BUDGET 2022 2023
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ghazi52
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In reconciling IMF-mandated policies with populist measures, the government has, however, set some difficult macro targets for itself. For example, the budget plans to grow the economy by 5pc and hold down annual average headline inflation to 11.5pc. How? Independent estimates project the growth rate to fall to 3pc to 4pc from this year’s nearly 6pc and inflation to shoot up to 20pc from 11.7pc on the back of projected reduction in energy subsidies and tax recoveries.
Likewise, its revenue collection and expenditure plan aiming to produce a primary balance surplus of 0.2pc of GDP from the present deficit of 0.7pc also appears unrealistic.
Mr Ismail’s reluctance to address questions regarding the surprising exclusion of expected IMF flows in budget estimates strengthens the impression that the global lender must have its reservations over the projected macro numbers in the budget.
Even if that is not the case, the failure to collect the projected revenues in the first few months for one reason or another may land Pakistan in trouble with the Fund once again, with the lender demanding more fiscal measures mid-year, or earlier, to cover the shortfall.
In reconciling IMF-mandated policies with populist measures, the government has, however, set some difficult macro targets for itself. For example, the budget plans to grow the economy by 5pc and hold down annual average headline inflation to 11.5pc. How? Independent estimates project the growth rate to fall to 3pc to 4pc from this year’s nearly 6pc and inflation to shoot up to 20pc from 11.7pc on the back of projected reduction in energy subsidies and tax recoveries.
Likewise, its revenue collection and expenditure plan aiming to produce a primary balance surplus of 0.2pc of GDP from the present deficit of 0.7pc also appears unrealistic.
Mr Ismail’s reluctance to address questions regarding the surprising exclusion of expected IMF flows in budget estimates strengthens the impression that the global lender must have its reservations over the projected macro numbers in the budget.
Even if that is not the case, the failure to collect the projected revenues in the first few months for one reason or another may land Pakistan in trouble with the Fund once again, with the lender demanding more fiscal measures mid-year, or earlier, to cover the shortfall.
ziaulislam
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Whats thr point of debate
We all know what PMLN do
Its not that they are first in govt
There typical polciy is massive revenue generatiom through adhoc measures, loans followed by massive spending and collapse of the economy
Prime examples here are taxation on exports (IT sector) withdrawing subsidy for textile industry exports, making electricity non affordable, adhoc tax via electric bill
All of these are non sensical ways of generating revenue for short term
Results will be obvious
Decrease in exports and further detroiation of the economy
We all know what PMLN do
Its not that they are first in govt
There typical polciy is massive revenue generatiom through adhoc measures, loans followed by massive spending and collapse of the economy
Prime examples here are taxation on exports (IT sector) withdrawing subsidy for textile industry exports, making electricity non affordable, adhoc tax via electric bill
All of these are non sensical ways of generating revenue for short term
Results will be obvious
Decrease in exports and further detroiation of the economy
VCheng
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Just be ready for PKR at 200, and petrol at 300 per liter, give or take, for a while.
"No roti? Let them eat parathas!"
(to paraphrase a famous historical quote, sadly)
ghazi52
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,.,.
June 13, 2022
Back in the old days, we used to have two days dedicated to a mainstream discussion of the economy, just around the release of the annual economic survey and the budget. Half of that was spent on the share of defence in overall expenditure and the meagre allocation to education and health.
While Pakistan’s macro uncertainty of the past few years has brought the conversation around the economy into the mainstream, nothing really beats the excitement and rush of these two days especially if one is involved in the media or financial services industry. Even if it’s the same cycle of lobbying, promises, lofty targets, shoddy data and wishful thinking.
For now, let’s just stick to what the two documents had in store for Pakistan’s technology industry which after a healthy 2021-22 was hoping to get more attention from the government.
And it kind of did, with an annexe on the IT sector in the latest Economic Survey. But the publication was nothing short of a disappointment, to me at least, as it hardly shared any new or important data point. Instead, it went on about the usual increase in IT exports or the number of broadband users — stuff that everyone who bothers to read the survey will know by heart.
