Budget 2020/2021 to focus on mitigating COVID-19 impact

Budget 2020/2021 to focus on mitigating COVID-19 impact

KARACHI: The government may focus supportive measures in the upcoming budget 2020/2021 in order to reduce the impact COVID-19, analysts said on Tuesday.

Analysts at Arif Habib Limited highlighted the blueprint of the FY21 Budget whereby the key objective of the government is the revival and stabilization of the economy after being pinned down from the ongoing COVID-19 pandemic, via relief and supportive measures for the masses as well as the business community whilst constraining fiscal imbalances and meeting IMF’s revenue collection target.

The government is scheduled to present budget 2020/2021 on June 12, 2020.

They summarized some key expected measures below.

  1. Counter Coronavirus and ensure social security

a. Allocation of PKR 1.0trn to fight the ongoing COVID-19 contagion with likely allocation to the following:

I. Daily wagers cash allocation,

II. Higher allocation to the Ehsaas program (for vulnerable families),

III. Subsidized electricity for lifeline consumers,

IV. Enhanced allocation to Utility Stores Corporation (USC),

V. Higher allocation for health and food supplies,

VI. Allocation to the National Disaster Management Authority (NDMA), and

VII. Lowering down taxes on basic essential goods.

b. SBP has already introduced several measures to contain the economic fallout post Corona pandemic such as:

1) 525bps cut in interest rate,

2) announcement of a relief package for households, industries and SMEs,

3) Refinancing scheme to support employment and avert layoffs,

4) Relaxation in credit requirement for exports and imports, and

5) Facilitation of new investments via subsidized interest rates for BMR activities.

c. Higher allocation of social expenditure under the federal PSDP.

  1. Revive economic growth, increase PSDP allocation along with incentives for industries

The government has set GDP target for FY21 at 2.3 percent (FY20 estimated at -0.38 percent primarily due to the coronavirus pandemic)

a. Allocation of PKR 630 billion under the Federal PSDP along with an additional PKR 200 billion under Public Private Partnership Authority (PPPA),

b. Reduction of custom and excise duty by 3 percent on imports of machinery for agriculture and power sector,

c. Removal of additional custom duty on different products to support local production and revive demand, and

d. Removal of import duty on plant and machinery. Cascading duty structure on import of raw materials, intermediate goods and finished goods.

Mobilize revenue measures to achieve the additional collection target for next year

Tall revenue target of the FBR at PKR 5.1 trillion with additional requirement amounting to Rs 575 billion (discussed ahead) could be generated by means of:

a. Amendment in income tax treatment of bad debts, which could generate Rs 100 billion in revenue from the banking sector,

b. Imposition of luxury tax on luxury houses, farmhouses, mansions and bungalows,

c. Imposition of import duty on 60 luxury imported items including cars, ceramics and others,

d. Higher petroleum development levy during FY21, and

e. Administrative and enforcement actions undertaken by FBR.

  1. Certain expenditures (ex-social spending) to remain uncompromised

The government has set expenditure target for FY21 at Rs 10.4trn

a. Defence expenditure likely to go up to Rs 1.4 trillion,

b. Government is expected to allocate Rs 2.7 trillion for debt servicing in FY21,

c. Federal PSDP allocation will be targeted at Rs 630 billion.

  1. Scope of documentation drive to be eased and relaxation expected to revive consumer spending

a. Increase limit of providing CNIC conditions from Rs 50,000 to Rs 100,000,

b. Withholding tax on remittances to be abolished,

c. Reduction of 3 percent in further sales tax on supplies to undocumented individuals, and

d. New sectors to be added to the tax net.