Federal budget 2019-20

The federal budget for the next fiscal year is a mixed bag of heavy taxation, mostly indirect taxes hitting hard the common man, incentives to some industries and symbolic relief measures to the salaried class although it will be offset by lowering the taxable limit of their income. Almost all sector of the economy has been heavily taxed but the budget deficit will not come down and will remain at 7.2 percent. The existing compliant taxpayers will be burdened more. Carrot and stick measure has been proposed for the non-filers by allowing them to purchase properties worth more than Rs. 5 million with a view to lure them toward documentation but at the same time they may face a hanging sword of punitive legal action if they choose to remain non-filers.

More reliance on regressive indirect taxation will accelerate the current inflationary wave but for its containment the failed recipe of raising the interest rate alone will continue. Hefty agriculture income will remain exempted from direct taxes and hevy legal fee charging lawyers and specialist doctors, and other high income non-competing groups have been left out of the tax net. The revenue generation with additional taxation of Rs. 1.405 trillion will not overcome the resource gap and the estimated budgetary deficit of Rs.3.15 trillion will certainly be filled with deficit financing by borrowing from banks and printing of more currency. The regressive taxation measures and unavoidable deficit financing will push up the inflation rate above the existing level of 9.1 percent.

The income tax rate has been raised for the salaried class to 35 percent from 25 percent and the benchmark of their taxable income has been reduced from Rs. 1.2 million to 0.6 million which will wipe out the positive impact of peanut adhoc relief of 10 percent for the government employees from BS 1 to 16 and pensioners. The 5 percent adhoc relief to employees of BS 17 to 20 is not rational one.

The withdrawal of zero-rating sales tax facility from five export industries including textiles, leather goods, surgical goods and sports goods will impact production activities in these industries which accounts for the bulk of the value-added exportible goods. Jacking up of Federal Excise Duty on edible items will pent up food inflation. The sharp increase in the prices of sugar, dry-skimmed milk, poultry, ghee, cooking oil, vegetables, beverages and mineral water will make the household budget, particularly kitchen expenses, topsy-turvy for the people of poor and class and middle income group.

Exemption from custom duty for machinery, parts and accessories used in the textile sector will help in its modernization and expansion in plants’ capacity to achieve economies of scale. Moreover, it remains to be seen that incentives offered for import of machinery for industries achieve the intended results, while keeping in view the high cost of doing business caused by sky-high electricity and gas tariffs and unfavourable tax regime. Custom duty exemption on 18 medicinal inputs to pharmacy sector is appreciable as it will help reduce the prices of medicines that are required for the treatment of certain diseases. Exemption from custom duty on more than 1650 raw materials and industrial inputs is a considerable relief to the industrial sector. But again it is an adhoc measures as the budget offers no incentives for setting up industries of imports substitution and raw material production which is dominant feature of the fiscal policies of other developing countries in the region.

The Prime Minister is a great proponent of human resource development by promoting knowledge economy by liberally investing in human resource development. But allocation for education has been reduced by 21 percent. An outlay of Rs. 77 billion has been proposed in the budget for the next fiscal year as compared with the expenditure of Rs. 97 billion in the outgoing fiscal year. The PTI government first budget will bring brick-bats more than bouquets.