The budget was mostly a non-event too, with most of the recommendations of the Pakistan Software Houses Association (P@SHA) ignored and in some cases, even going against them. For example, the IT body had proposed the reversal of the tax credit regime, which was introduced last year in place of income tax exemption, for IT and ITeS companies. Instead, the government has proposed that income from the export of computer software and IT/IT-enabled services be taxed at 0.25 per cent.
Given the export proceeds of $2 billion in this category in less than 10 months, and projected to hit $2.8bn by the government by the end of June, a 0.25pc tax would have implied revenues of $7 million or around Rs1.4bn. Also remember that in the last days of PTI, the administration had promised a host of new incentives for the IT industry, including a tax holiday and 100pc forex retention even though the final notification for the same never came.
One area where P@SHA apparently got its wish fulfilled was allocation towards skill development for which it proposed Rs10bn be set aside. The government responded in kind, promising Rs17bn instead that will be used for “imparting training in IT sector”. And of course, distribution of laptops, in addition to promoting exports. The specifics are still awaited.
On the digital payments side, the government has introduced an advance withholding tax of 1pc for filers and 2pc for non-filers from persons remitting money outside Pakistan through credit, debit, and prepaid cards. What that means is if you are paying online on an international platform or a store abroad, there will be an additional tax. How much impact will that have?
Let’s see. In 2021, Pakistan-based e-commerce merchants processed around Rs82.7bn while the customers spent around Rs177bn via cards using the same period. Assuming the entire difference is going towards international platforms, we are looking at Rs94.3bn or over 53pc of the total online expenditure via banking channels.
At the point of sale, most of the spending is local. Of the Rs591.5bn spent via cards in 2021, the throughput for domestic acquirers is Rs558.8bn — so Rs32.7bn went towards international merchants. Combined, we are looking at Rs127bn last year which, if taxed at an average of 1.5pc for simplicity’s sake, will yield the government just over Rs1.9bn. This is of course for last year and the numbers would certainly be higher by double digits in2022-23, but not enough to make a meaningful difference.
Other than that, the budget barely has any mention of the tech sector apart from the amount allocated to the ministry. For 2022-23, an outlay of Rs6.331bn has been set aside, which is almost 33pc lower than the originally budgeted figure of Rs9.361bn for 2021-22 but 43pc higher than the revised Rs4.399bn.
But don’t forget that in times of fiscal constraints (meaning all the time), the first casualty is the federal Public Sector Development Programme.
Published in Dawn, The Business and Finance Weekly, June 13th, 2022
Bland incentives for tech
Mutaher KhanJune 13, 2022
Back in the old days, we used to have two days dedicated to a mainstream discussion of the economy, just around the release of the annual economic survey and the budget. Half of that was spent on the share of defence in overall expenditure and the meagre allocation to education and health.
While Pakistan’s macro uncertainty of the past few years has brought the conversation around the economy into the mainstream, nothing really beats the excitement and rush of these two days especially if one is involved in the media or financial services industry. Even if it’s the same cycle of lobbying, promises, lofty targets, shoddy data and wishful thinking.
For now, let’s just stick to what the two documents had in store for Pakistan’s technology industry which after a healthy 2021-22 was hoping to get more attention from the government.
And it kind of did, with an annexe on the IT sector in the latest Economic Survey. But the publication was nothing short of a disappointment, to me at least, as it hardly shared any new or important data point. Instead, it went on about the usual increase in IT exports or the number of broadband users — stuff that everyone who bothers to read the survey will know by heart.
The budget was mostly a non-event too, with most of the recommendations of the Pakistan Software Houses Association (P@SHA) ignored and in some cases, even going against them. For example, the IT body had proposed the reversal of the tax credit regime, which was introduced last year in place of income tax exemption, for IT and ITeS companies. Instead, the government has proposed that income from the export of computer software and IT/IT-enabled services be taxed at 0.25 per cent.
Given the export proceeds of $2 billion in this category in less than 10 months, and projected to hit $2.8bn by the government by the end of June, a 0.25pc tax would have implied revenues of $7 million or around Rs1.4bn. Also remember that in the last days of PTI, the administration had promised a host of new incentives for the IT industry, including a tax holiday and 100pc forex retention even though the final notification for the same never came.
