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Author: Mrs. Anjum Shahnawaz

  • Massive cut in subsidies to curtail current expenditures

    Massive cut in subsidies to curtail current expenditures

    ISLAMABAD: Pakistan has announced massive cut in subsidies and allocated an amount of Rs699 billion for the fiscal year 2022/2023 as compared with the amount of Rs1.515 trillion in the outgoing fiscal year.

    The drastic cut in subsidies has been aimed at curtailing current expenditures to reduce the fiscal deficit.

    READ MORE: Petroleum levy to generate Rs750 billion

    Pakistan on June 10, 2022 presented its federal budget 2022/2023 which estimated current expenditure at Rs8.69 trillion during the next fiscal year as compared with estimated Rs8.516 trillion in the outgoing fiscal year.

    An amount of Rs3.95 trillion has been allocated for mark-up payments for the fiscal year 2022/2023 as against Rs3.14 trillion in the outgoing fiscal year.

    READ MORE: FBR assigned tax collection target of Rs7 trillion in 2022/2023

    A whopping Rs3.44 trillion has been earmarked for mark-up payment on domestic debt during the next fiscal year as compared with Rs2.77 trillion in the current fiscal year. Meanwhile, an amount of Rs511 billion has been allocated for mark-up payment on foreign debt during next fiscal year.

    The government estimated an amount of Rs530 billion for payment of pension during the next fiscal year. This amount includes Rs395 billion for the pension of military persons and Rs135 billion for the pension of civil employees.

    READ MORE: Budget 2022/2023: Salient features of customs duty act

    The government allocated an amount of Rs1.52 trillion for defence affairs and services during fiscal year 2022/2023 as compared with the estimated amount of Rs1.48 trillion in the outgoing fiscal year. The actual allocation was Rs1.37 trillion for the fiscal year 2021/2022.

    An amount of Rs100 billion has been allocated for pay and pension during the next fiscal year.

    READ MORE: Budget 2022/2023: Salient features of sales tax

    The government earmarked an amount of Rs550 billion for running of civil government during fiscal year 2022/2023 as compared with Rs530 billion in the current fiscal year. The actual allocation for running of civil government was Rs479 billion in fiscal year 2021/2022.

  • Petroleum levy to generate Rs750 billion

    Petroleum levy to generate Rs750 billion

    ISLAMABAD: The government has estimated a collection of Rs750 billion as petroleum levy during next fiscal year 2022/2023.

    It is worth mentioning that the previous PTI government had not imposed a petroleum levy in order to provide petroleum products at cheaper rates.

    READ MORE: FBR assigned tax collection target of Rs7 trillion in 2022/2023

    However, the current coalition government led by PML-N in its budget 2022/2023 announced on June 10, 2023 estimated collection of Rs750 billion during the next fiscal year.

    The government has estimated a collection of Rs135 billion in the current fiscal year.

    READ MORE: Budget 2022/2023: Salient features of customs duty act

    The present government also estimated an amount of Rs40 billion through natural gas development surcharge during the next fiscal year as compared with existing estimates of Rs30 billion in the outgoing fiscal year.

    An amount of Rs70 billion has been estimated to be collected from royalty on natural gas during the next fiscal year as compared with existing estimates of Rs60 billion in the current fiscal year.

    READ MORE: Budget 2022/2023: Salient features of sales tax

    Under the head of gas infrastructure development cess (GIDC) the government is estimating a collection of Rs200 billion during the next fiscal year as compared with existing Rs25 billion in the current fiscal year.

    The government has also estimated a collection of Rs10 billion from windfall levy against crude oil as compared with estimated Rs12 billion in the outgoing fiscal year.

    READ MORE: Budget 2022/2023: Salient features of income tax

  • Budget 2022/2023: Salient features of customs duty act

    Budget 2022/2023: Salient features of customs duty act

    ISLAMABAD: Following are salient features of amendments made to Customs Act, 1969 through Finance Bill, 2022.

    GUIDING PRINCIPLES

    (a) Remove anomalies in cascading structure of tariff.

    (b) Promote and protect domestic industry by introducing targeted interventions.

