation wing will play a pivotal role in probing instances of tax evasion and fraud during the upcoming financial year. It will encompass several specialized units including the Fraud Intelligence and Analysis Unit, Fraud Investigation Unit, Legal Unit, Accountant Unit, Digital Forensic and Scene of Crime Unit, and Administrative Unit, as approved by the FBR Board.
Heading the Tax Fraud Investigation Unit will be a Chief Investigator, appointed by the FBR Board, who will lead efforts to uncover and prosecute cases of tax fraud across various sectors.
This initiative underscores the government’s commitment to bolstering tax compliance and curbing illicit financial activities, reflecting a proactive approach to safeguarding public revenues and ensuring fairness in the tax system.
Opposition Proposals Rejected in Finance Bill Approval,
The National Assembly witnessed a vigorous debate as the government’s amendments to the Finance Bill 2024 secured approval, while all opposition proposals were rejected by a majority vote.
Finance Minister Muhammad Aurangzeb initiated proceedings by urging immediate consideration of the Finance Bill 2024 to implement federal financial proposals and amend existing laws. This motion faced opposition from Alia Kamran of Jamiat Ulema Islam (F), who argued against potential price hikes in essentials like packed milk and medicines, and increased taxes affecting healthcare devices for heart ailments, travel restrictions for non-filers, and implications for research and education.
Ali Muhammad Khan, representing Sunni Unity Council, criticized the budget’s perceived inability to uplift common citizens and called for systemic changes to improve the economy by eliminating usury.
Ali Gohar Khan highlighted concerns over the budget’s efficacy in providing relief, pointing out issues with low growth rates and remittances, and underscoring untapped potential in state assets like PIA and DISCOs. He emphasized the need for structural reforms within FBR to expand the tax base.
Zartaj Gul voiced discontent over the budget’s perceived neglect of critical sectors like water resources and climate change, criticizing the lack of transparency regarding the three trillion rupees allocated to IPPs.
Opposition leader Umar Ayub condemned the budget, predicting adverse impacts on farmers due to wheat imports and projecting imminent rises in currency rates, electricity tariffs potentially reaching Rs. 100 per unit, and escalating gas prices.
In contrast, Umair Niazi advocated for sector-specific incentives to expand the tax net, particularly endorsing solar schemes for farmers to enhance agricultural productivity and promoting local production of edible oils.
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Former speaker Asad Qaiser facilitated the deliberations, advocating for KP’s equitable share in the NFC award and emphasizing the need for resolving KP’s net hydel profit arrears through a Council of Common Interests meeting.
Following extensive debate, the Speaker successfully moved a motion to consider the Finance Bill 2024, which was subsequently approved by the majority vote. Finance Minister Muhammad Aurangzeb proceeded to present and secure approval for various provisions of the Finance Bill, incorporating Senate recommendations and addressing member suggestions.
Government amendments were passed amid opposition from members including Umar Ayub Khan, Junaid Akbar Khan, Mubeen Arif, Ali Mohammad Khan, Aslam Ghman, Zartaj Gul, JUI member Noor Alam Khan, and others, whose proposed amendments were rejected.
Although PPP members Shahida Rahmani, Shaghfata Jamani, and Ijaz Jakhrani withdrew their amendments, Abdul Qadir Patel’s amendment related to salaries and allowances for parliamentarians was added to the bill without opposition from the finance minister.
The finance minister defended the government’s stance on sales tax amendments, emphasizing the critical need to maintain revenue streams, including a substantial Rs. 756 billion from sales tax.
In protest, all opposition members walked out of the House after the approval of the Finance Bill 2024, which was subsequently passed by the National Assembly to implement budget proposals for the upcoming financial year.
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