The Federation of Pakistan Chambers of Commerce and Industry (FPCCI), the apex body representing business chambers across Pakistan, has presented its analysis of the recently unveiled federal budget for the fiscal year 2024-25.
While acknowledging some positive steps, the FPCCI has highlighted several areas of concern, particularly regarding ambitious revenue targets, a heavy tax burden, and measures that could discourage investment and growth.
Highly Ambitious Tax Targets & Unsustainable Debt:
A major point of contention is the Federal Board of Revenue’s (FBR) target of PKR 12,970 billion for tax collection in the upcoming year. This represents a significant 38% increase compared to the previous year, a figure the FPCCI considers highly ambitious. The chamber argues that such an aggressive target, coupled with the massive PKR 9,775 billion earmarked for servicing interest payments (equivalent to 75% of the total tax target), highlights the government’s unsustainable debt burden. The FPCCI urges the government to explore ways to reduce its expenditures and devolve certain responsibilities to provincial authorities to create fiscal space for growth-oriented initiatives.
Exporters Feeling the Pinch:
The FPCCI expresses concern about the revised tax regime for exporters. Previously, exports enjoyed the benefit of a fixed 1% income tax withheld as full and final liability. The new budget proposes transitioning to the standard income tax system, a change that the FPCCI fears will create administrative hassles and discourage exports, particularly from small and medium enterprises (SMEs) and the IT sector.
Erosion of Incentives and Inflationary Pressures:
The FPCCI criticizes the budget’s proposal to withdraw numerous exemptions, zero-rating provisions, and reduced tax rates previously applied to specific goods and services. This, they argue, will increase the cost of doing business and contribute to inflationary pressures, ultimately hurting consumers.
Refund Delays and Regulatory Concerns:
While the budget speech acknowledged the issue of delays in processing sales tax refunds, the FPCCI laments the lack of concrete measures to address this persistent problem. Additionally, the chamber expresses apprehension over the introduction of “Section 25AB” in the Federal Budget. This provision increases the penalty for fraudulent activities from a bailable 10-year imprisonment to 10 years of non-bailable imprisonment. The FPCCI fears this could be misused to harass businesses and discourage investment. They also call for the withdrawal of the provision related to investigative audits.
Broadening Tax Net, But at What Cost?
The proposed expansion of withholding tax collection to cover all sectors of the economy is another point of contention. Currently, this tax applies to specific sectors within the supply chain. The FPCCI argues that this new measure, similar to the existing withholding tax in sales tax, will discourage formalization of the economy.
Impact on Housing and Real Estate:
The FPCCI criticizes the budget’s proposal to impose a 5% Federal Excise Duty (FED) on commercial properties and the first sale of residential properties. This, they argue, will significantly increase the cost of housing and hinder growth in the real estate sector.
Default Surcharge Rate Hike: A Burden on Taxpayers:
The proposed change in the default surcharge rate from a fixed 12% to a variable rate aligned with the State Bank of Pakistan’s policy rate (currently at 23.5%) is seen as an additional burden on taxpayers. The FPCCI urges the government to reconsider this proposal.
Positive Aspects: A Glimer of Hope
Despite the concerns outlined above, the FPCCI acknowledges some positive steps in the budget. The allocation of PKR 79 billion for the IT sector, including the development of Karachi IT Park and Technology Park Islamabad, is recognized as a measure with the potential to boost the IT industry. Furthermore, the establishment of an Alternate Dispute Resolution (ADR) system for tax disputes and the introduction of incentives for solar panel manufacturing are seen as positive developments.
The Road Ahead: Balancing Growth and Revenue Collection
The FPCCI’s analysis highlights the delicate balancing act the government must navigate between achieving ambitious revenue targets and fostering economic growth. The chamber urges the government to consider revising unrealistic tax targets, address the unsustainable debt burden, and prioritize measures that incentivize investment and stimulate business activity. By working collaboratively with the private sector, the government can achieve its fiscal goals while laying the foundation for a more robust and competitive Pakistani economy.
