ISLAMABAD: Pakistan’s tax-heavy $67.76 billion budget for the new fiscal year takes effect from today, Monday, which Islamabad hopes will prove instrumental in securing another bailout package from the International Monetary Fund (IMF) to stave off a macroeconomic crisis.
President Asif Ali Zardari signed the Finance Bill 2024-25 into law on Sunday after the country’s parliament passed it last week amid an annual inflation projection of up to 13.5 percent for June. The bill comes ahead of more talks with the international lender for a loan of up to $8 billion to avert a debt default for Pakistan, the slowest-growing economy in South Asia.
The ambitious budget, with a challenging tax revenue target of Rs13 trillion ($46.66 billion) has drawn the ire of the government’s allies and opposition alike, who have demanded relief for the salaried class and the poor. The revenue collection target for FY25 is almost 40 percent higher from the last fiscal year, drawing criticism from the business community as well.
“I have already said we are moving in a positive way,” Finance Minister Muhammad Aurangzeb said on Sunday, speaking about the fresh IMF program during a media interaction in the federal capital. “During July we should get into a good agreement.”
Pakistan began discussions about a new loan with IMF officials soon after completing a $3 billion program that helped the country stave off a sovereign debt default last year. The international lender sent its delegation to Pakistan in May to hold negotiations with the new government which did not materialize into a staff-level agreement.
Pakistan has sought IMF loans in recent years due to a combination of economic challenges, including significant fiscal and current account deficits, declining foreign exchange reserves and rising public debt.
These economic vulnerabilities have been exacerbated by external shocks like fluctuating commodity prices and internal challenges such as political instability and policy inconsistency.
The government has maintained the country’s economy is on the mend but considers the new bailout important to ensure a substantial financial cushion.
TAX-LADEN BUDGET
Pakistan’s finance ministry said in a report on Friday that the budget is gearing the country toward “an era of sustainable and inclusive growth.” It projected an annual consumer price inflation for June 2024 between 12.5 percent to 13.5 percent, up from 11.8 percent in May.
The rise in the tax target is made up of a 48 percent increase in direct taxes and a 35 percent hike in indirect taxes over revised estimates of the current year. Non-tax revenue, including petroleum levies, is seen increasing by 64 percent.
The tax would increase to 18 percent on textile and leather products as well as mobile phones besides a hike in the tax on capital gains from real estate.
Workers will also get hit with more direct tax on income. Opposition parties, mainly parliamentarians backed by the jailed former Prime Minister Imran Khan, and top trade bodies have rejected the budget, saying it will be highly inflationary and lead to industry shutdowns.
Pakistan’s central bank has also 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 upcoming year’s growth target has been set at 3.6 percent with inflation projected at 12 percent.
