An untenable budget
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The federal government has laid out an ambitious budget of Rs17.573 trillion for FY26 while pinning its hopes on an exalted growth rate of 4.2%. This euphoric document has come a day after the Economic Survey posted a dismal picture of the economy — all targets were missed for the third consecutive year amid a growth rate of mere 2.7%.
The budget proposes a cut in overall spending and banks heavily on tightening tax measures while estimating inflation at 7.5%. The lion's share from the deficit-laden economy goes to debt-servicing, at Rs8.207 trillion. And as foreseen, the defence takes a major share from revenue collection with a 20% rise — at Rs2,550 billion or 1.97% of GDP.
The hope-line seems to be an estimated $71 billion in cash flows, $7 billion in taxes and $8 billion in royalties, apart from $5 billion from Reko Diq as well as privatisation of the national flag carrier, PIA, and Roosevelt Hotel in New York. The government is also expecting $25 billion from IT exports over the next five years.
Moreover, a surplus in the current account, rise in remittances to the tune of $32 billion and the stability of the rupee are other hallmarks that posits a yearning of the economy's turnaround amidst positive ratings from Moody's and Fitch.
The budget has set a tax collection target of Rs14,131 billion, an 8.95% increase from previous year, wherein expenditure of civil administration would be Rs0.97 trillion, pensions Rs1.06 billion, and power and other sectors Rs1.19 billion. The finance minister, while delivering the budget speech, pointed out that 390,000 high-value non-filers of tax were identified and Rs300 million recovered from them, and at the same time the revenue machinery has been able to post a 100% increase in the number of tax filers, taking the revenues to Rs105 billion.
A 10% raise in salaries from grade 1-20 employees, a 7% hike in pensions and Rs6,000 allowance for the disabled constitute the only voluble theme of the budget speech. The government also promised to reduce the income tax slabs by balancing inflation and take-home income.
An 18% tax on imported solar panels and imposition of taxes on online businesses and digital marketplaces are among the features making the budget anti-growth. However, no new tax on fertiliser and pesticides has been proposed. Similarly, the proposition to reduce the super tax to 5% on corporate sector earning from Rs200 million to Rs500 raises eyebrows given that all other sectors are reeling under pressure.
Last but not least, the restive province of Balochistan as well as the merged districts in Khyber-Pakhtunkhwa, which had a leeway with taxes in the past years, will now have to pay sales tax starting from 10% for five years — and that is not a sound economic initiative.
The most startling revelation is the confession from the finance wizard that the revenue machinery lacks the muscle to achieve the tax targets. This means reforms and not statistics or book-keeping should be the focus of the economy.
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