    (c) Rationalizing tariffs on industrial raw materials / intermediate goods.

    READ MORE: Budget 2022/2023: Salient features of sales tax

    ADOPTION OF WCO HS – 2022 VERSION:

    The World Customs Organization (WCO) updates its Harmonized Commodity Description and Coding System (HS) after every five years to accommodate modern developments and changing trade patterns. The last HS version was updated in 2017. The current amendments to the HS nomenclature have entered into force since 1st January, 2022. Pakistan being a signatory to the HS Convention has obligation to adopt the HS 2022 version. Since, these amendments are required to be incorporated in the First Schedule to the Customs Act, 1969 (Pakistan Customs Tariff), therefore, Pakistan adopted the same by incorporating all of its latest amendments introduced in earlier nomenclature / HS codes in Pakistan Customs Tariff by the process of addition / deletion and creation of local PCT codes, accordingly. It will be effective from 1st of July, 2022.

    READ MORE: Budget 2022/2023: Salient features of income tax

    INDUSTRIAL RELIEF MEASURES:

    1. To incentivize packaging industry, CD and ACD on various tariff lines pertaining to aluminum, polymers of ethylene, BOPP etc. have been downward rationalized.

    2. Reduction in CD and ACD on 10 tariff lines pertaining to direct and reactive dyes.

    3. To incentivize agricultural sector and farmers, customs duty exemption extended further to Farm Mechanization and Logistics including agricultural machinery pertaining to irrigation, drainage, harvesting / post- harvest handling & processing, plant protection equipment as well as machinery, equipment and other capital goods for miscellaneous agro based set ups in Sr. 1, 2 and 3 of Part-I of Fifth Schedule.

    4. To incentivize Coating Industry, CD and ACD have been exempted on Aluminum paste and powder and CD and ACD have been reduced on glycerol crude and glycerol.

    5. To incentivize manufacturers of filters other than automotive, CD and ACD have been reduced on their raw materials i.e, Adhesive, Epoxide resins, Filter media/ paper, Non-woven fabric media and Steel plates / sheets of prime quality.

    6. To incentivize footwear industry, customs duties have been reduced on different categories of other woven fabrics and artificial flowers / foliage of other materials.

    READ MORE: Pakistan allocates Rs800 billion for FY23 PSDP

    7. To incentivize LED lights and bulbs manufacturers customs duties have been exempted on import of 05 more items i.e, Aluminum Electrolytic capacitor, SMT Electrical Transformer, aluminum alloy sheet, Tantalum capacitors (DIP/SMD) and Other inductors, small transformer, coil (DIP/SMD). Furthermore, the scope of exemption has also been extended for the manufacturers of Parts of LED light and Bulbs.

    8. Tariff structure on the different tariff lines related to MDF / HDF have been rationalized evenly.

    9. To encourage local manufacturers of brush ware, customs duties have been exempted on import of Poly-butylene terephthalate.

    10. CD & ACD on import of Stamping foils have been exempted for manufacturing of Optical Fiber Cable.

    11. Tariff structure on import of Synthetic filament yarn, monofilament, staple fibers of polypropylene has been rationalized to resolve the cascading issues.

    12. To encourage export oriented industry, CD and ACD have been exempted on import of Guts, bladders and stomachs of animals etc.

    13. Reduction in CD and ACD rates on import of Plywood, veneered panels & similar laminated wood, poly (methyl methacrylate), cyanoacrylate.

    14. Extension in scope of concession on import of organic composite solvents and thinners for the manufacturers of Dibutyl Orthophthalates.

    15. Rationalization of Tariff structure on import of IV Leaves extract powders and exemption of CD & ACD on its raw materials i.e, other plants and parts of plants from 3 per cent CD and 2 per cent ACD.

    16. Exemption of customs duties on import of membrane for filtering / purifying water from 16 per cent CD & 4 per cent ACD.

    17. Exemption of customs duties on 03 different raw materials for first aid bandages manufacturing industry from 5 per cent.

