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Business Recorder
a day ago
- Business
- Business Recorder
Budget FY26: fiscal discipline without reform
Fiscal consolidation continues. FY26 is expected to be the third consecutive year of a primary fiscal surplus. This should help lower the public debt-to-GDP ratio and provide some cushion for future growth. However, economic strangulation is also likely to persist, as the government remains reliant on higher direct taxes without offering any relief to salaried individuals or the corporate sector. This is not going to be a revolutionary budget. It is simply a continuation of policies already agreed upon with the IMF. Pressure on tax revenues will remain. As interest rates decline, banks and depositors' incomes will fall — dragging down the corresponding tax collections. Income from the oil and gas sectors may decline due to reduced domestic production (to accommodate imported RLNG) and subdued global prices. Fertilizer sector margins are expected to stay suppressed. Consequently, direct tax collection at current rates may be lower in FY26 compared to key contributors the preceding year. Meanwhile, the IMF is pushing for implementation of the National Tariff Policy (NTP), but the government is hesitating. The FBR is concerned about lower collections from customs duties. The question, then, is how to plug the fiscal gap. The standard response is to go after retailers and wholesalers and talk of expanding the tax net. History suggests these efforts rarely yield results. There are gaps in the revenue framework. This is why the IMF has not agreed to reducing the effective tax burden on salaried individuals or to scrapping the super tax on corporates. The Federal Excise Duty (FED) on certain items is likely to be increased — or newly imposed, including on cigarettes and ultra-processed foods. But without better enforcement, these measures will only push more activity into the informal economy. Already, the formal footprint in sectors like dairy and fruit juice is shrinking due to recent indirect tax hikes. Poor governance and the prevalence of other taxes will dilute any benefit from reducing import tariffs. While economic theory supports lower tariffs to disincentivize smuggling, other taxes create perverse incentives. For example, the FBR collects withholding tax (WHT) and sales tax at the import stage, followed by GST and FEDs on final products. Ideally, these taxes should also be reduced — but that is wishful thinking. In fact, the FBR is proposing new, unconventional taxes — such as a 1.5 percent WHT on all imports. If the NTP is implemented, lower import prices may drive up import volumes, increasing pressure on the PKR. In response, the FBR may increase GST or FED on selected goods, such as automobiles. One area urgently needing reform is the customs department. Rampant under-invoicing not only erodes tax revenue but also undermines domestic manufacturing. Without fixing this, the effectiveness of the NTP will be limited. The FBR, however, appears desperate. There is already a shortfall of Rs 1 trillion in tax revenue during the first 11 months of FY25, and meeting the FY26 target will be even more difficult. As always, the burden will fall on the already-taxed formal sector. Non-tax revenues are expected to perform well. The SBP is likely to post another bumper year of profits, driven by over Rs 13 trillion in open market operation (OMO) injections. Last year, the SBP contributed Rs 2.5 trillion to non-tax revenues, and a similar figure is expected this year. The government is also relying on petroleum levy, which already stands at around Rs 80/liter and may be increased to Rs 100/liter. Additionally, a carbon levy of Rs 5–10/liter is under consideration. There is limited space for expenditure cuts, aside from some savings in interest payments on debt. The government has reportedly secured IMF approval for a significant increase in defence spending. However, negotiations are ongoing regarding the size of the development budget. Regardless of what is initially allocated, it is likely to be trimmed later if tax revenues from retailers and the real estate sector do not materialise. In conclusion, the upcoming FY26 budget reflects a cautious, IMF-driven approach—prioritizing fiscal consolidation over transformative change. While primary surpluses and robust non-tax revenues, bolstered by SBP profits and petroleum levies, offer some macroeconomic stability, the continued reliance on existing taxpayers and indirect taxes risks stifling growth and further entrenching informality. Without bold reforms—particularly in customs enforcement and tax administration—structural weaknesses will persist, limiting the effectiveness of flagship measures like the National Tariff Policy. Though lower commodity prices and fiscal discipline may support modest growth in FY27 and FY28, the absence of meaningful structural change leaves Pakistan's fiscal trajectory precariously balanced. Copyright Business Recorder, 2025
Business Recorder
a day ago
- Business
- Business Recorder
Surge in consumer confidence sign of economic recovery: Aurangzeb