One area where P@SHA apparently got its wish fulfilled was allocation towards skill development for which it proposed Rs10bn be set aside. The government responded in kind, promising Rs17bn instead that will be used for “imparting training in IT sector”. And of course, distribution of laptops, in addition to promoting exports. The specifics are still awaited.
On the digital payments side, the government has introduced an advance withholding tax of 1pc for filers and 2pc for non-filers from persons remitting money outside Pakistan through credit, debit, and prepaid cards. What that means is if you are paying online on an international platform or a store abroad, there will be an additional tax. How much impact will that have?
Let’s see. In 2021, Pakistan-based e-commerce merchants processed around Rs82.7bn while the customers spent around Rs177bn via cards using the same period. Assuming the entire difference is going towards international platforms, we are looking at Rs94.3bn or over 53pc of the total online expenditure via banking channels.
At the point of sale, most of the spending is local. Of the Rs591.5bn spent via cards in 2021, the throughput for domestic acquirers is Rs558.8bn — so Rs32.7bn went towards international merchants. Combined, we are looking at Rs127bn last year which, if taxed at an average of 1.5pc for simplicity’s sake, will yield the government just over Rs1.9bn. This is of course for last year and the numbers would certainly be higher by double digits in2022-23, but not enough to make a meaningful difference.
Other than that, the budget barely has any mention of the tech sector apart from the amount allocated to the ministry. For 2022-23, an outlay of Rs6.331bn has been set aside, which is almost 33pc lower than the originally budgeted figure of Rs9.361bn for 2021-22 but 43pc higher than the revised Rs4.399bn.
But don’t forget that in times of fiscal constraints (meaning all the time), the first casualty is the federal Public Sector Development Programme.
Published in Dawn, The Business and Finance Weekly, June 13th, 2022
JamD
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Maybe something more visual will help. People with salaries up to 15 lakh per month got a reduction in tax. This isn't great. This cutoff should've been near 5 lakh maybe. Furthermore, the most reduction is seen by people with salaries of 8 lakh. Again this is very rich people. But I guess "elite" is relative to how much money you have lol.
Why are people here not rejoicing at the tax break?
Wood
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Have you accounted for the devaluation of Pakistani currency in your definition of 'elite' income? The currency has devaluated by a lot in the last 2 or 3 years. So, the salaries will appreciate and so should your definition for 'elite' salary.
VCheng
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An even more basic problem with the taxation structure is its reliance on retrogressive indirect taxes, since direct income taxes are only a small part of the government's income pie.
JamD
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Yes I have. I guess I am just poor lol. My first pay as a fresh engineer in 2014 was 18k. A good salary starting salary back then was 1 lakh. Today it is 2 lakh. A decent salary is 4 lakh. 8 lakh is what senior bankers might make.Have you accounted for the devaluation of Pakistani currency in your definition of 'elite' income? The currency has devaluated by a lot in the last 2 or 3 years. So, the salaries will appreciate and so should your definition for 'elite' salary.
Right of course. But I wasn't expecting a government in power for a year to tackle that issue - not that five year governments have either.
VCheng
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That, dare I say it, is a feature by design, and will not be tackled by any government for the foreseeable future, in any naya or purana or medieval or futuristic Pakistan.
Wood
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Your estimation about what is a good salary may be right. Seems like PKR has devalued by 100% since 2014 - https://www.exchangerates.org.uk/USD-PKR-spot-exchange-rates-history-2014.html
But I think you have assumed that this tax slab is for monthly income. Is it not for annual income? That would make more sense.
JamD
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No I took the numbers and divided them all by 12 to get monthly numbers because that's what we are used to in Pakistan.Your estimation about what is a good salary may be right. Seems like PKR has devalued by 100% since 2014 - https://www.exchangerates.org.uk/USD-PKR-spot-exchange-rates-history-2014.html
But I think you have assumed that this tax slab is for monthly income. Is it not for annual income? That would make more sense.
Wood
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You mean that 8L PKR per annum is what a senior bank manager makes in Pakistan? That does not sound right at all. It is likely to be a monthly figure.
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