    18. Reduction of customs duties on import of flavouring powders for food preparation for snacks manufacturers.

    19. Exemption of CD & ACD on raw materials of aluminum conductor composite core manufacturers.

    20. Exemption of CD & ACD on import of raw materials of paper sizing industry and chlorinated paraffin wax industry.

    READ MORE: Federal government presents budget 2022-2023

    RELIEF FOR COMMON MAN:

    21. To keep the prices of medicines stable in the market and to encourage local manufacturing of pharmaceuticals, customs duties have been exempted on 26 more APIs and on one drug “Grafalon”.

    22. Irisvision is for low vision individuals of all ages and with this gadget low vision persons can read and write easily, therefore customs duties have been exempted on import of Irisvision Device with its complete components.

    REVIEW OF RD REGIME:

    23. 10 per cent CD rate on import of motor spirit has been replaced with 10 per cent RD.

    24. Continuation of 20 per cent RD on import of Disodium Carbonate to protect the local industry.

    25. To encourage the vendor industry, RD has been reduced on import of case hardening steel from 30 per cent to 20 per cent.

    26. Withdrawal of 15 per cent RD on import of Chrome yellow.

    27. 10 per cent RD has been levied on import of Other paper, paperboard, cellulose wadding and webs of cellulose fibres to protect the local industry.

    28. Withdrawal of RD exemption available on import of High Carbon Wire Rod.

    29. RD on import of optical fibre cables has been increased from 10 per cent to 20 per cent to encourage the local manufacturers.

    READ MORE: Tax exemptions cost Rs1.76 trillion in FY22

    LEGISLATIVE CHANGES:

    1. The definition of smuggling has been widened to include smuggling of essential commodities out of Pakistan through bordering and coastal areas to curb this menace.

    2. To facilitate trade and industry, changes have been incorporated to align the provisions of the Customs Act, 1969 with the Pakistan Single Window (PSW) Act, 2021, providing platform for integration of other government agencies.

    3. The timeline to finalize the provisional assessment has been reduced from existing nine months to four months to facilitate trade and avoid delay in realization of government revenue.

    4. Powers regarding extension in warehousing period have been delegated to Additional Collector of Customs to facilitate trade by expediting grant of requests for extension.

    READ MORE: Share of domestic electricity consumption declines

    5. Option to change consignee name in relation to frustrated cargo has been provided to address the issue of port congestion.

    6. Pecuniary jurisdiction of Additional Collector and Deputy Collector has been increased to rationalize the workload of adjudicating authorities and quick disposal of legal cases.

    7. To reduce the cost of doing business and rationalize fees charged by the terminal operators, enabling provision has been provided for determination of various charges by customs authorities.

    8. Provision has been incorporated to indemnify the officers of provincial governments for their actions taken in good faith to prevent the smuggling of essential commodities under the Customs Act, 1969.

  • Budget 2022/2023: Salient features of sales tax

    Budget 2022/2023: Salient features of sales tax

    ISLAMABAD: Following are the salient features of amendment made to Sales Tax Act, 1990 through Finance Bill, 2022.

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  • Budget 2022/2023: Salient features of income tax

    Budget 2022/2023: Salient features of income tax

    ISLAMABAD: Following are the salient features of amendment made to Income Tax Ordinance, 2001 through Finance Bill, 2022.

    REVENUE MEASURE:

    1. Increase in tax rate for banks for tax year 2023 onwards from effective 39 per cent to 45 per cent.

    2. Increase in tax rate of banking companies on adverse ADR ratio.

    READ MORE: Pakistan allocates Rs800 billion for FY23 PSDP

    3. Tax on higher earning persons for poverty alleviation for tax year 2022 and onwards.

    4. Tax on deemed income from unutilized property above Rs. 25 million including luxury farmhouses and exclusive of one self-occupied house.

    5. Increase in rate from 1 per cent to 2 per cent on sale and purchase of property for filers.

    6. Increase in rate from 100 percent to 250 percent in case of purchase of property by persons who are not active taxpayers.

    READ MORE: Federal government presents budget 2022-2023

    7. Increase in rate of 200 from 100 percent in case of purchase of motor vehicles by persons who are not active taxpayers.