Finance Minister Senator Muhammad Aurangzeb on Sunday welcomed the findings of the IPSOS Consumer Confidence Survey for Q2 2025, describing the results as a 'strong affirmation' of Pakistan's improving economic trajectory and growing public trust in the government's economic policies. According to the survey, 42 percent of respondents believe Pakistan is moving in the right direction, the highest level recorded in six years, while perceptions of economic strength have reached their most positive levels since August 2019. For the first time since IPSOS began tracking consumer sentiment, optimism has surpassed pessimism, marking what the minister called a 'key psychological shift' among the population. 'This encouraging data is a reflection of our disciplined and targeted macroeconomic strategy over the past 14 months,' Aurangzeb said in a statement. 'We have focused on stabilizing inflation, strengthening the exchange rate, rebuilding foreign reserves, and improving fiscal discipline.' FED on processed foods: nutritional reform or revenue racket? He said consumer confidence in making major purchases and investments has doubled compared to the same period last year, suggesting households are gaining financial security. Additionally, job security sentiment is now at its highest since 2019, he added, attributing the trend to the government's pro-growth reforms. The finance minister also pointed out that the upswing in sentiment is visible across both urban and rural regions, with marked improvements seen among women and youth, an indication of what he termed a 'broad-based economic turnaround.' Govt urged to craft a budget that reflects commitment to progress He credited the improved outlook to the government's efforts to foster private sector growth, enhance exports, expand social safety nets, and promote financial inclusion. Aurangzeb reiterated the government's commitment to sustaining macroeconomic stability and accelerating structural reforms. 'The IPSOS survey results are a timely validation of our economic direction and a clear signal that Pakistan is on the path to recovery and resilience,' he added.
Business Recorder
2 days ago
- Business
- Business Recorder
Minister opposes IMF demand of more taxes on agri sector
KARACHI: Sindh Minister for Agriculture Muhammad Baksh Mahar has expressed serious concerns over the International Monetary Fund's (IMF) demand to impose an 18% General Sales Tax (GST) and increase Federal Excise Duty (FED) on fertilisers, sprays, and agricultural machinery. Mahar said, 'The IMF's demand is extremely unfair and anti-farmer, which will prove disastrous for the country's agricultural sector and farmers. The IMF must refrain from proposing additional taxes on the agriculture sector.' He emphasised that farmers across the country, including Sindh, are already suffering due to climate change, water scarcity, and low crop prices. The provincial minister warned that the new taxes would lead to an enormous increase in agricultural production costs, ultimately jeopardising food security. He stated that this would trigger a new wave of inflation in the country. He strongly urged the federal government to persuade the IMF and make it aware of the importance of the agriculture sector. He made it clear, 'The IMF's demand is causing severe unrest among farmers, and we vehemently oppose any such proposal.' He said that providing facilities to agriculture is the need of the hour instead of imposing additional burdens on it. Copyright Business Recorder, 2025
Express Tribune
3 days ago
- Business
- Express Tribune
K-P seeks FED hike on gas, levy on oil
The Finance Ministry has raised concerns over the financial management of the oil and gas sector. PHOTO: PEXELS Listen to article The provincial government run by Pakistan Tehreek-e-Insaf (PTI) in Khyber-Pakhtunkhwa (K-P) has demanded that the federal government increase federal excise duty (FED) on gas as well as introduce a similar levy on oil in the upcoming budget for fiscal year 2025-26. Sources told The Express Tribune that special assistant to the K-P chief minister on energy and power took up the matter in a recent meeting with representatives of the federal government. He apprised them that the FED on gas had not been revised for a long time and the duty had not been imposed on oil despite repeated requests from the provincial government. Consequently, he said, Article 161 of the Constitution remains unimplemented. He requested the urgent attention of the federal government towards revising the FED on gas, based on the Consumer Price Index (CPI), and imposition of FED on oil in the upcoming budget. K-P has emerged as a major oil and gas producing province. Therefore, it wants more revenue on the hydrocarbon production. During the meeting, the federal and provincial governments decided that the director (oil) would carry out a consumer impact analysis in consultation with the K-P government and place the matter before the prime minister for a decision. In the meantime, the provincial government may also request the Finance Division and the Federal Board of Revenue (FBR) to include the FED on oil in the FY26 budget. Regarding the FED on gas, it was decided that the director (gas) would conduct a consumer impact analysis in consultation with the K-P government and place the matter before the prime minister for a decision. Meanwhile, the provincial government may also ask the Finance Division and the FBR to revise the FED on gas in the budget. Moratorium on gas connection The K-P government has also requested the federal government to relax the moratorium on new gas connections on an immediate basis in its oil and gas producing districts. These districts are arguing that it is their right to receive gas supply. However, there have been many cases in some K-P districts where residents are receiving direct gas supply without paying bills, causing increase in the circular debt. In order to expedite the execution of new gas development schemes in the oil and gas producing districts of K-P, it was decided that the director general (gas) would share cost estimates with the Energy & Power Department of the province. These schemes will be executed on a cost-sharing basis between Sui Northern Gas Pipelines Limited (SNGPL) and the K-P government through the provision of funds in the FY26 budget. The special assistant to the K-P CM also drew attention towards the forced curtailment of gas supply from various fields in the province, which has not only resulted in production losses and damage to reservoirs, but also caused substantial revenue loss to the provincial government in the form of royalties, windfall levy, etc. He requested the establishment of a mechanism to avoid the forced reduction of oil and gas production at local fields in the best interest of both the province and the federal government.
