The Finance Bill 2024 cruised through the National Assembly on Thursday, marking a significant step as Pakistan gears up for talks with the International Monetary Fund (IMF) for a fresh, larger bailout to rescue its sluggish economy from the brink of debt default.
Key highlights of the Finance Bill 2024
Here are the key highlights of the Finance Bill 2024:
- Ambitious Tax Revenue Target:
- The government has set a tax revenue target of Rs13 trillion for the fiscal year 2024-25, a 40% increase from the current year.
- Significant Tax Increases:
- Direct taxes are set to rise by 48%, while indirect taxes will increase by 35%.
- Non-tax revenue, including petroleum levies, is expected to grow by 64%.
- Sector-Specific Tax Hikes:
- Taxes on textiles, leather products, and mobile phones will increase to 18%.
- There will be a hike in the capital gains tax from real estate.
- Impact on Workers:
- Workers will face increased direct taxes on income.
- Fiscal Deficit and Growth Targets:
- The fiscal deficit is projected to drop to 5.9% of GDP from 7.4% in the current year.
- The growth target is set at 3.6%, with inflation projected at 12%.
- Increased Levies on Fuels:
- Levies on petrol and diesel will increase from Rs60 per litre to Rs70 per litre.
- Additional levies will be imposed on light diesel oil, kerosene oil, and high-octane fuel.
- Economic Stability Claims:
- The government claims reductions in the current account and fiscal deficits, stable currency exchange rates, and increased foreign exchange reserves.
- Inflation has reportedly dropped from 38% to 11%.
- Additional Taxes on Travel:
- From July 1, business and club class tickets to the United States and Canada will have an additional tax of Rs100,000.
- Tickets to Europe, New Zealand, and Australia will see a Rs60,000 tax, while travel to the Middle East and Africa will face increased taxes as well.
The Finance Bill 2024: A Closer Look
Presented by Finance Minister Muhammad Aurangzeb and endorsed by the ruling alliance, including the Pakistan Peoples Party (PPP), the Finance Bill 2024 was passed by the National Assembly after a majority vote. Despite sharp criticism and rejected amendments from opposition parties, the bill moved forward following a clause-by-clause reading and due process of voting. NA Speaker Sardar Ayaz Sadiq announced the bill's passage in a live TV telecast.
Tax Revenue Target
One of the most daunting aspects of the Finance Bill 2024 is the ambitious tax revenue target set at Rs13 trillion for the fiscal year starting July 1. This represents a staggering 40% increase from the current year. The budget proposes a 48% rise in direct taxes and a 35% hike in indirect taxes, alongside a 64% increase in non-tax revenue, including petroleum levies.
Economic Context and IMF Bailout
Pakistan’s economic situation is precarious, with the country negotiating with the IMF for a loan between $6 billion to $8 billion. The increased tax revenue target aims to bolster Pakistan’s case for a new rescue deal, vital for preventing an economic meltdown.
Major Tax Hikes
Significant tax increases are a cornerstone of the new budget. Taxes on textiles, leather, and mobile phones will rise to 18%, while the tax on capital gains from real estate is also set to increase. These measures are expected to generate substantial revenue but have drawn criticism for potentially stifling economic activity in these sectors.
Impact on Workers and Businesses
Workers are also in the crosshairs, facing increased direct taxes on income. This move has sparked fierce opposition, with critics arguing that it disproportionately burdens the working class while failing to address systemic economic issues.
Twin Deficits and Fiscal Measures
The government projects a sharp drop in the fiscal deficit to 5.9% of GDP, down from an upwardly revised estimate of 7.4% for the current year. Growth is targeted at 3.6% with inflation projected at 12%. These targets reflect the government’s efforts to stabilize the economy and foster growth despite the challenging economic environment.
Petroleum and Diesel Levies
The budget also includes significant increases in levies on petrol, diesel, and other fuels. The levy on petrol and diesel will rise from Rs60 per litre to Rs70 per litre, with additional levies on light diesel oil, kerosene oil, and high-octane fuel. These measures are expected to generate substantial revenue but will likely contribute to higher transportation costs and inflation.
Economic Stability Claims
Finance Minister Muhammad Aurangzeb defended the budget, claiming it would further stabilize the economy. He cited reductions in the current account and fiscal deficits, stable currency exchange rates, and increased foreign exchange reserves as indicators of economic stability. According to Aurangzeb, inflation has dropped from 38% to 11%, reflecting the success of the government's economic policies.
Opposition’s Criticism
Opposition parties have vehemently criticized the budget, branding it as "economic terrorism" against the people. Leader of the Opposition in the National Assembly Omar Ayub described the budget as "anti-industry and anti-people," predicting that it would lead to increased inflation and hinder economic growth. The opposition’s amendments were rejected, adding to their frustration.
Additional Taxes on Travel
Starting July 1, new taxes on international travel will be implemented. Business and club class tickets to the United States and Canada will incur an additional tax of Rs100,000, while tickets to Europe, New Zealand, and Australia will see a Rs60,000 tax. Travel to the Middle East and Africa will also face increased taxes, impacting business travelers and potentially reducing travel frequency.
Sector-Specific Taxes
The budget introduces new taxes on medical devices, milk, stationery, and computers, sparking concern about their impact on various sectors. These measures are expected to increase the cost of essential goods and services, further straining the budgets of ordinary Pakistanis.
Prime Minister’s Defense and Critique of KP Government
Prime Minister Shehbaz Sharif defended the budget and criticized the Khyber Pakhtunkhwa (KP) government for its failure to establish the Counter Terrorism Department (CTD) despite receiving significant funds. He highlighted the additional 1% share allocated to KP under the NFC Award to combat terrorism, questioning the province’s utilization of these resources.
Approval and Aftermath
The swift approval of the budget was praised by Prime Minister Shehbaz Sharif, who commended the efforts of Finance Minister Aurangzeb and his team for preparing a budget that prioritizes the welfare of the common man. The budget’s approval marks a critical step in the government’s plan to steer the country towards economic prosperity.
The Finance Bill 2024 represents a bold and controversial effort to stabilize Pakistan’s economy through significant tax hikes and fiscal measures. While the government claims these steps are necessary for economic stability and growth, the opposition warns of increased inflation and economic hardship. As the nation navigates these challenges, the impact of the budget on ordinary Pakistanis remains to be seen.