    8. Level playing field for all classes of assets. Capital gain tax on disposal of securities and real estate synchronized along with incentives for vertical growth of cities.

    9. Increase in advance tax rate on private vehicles of 1600 cc and above.

    10. Increase in yearly advance tax rate on tax on passenger vehicles.

    11. Omission of deductible allowance for profit on debt and tax credit for investment in shares, health insurance and pension funds.

    READ MORE: Tax exemptions cost Rs1.76 trillion in FY22

    12. Restriction on carry forward of minimum tax in subsequent years.

    13. Omission of exemption on flying allowances and submarine allowance.

    14. Omission of reduced rate of taxation for investment in Government securities.

    15. Withdrawal of Income Tax (Amendment) Ordinance, 2022.

    READ MORE: Share of domestic electricity consumption declines

    RELIEF MEASURES:

    1. Fixed tax regime for retailers and specified service providers.

    2. Restriction on frequency of audits to once in four years.

    3. Adjustment of tax collected on all materials at import stage for industrial undertaking for own use.

    4. Relief on taxation for salaried and business individuals by increasing threshold for taxation.

    5. Admissibility of 100 per cent depreciation in first year.

    6. Reduction in tax rate from 10 per cent to 5 per cent on Bahbood certificates.

    READ MORE: Average inflation estimated up to 12% in FY22

    7. Withdrawal of withholding tax on educational expenses payments.

    8. Exemption from tax on income of certain non-profit entities.

    9. Reduced rate of 3 per cent on provision of services by REIT management company and NCCPL.

    10. Withdrawal of withholding tax on rent of machinery.

    11. Exemption from advance taxes to exempt entities.

    STREAMLINING MEASURES:

    1. Requirement for adoption of digital mode of payment for companies.

    2. Clarification regarding exempt income of partners if income of AOP is exempt.

    READ MORE: SBP jacks up policy rate by 6.75% to 13.75%

    3. Introduction of Synchronized Withholding Administration Payment System.

    4. Streamlining of audit procedures.

    5. Increase in time limitation for best judgment from 5 to 6 years.

    6. Enhancement of restriction for passing of order in from 120 to 180 days.

    7. Clarification regarding remittance through money transfer operations.

    DOCUMENTATION OF ECONOMY MEASURES:

    1. Inclusion of concept of beneficial owner.

    2. Alignment of Point of Sale regime with Sales Tax provisions and introduction of prize scheme.

    READ MORE: Tax to GDP ratio estimated at 10.8% in FY22: Economic Survey

    3. Increase in scope of tax on payments to non-residents and enhancement of rate from 5 per cent to 10 per cent on offshore digital services.

    4. Increase in scope of criteria for becoming tax resident individuals.

    5. Introduction of advance adjustable tax on credit/debit card payments.

    6. Sharing of information between NADRA and FBR for tax base broadening.

  • Government employees get 15% salary increase

    Government employees get 15% salary increase

    ISLAMABAD: The government on Friday announced a 15 per cent increase in employees of the federal government.

    Finance Minister Miftah Ismail while presenting budget 2022/2023 announced increase in salary of government employees by 15 per cent.

    READ MORE: Share of domestic electricity consumption declines

    The finance minister said that despite the fact that country is facing a severe fiscal crisis now we are aware of the hardships faced by government employees.

    Price hike has affected the household spending badly, especially that of salaried class but in spite of the severe fiscal difficulties and lack of resources. Salaries of government employees are being increased by 15 per cent in order to improve their purchasing power.

    READ MORE: Average inflation estimated up to 12% in FY22

    The basic threshold of taxable salary is proposed to be enhanced to 12 lac from the current 6 lac rupees for salaried individuals. This would pass tens of billions of rupees benefit to salaried people.

    This will generate a positive economic cycle whereby this money would get transferred to the businesses as the disposable income of salaried people increases therefore ultimately, the government will benefit through the thriving of the business, the creation of more jobs, and tax revenues in the future.

    READ MORE: Federal government presents budget 2022-2023

  • Federal government presents budget 2022-2023

    Federal government presents budget 2022-2023

    ISLAMABAD: The federal government on Friday announced the budget for fiscal year 2022-2023. The budget looks progressive and provide better relief with a total outlay of Rs9.502 trillion to stabilize the poor economy and reduce the sufferings of oppressed segments of society.

