Pakistan’s Federal Budget 2024-25: A Step Towards Economic Stabilization and Growth

The federal government of Pakistan, under the leadership of Finance Minister Muhammad Aurangzeb, has unveiled the federal budget for the fiscal year 2024-25, with an ambitious total outlay of Rs18.9 trillion. This budget addresses pressing economic challenges, aims to foster growth, and aligns with International Monetary Fund (IMF) requirements. Here, we summarize the key features and positive aspects of the budget, supported by data, figures, and insightful analysis.

Key Highlights and Achievements

Salary and Pension Increases

Government employees from Grade 1 to 16 will see a 25% increase in salaries, while those in Grades 17 to 22 will receive a 20% hike.

Retired employees will benefit from a 15% increase in pensions. This measure is expected to boost the morale and purchasing power of government employees and pensioners.

Tax Policy Changes

Abolishment of sales tax exemptions on various goods, standardizing tax rates, and eliminating import tax exemptions on luxury vehicles worth $50,000 or more.

Increased import duties on steel and paper products, while duties on glass products have been abolished.

Strict regulations on cigarettes with a Rs44,000 per kilogram tax on filter materials and severe penalties on counterfeit sales.

Increased Federal Excise Duty (FED) on cement from Rs2 per kg to Rs3 per kg and a new 5% FED on new residential and commercial properties.

GST on branded clothes and shoes increased to 18%, expected to generate significant additional revenue.

Income Tax Reforms

New tax slabs for salaried individuals: 5% for incomes between Rs600,000 and Rs1,200,000, 15% for Rs1,200,000 to Rs2,200,000, and 25% for Rs2,200,000 to Rs3,200,000.

A maximum tax rate of 45% for non-salaried persons, aiming to ensure a fair contribution from higher earners.

Petroleum Development Levy

The development levy on petrol has been increased from Rs60 to Rs80 per litre, and on light diesel oil from Rs50 to Rs75 per litre, maintaining the levy on kerosene at Rs50 per litre. These adjustments are essential for revenue generation.

Solar Panel Industry Incentives

Discounts on importing raw materials for solar panels, inverters, and batteries, promoting local production and renewable energy adoption.

Defense and Social Welfare Allocations

An allocation of Rs2.122 trillion for defense, reflecting a 14.99% increase from the previous year.

The Benazir Income Support Program (BISP) allocation increased by 27% to Rs593 billion, directly supporting low-income households.

Rs5 billion allocated under the Kissan Package for farmers, supporting agricultural development.

Rs253 billion allocated for energy sector development, including Rs65 billion for electricity installation projects, ensuring energy security.

CPEC Phase 2

Accelerated development in industrial and agricultural sectors under the China-Pakistan Economic Corridor (CPEC) Phase 2, focusing on completing key projects and enhancing cooperation with China.

Economic Context and Challenges

The budget aims to address the current economic situation marked by lower-than-targeted growth and high inflation. Economic growth is expected at 2.4% for the current year, below the target of 3.5%. However, inflation has been reduced to 11.8% in May 2024, with further reductions expected.

Revenue and Expenditure

The total outlay of Rs18.9 trillion includes a current expenditure of Rs17,203 billion.

Federal revenue is projected at Rs17,815 billion, with a net revenue of Rs10,377 billion after provincial transfers.

The fiscal deficit is projected at Rs9,800 billion, which the government aims to manage through various revenue-generating measures.

Structural Reforms and Future Directions

The budget includes significant reforms to simplify the tax structure and increase revenue from property transactions. Starting July 1, 2024, a flat tax rate of 15% will be applied to capital gains from assets and shares, including immovable property, for all filers, irrespective of the holding period. Non-filers will face standard slab rates from 15% to 45%. This uniform rate aims to standardize the tax burden and potentially increase revenue by Rs60 billion.

Criticism and Conclusion

While the budget introduces several positive measures to stimulate economic growth and meet IMF requirements, certain areas may benefit from further scrutiny and adjustment:

The increase in petroleum levies could have inflationary effects, impacting the cost of living for the average citizen. Mitigation measures or phased implementation could ease this burden.

The higher taxes on branded clothing and shoes might affect the retail sector, which could lead to reduced consumer spending. Balancing these taxes with incentives for local production could help.

The new flat tax rate on immovable property may deter long-term investment in real estate. Reevaluating this policy to balance revenue generation with investment incentives could be beneficial.

Overall, Pakistan’s budget for 2024-25 represents a significant effort to stabilize the economy, promote growth, and ensure social welfare. The government’s focus on structural reforms, revenue generation, and development projects lays a foundation for sustainable economic progress.

Leave a Reply

Your email address will not be published. Required fields are marked *