Finance Minister Miftah Ismail has presented a “provisional” budget of Rs9.5 trillion in the National Assembly that may change in the light of any deal with the International Monetary Fund (IMF), as the government slaps taxes on salaried class people’s expenses on health and life insurance.
In a positive development, through the Finance Bill 2022, the government has also proposed to withdraw 50% income tax concessions available to ex-servicemen and the serving personnel of the Pakistan armed forces and officers of the federal and the provincial governments on the first sale of their plots.
The normal tax rates, too, have been reintroduced on the flying allowance of serving personnel of the armed forces and pilots of the commercial airlines, according to the Finance Bill that Ismail laid before the National Assembly on Friday.
The government will earn a minimum of Rs5 billion from the withdrawal of tax concessions on allowances of the salaried persons.
The details of the revenue gains after withdrawing reduced income tax rates being availed by the ex-servicemen and the armed forces personnel were not available, which might also run in billions of rupees due to the number of transactions taking place.
The government is facing criticism for not withdrawing the tax exemptions and concessions availed by the mighty of the society. But the amount appears paltry compared with Rs400 billion total income tax exemptions. The Rs26 billion exemptions got by only collective investment schemes and the Real Estate Investment Trusts (REITs) in fiscal year 2021-22.
However, the bigger surprise was Miftah Ismail’s decision to present a provisional budget in the National Assembly, which is rare. “The figures are provisional. Final figures will be provided during budget session”, reads the footnote of almost every main table of the Budget-in-Brief and Annual Budget Statement for 2022-23.
A senior Finance Ministry official explained that footnote had to be added, as the final budget figures were not available at the time of printing of these books. The official maintained that the total size of the budget may remain unchanged at Rs9.5 trillion, as it had been approved by the cabinet but the other numbers could undergo some changes.
The Budget-in-Brief book is printed on the eve of the budget. The sources said that till two days ago the under discussion size of the budget was Rs9.442 trillion, which was marginally increased by Rs60 billion at the time of presentation of budget. This indicates that the books were printed just hours before the speech by the finance minister.
The sources said that one of the reasons behind presenting the provisional budget figures was the disagreement between Pakistan and the IMF over the budget numbers and some of the tax proposals.
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Although the National Assembly has the constitutional mandate to approve, amend or reject the budget, it hardly brings any changes in the proposed authorised schedule of expenditures. Mostly, the changes after the presentation of the budget are made in the taxation proposals.
The budget documents further confirmed that the coalition government was still confused about the size of the Public Sector Development Programme (PSDP). The Planning Ministry has presented Rs800 billion worth of the PSDP while the Budget-in-Brief book puts the figure at Rs727 billion.
“Figures are provisional, which will be finalized after approval of federal cabinet,” according to another footnote at table 17. A consolidated summary of the revised estimates of the fiscal year 2021-22 budget is also missing.
Taxation Measures
The government has made certain changes in the income tax law to tax expenditures of the salaried persons and withdraw few exemptions. The government has proposed to charge capital gains tax at full rates on disposal of immovable property acquired or allotted to ex-servicemen and serving persons personal of armed forces or ex-employees or serving personnel of federal and provincial governments, being the original allottees of the immovable property.
At present, the ex-servicemen and serving personnel get 50 to 75% concession against the standard capital gains tax rates, which if approved by the parliament, would be withdrawn from July.
The government has also withdrawn the reduced rate on flying allowances received by flight engineers, navigators of Pakistan armed forces, Pakistani airlines or the Civil Aviation Authority, junior commissioned officers or other ranks of the armed forces; and submarine allowance by the officers of the Pakistan Navy. The present rate is 2.5% and these allowances will now be taxed as part of normal income.
Similarly, total allowances received by pilots of any Pakistani airlines are proposed to be taxed at normal rates as against the existing reduced rate of 7.5%. These two allowances were causing annual Rs330 million loss to the exchequer.
In another major decision, the government has also withdrawn the facility of charging only 15% income tax rate on the profits that a person earns by giving loans to the federal government. Now, this income will too be treated as normal income. The cost of this reduced tax rate has not been included in the Tax Expenditure report of this fiscal year.
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Burden on salaried class
Where the government has proposed to give Rs47 billion relief to the salaried class, it has passed on Rs4.5 billion burden on these people by charging tax on their essential expenditures.
The government has withdrawn the facility of no tax on the salary component that will be used to service home loan by a salaried person, aimed at earning additional Rs650.1 million in the next fiscal year.
Similarly, the tax credit to the salaried persons for investment in shares and life insurance has also been withdrawn to collect Rs2.68 billion in the next fiscal year. Similarly, the government has also withdrawn the tax credit available on the people for their payments for health insurance. This will have negligible revenue impact of Rs28 million, as per the tax expenditure report.
Tax credit for contribution to approved pension fund has also been withdrawn for the sake of Rs1.16 billion additional revenues.
The government has also withdrawn the income tax exemption on amounts received as monthly instalment from an income payment plan invested out of the accumulated balance of an individual pension accounts.
The tax allowance on export of computer software and information technology services has also been withdrawn, as the government has omitted clause 65F 1C from the law that was ensuring this facility.