    The finance minister Miftah Ismail unveiled the budget and discussed of curtailing the imports and reducing the expenditures on luxury items.

    READ MORE: Share of domestic electricity consumption declines

    The finance minister said, “out of total Rs9.502 trillion budget, an amount of Rs2,950 billion had been allocated for debt servicing and Rs800 billion earmarked for the Public Sector Development Programme (PSDP 2022-23).”

    He said that the amount of Rs1,523 billion had been earmarked for defence expenditures, Rs550 billion for civil administration and Rs530 billion for pensions. Similarly, Rs699 billion had been proposed for providing targeted subsidies to the poor segments of society.

    READ MORE: Average inflation estimated up to 12% in FY22

    The budget specially focused on fiscal consolidation to curtail overall deficit, prioritizing practical austerity measures along with strategies to enhance tax-to-GDP (gross domestic product) ratio, reduce gross public debt, slice trade and current account deficits, and promote sustainable economic growth.

    Announcing the radical national development and pro-common man initiatives in the National Assembly, Miftah Ismail said that the budget was being presented at a critical juncture as the previous government had caused a huge damage to the economy during its three years and nine months tenure.

    READ MORE: SBP jacks up policy rate by 6.75% to 13.75%

    The finance minister said that the government had embarked on introducing drastic measures in the Federal Budget 2022-23 to uplift and put the economy on sustainable growth trajectory.

  • Tax exemptions cost Rs1.76 trillion in FY22

    Tax exemptions cost Rs1.76 trillion in FY22

    ISLAMABAD: The cost of tax exemptions has been estimated at Rs1.76 trillion during the fiscal year 2021/2022 as compared with Rs1.31 trillion in the preceding fiscal year, according to Economic Survey of Pakistan released on Thursday.

    The cost of exemptions and concessions under sales tax has increased to Rs1.014 trillion during fiscal year 2021/2022 as compared with Rs578 billion in the last fiscal year.

    READ MORE: Share of domestic electricity consumption declines

    The Federal Board of Revenue (FBR) granted duty exemptions and concessions to the tune of Rs343 billion in the outgoing fiscal year as compared with Rs288 billion in the preceding fiscal year.

    The cost of exemptions and concessions under the head of income tax, however, declined to Rs399.66 billion in the fiscal year 2021-2022 as compared with Rs448 billion in the last fiscal year.

    READ MORE: Average inflation estimated up to 12% in FY22

    The survey said that there are a variety of factors responsible for the low tax to GDP ratio including a narrow tax base particularly agriculture contributing minimally to the tax collection, tax evasion, poor documentation, the informal economy, exemptions/concessions, smuggling, weak audit & enforcement, a lack of automation, and lengthy litigation.

    READ MORE: SBP jacks up policy rate by 6.75% to 13.75%

    As a result of insufficient tax revenues, the country has faced numerous challenges over the years in providing much-needed fiscal space for priority areas such as infrastructure, education, health, and targeted social assistance.

    READ MORE: Tax to GDP ratio estimated at 10.8% in FY22: Economic Survey

  • Share of domestic electricity consumption declines

    Share of domestic electricity consumption declines

    ISLAMABAD: The share of electricity consumption by domestic and commercial consumers in the total consumption has declined during first nine months of the current fiscal year, according to Economic Survey of Pakistan 2021/2022.

    The share of electricity consumption by household users fell to 47 per cent during July – March 2021/2022 as against the share of 49.1 per cent in the same period of the last fiscal year.

    READ MORE: Average inflation estimated up to 12% in FY22

    Electricity consumption in the commercial sector has also witnessed a decline and stood at 7 percent in FY2022, down from 7.4 percent in FY2021.

    However, the share of Industry in electricity consumption has increased to 28 percent during July-April FY2022 from 26.3 percent during July-April FY2021.

    The use of electricity in agriculture sector has slightly increased to 9 percent from 8.9 percent. The share of electricity consumption in other sectors, including public lighting, general services and other government traction has decreased to 8 percent from 8.3 percent.

