By Gibran Naiyyar Peshimam, Asif Shahzad and Ariba Shahid
ISLAMABAD (Reuters) -Pakistan has set a challenging tax revenue target of 13 trillion rupees ($46.66 billion) for the year starting July 1, a near 40% jump from the current year, in its national budget on Wednesday that looked to strengthen the case for a new bailout deal with the International Monetary Fund (IMF).
The ambitious revenue targets for the fiscal year through June 2025, presented by Finance Minister Muhammad Aurangzeb in parliament, were in line with analyst expectations. Total spending was 18.87 trillion rupees ($68 billion).
Key objectives for the upcoming fiscal year include bringing the public debt-to-GDP ratio to sustainable levels and prioritising improvements in Pakistan’s balance of payments position, the government’s budget document showed.
Pakistan has projected a sharp drop in its fiscal deficit for the new financial year to 5.9% of GDP, from an upwardly revised estimate of 7.4% for the current year.
Pakistan will look to widen the tax base to avoid burdening existing taxpayers to meet its targets, Aurangzeb said.
“The budget has a significant increase in tax burden this year,” said Vaqar Ahmed of the Sustainable Development Policy Institute think-tank, adding that because of the large informal segment of the economy, the burden will fall on the existing sectors.
‘INFLATIONARY IMPACT’
“The tax burden will have an inflationary impact as well,” Ahmed said.
On Monday, the central bank warned of possible inflationary effects from the budget, saying limited progress in structural reforms to broaden the tax base meant increased revenue must come from hiking taxes.
The bank, in a bid to boost growth, cut interest rates for the first time in four years on Monday, slashing them by 150 basis points, in the face of a sharp decline in inflation from a high of 38% last year to 11.8% in May.
GDP would expand 2.4% in the current year, missing the budgeted target of 3.5%, the government said, despite revenues rising 30% on the year, and the fiscal and current account deficits being under control.
The upcoming year’s growth target has been set at 3.6% and inflation projected at 12%, Aurangzeb said.
RAISING REVENUE
Pakistan had to find ways to increase its revenues to reduce its fiscal deficit as part of reforms being discussed with the IMF.
Pakistan is in talks with the lender for a loan of $6 billion to $8 billion, as it seeks to avert a default for an economy growing at the slowest pace in the region.
The rise in the tax target is made up of a 48% increase in direct taxes and 35% hike in indirect taxes over revised estimates of the current year. Non-tax revenue, including petroleum levies, is seen increasing by a whopping 64%.
Aurangzeb said sales tax would increase to 18% on textile and leather products as well as mobile phones. He also announced a hike in the tax on capital gains from real estate.
Analysts were watching the budget for proceeds from privatisation given the government’s stated policy of pushing hard to sell loss-making enterprises, starting with its national airline.
But privatisation proceeds were projected at a modest 30 billion rupees. Aurangzeb said that bids for the airline would come in August.
WEAK COALITION
Concerns remain about the government’s ability to pursue reform since it is vulnerable to the quirks of coalition politics in the face of rising public pressure against inflationary reform measures.
The government of Prime Minister Shehbaz Sharif had to convince its largest ally, the Pakistan Peoples Party (PPP), without whom it does not have a parliamentary majority, to attend the budget session, according to local broadcaster Geo News.
Bilawal Bhutto’s PPP said it was not happy with some of the measures taken in the budget, the report said.
Sharif’s government is also faced with the continued popularity of its main opponent, jailed former prime minister Imran Khan, whose party lawmakers protested vociferously as the budget was being presented.
Some of them carried banners calling for the release of Khan, who remains in jail on charges ranging from graft to marrying his wife illegally.
($1 = 278.3000 Pakistani rupees)
(Reporting by Gibran Peshimam and Ariba Shahid; Writing by Swati Bhat; Editing by Peter Graff, Bernadette Baum and Rod Nickel)