Business Recorder
4 days ago
- Business
- Business Recorder
FBR links cut in FED on juices with submission of post-dated cheques
ISLAMABAD: Federal Board of Revenue (FBR) Chairman Rashid Mahmood has linked reduction of federal excise duty (FED) on juices from 20 to 15 percent in budget (2025-26) with submission of post-dated cheques of the FED to be collected in the next fiscal year. During the meeting of National Assembly Standing Committee of Finance held here on Thursday, juice industry pleaded case for reduction in the FED on juices in the coming budget. The FBR chairman, Thursday, conveyed to the juice industry to deposit post-dated cheques of the FED in case FBR proposed reduction of FED on juices from 20 to 15 percent in budget (2025-26). 'High tax on packaged juices stifles growth, hurts economy' The industry was surprised to hear such a strange proposal from the tax authorities of submission of the post-dated cheques. The industry representatives stated that how post-dated cheques could be submitted of the FED to be collected on sales to be taken place during the next fiscal year. The FBR chairman responded that it is the claim of the industry that the reduction in FED would increase volumes and ultimately raise tax collection during next fiscal year. The industry should submit post-dated cheques to substantiate its claims. The FBR chairman added that 'we have to impose taxes in cases where we will give relief to the taxpayers to overcome the revenue shortfall. In case of relief to any sector/industry, there should be some alternate proposal to generate same amount of revenue.' Fruit Juices Council's representative Aatika Mir informed the committee that 20 per cent FED (on top of existing 18 per cent GST) imposed on the formal packaged juice industry since 2023, continues to stall the juice industry's growth. Decreasing sales' volumes of 45 per cent have also meant that in 2024-25, the government's revenue projections fell short of expectations. The Fruit Juice Council, a body representing the formal juice industry, is asking for a reduction in the FED imposed on the juice industry. In line with local regulations, fruit drinks have minimum five per cent fruit content, nectars have 25 per cent—50 per cent fruit content, and pure juices have 100 per cent fruit content. Fruit-based juices are a healthier option and are promoted as such by Food Authorities since they contain the goodness of fruits. Punjab and Sindh Food Authorities allow the sale of fruit-based juices in educational institutions while restricting sales of any other beverages. Industry crash after 20 per cent FED imposition (in addition to 18 per cent GST), she pleaded. Following a strong growth trajectory, the sales were projected to grow to more than Rs71billion in 2022-23. However, with the imposition of 20 per cent FED on juices (in addition to 18 per cent GST) since the Annual Budget 2023-24, industry sales have plunged by 45 per cent. Sales over the last year have fallen to around Rs42 billion. Aatika stated that the decline in sales has led to the industry being unable to utilise its installed production capacity, with no new investments in the last three years. This shrinking business size has also negatively impacted fruit farmers and pulp processors since the fruit procurement volumes have dropped to below 2017 procurement volumes; only 20,233 tons of mangoes were purchased last year vs 31,000 tons purchased in 2017-18. In addition, the imposition of 20 per cent FED (in addition to 18 per cent GST) is impacting affordability of the products produced by documented players. This means consumers are effectively paying around 42 per cent of the price as taxes on a pack of juice. This has resulted in a large proportion of consumers shifting to low-priced, low-quality and possibly unsafe alternatives offered by the undocumented sector, which is more than 25 per cent of the industry size. The formal packaged juice industry also shows great potential for increasing exports. Currently, packaged juices are exported to more than 30 countries across the world, with the potential to increase them. However, if the industry fails to get back on the growth trajectory, exports will also end up suffering. The Fruit Juice Council has requested the government to reduce the FED rate on the formal juice industry to 15 per cent. Copyright Business Recorder, 2025