    READ MORE: SBP jacks up policy rate by 6.75% to 13.75%

    There is a slight shift in the percentage share of different sources in electricity generation. Thermal has still the largest share in electricity generation in the country, although its percentage contribution has declined from 62.5 percent during Jul-April FY2021 to 60.9 percent during Jul-April FY2022.

    READ MORE: Tax to GDP ratio estimated at 10.8% in FY22: Economic Survey

    Similarly, the percentage contribution of Hydel in electricity generation has also reduced from 27.8 percent in Jul-April FY2021 to 23.7 percent during Jul-April FY2022.

    The percentage share of Nuclear has increased from 7.2 percent during Jul-April FY2021 to 12.35 percent during Jul-April FY2022. The contribution of renewable in the electricity generation has increased from 2.4 percent during Jul-April FY2021 to 3.02 percent in the first ten months of FY2022.

    READ MORE: LSM posts 10.4% growth in July – March: Economic Survey

  • Average inflation estimated up to 12% in FY22

    Average inflation estimated up to 12% in FY22

    ISLAMABAD: The average inflation for the fiscal year 2021/2022 has been estimated up to 12 per cent as against the target of 8 per cent, according to Economic Survey of Pakistan released on Thursday.

    The survey said that the rising input costs on the back of high utility prices and the lagged impact of exchange rate depreciation likely to maintain upward pressure on inflation in the following month of outgoing fiscal year.

    There is significant uncertainty around the outlook for international commodity prices as well which had been exacerbated by the Russia- Ukraine conflict.

    The impact will be more visible in non-food prices, while the food prices are likely to remain stable due to effective monitoring of prices and smooth supply of essential items by the federal and provincial governments.

    READ MORE: SBP jacks up policy rate by 6.75% to 13.75%

    “As a result of these developments, average inflation forecasts have been revised upwards and will remain 11.5-12.0 percent in FY2022,” the survey said.

    For the outgoing fiscal year, the inflation target was set at 8.0 percent, but abnormal increase in global commodity prices especially crude oil and the edible oil has soared the domestic prices since Pakistan is net importer of these essential items.

    It is the 6th consecutive month when inflation rate has remained in double digit. Consumer Price Index (CPI) in April 2022 stood at 13.4 percent on a year-on-year (YoY) basis which was up from 12.7 percent in the previous month and 11.1 percent in April 2021. The pace of food inflation surged 15.6 percent in Urban and 17.7 percent in Rural during the month of April 2022. The CPI Inflation, recorded at 11.0 percent on average during July-April FY2022 as against 8.6 percent in same period last year.

    READ MORE: Tax to GDP ratio estimated at 10.8% in FY22: Economic Survey

    The pressures on headline inflation during the period can be attributed to adjustment in prices of electricity and gas, a significant increase in the non-perishable food prices, exchange rate depreciation along with rapid increase in global fuel and commodity prices.

    The drivers of global price hike highlight that demand for goods was already strong but supply side limitations due to global logistics (transportation congestion) constraints added stress to already swelling prices. It is also recorded that the Wholesale Price Index (WPI) continued its upward trajectory, indicating persistent cost push inflationary pressure in the economy.

    READ MORE: LSM posts 10.4% growth in July – March: Economic Survey

    The government made best efforts to ensure smooth supply of essential domestic goods through vigilant monitoring of prices both at provincial and federal level. A Ramazan package of Rs 8.2 billion was provided through Utility Store Corporation (USC) for providing essential items to general public at affordable prices. Government has already approved import of three million metric tonnes of wheat to ease the supply in the country.

    Further, continuous relief to the lower strata of the society from global inflationary pressure, the ECC granted approval to revise prices of wheat flour and sugar from Rs 950/20kg to Rs 800/20kg and Rs 85/kg to Rs 70/kg, respectively, and also directed that discount of Rs 190/kg on vegetable ghee will be continued. The government will continue to absorb the cost of subsidy for the benefit of the common man.

    READ MORE: Agriculture surpasses FY22 growth target: Economic Survey