Budget 2020-21: Rs7.14tr tax-free budget presented in NA

Federal Minister of Industries and Production Hammad Azhar has presented the budget 2020-21 on Friday in the National Assembly.

Amidst the protest in the National Assembly, Azhar began his speech sharing details about the incumbent government’s plan for the year 2020-21.

Beginning his speech for the next fiscal year, the federal minister explained that the top two priorities of the government have been combating the “corruption” and ensuring “accountability” in the country.

“Our main aim was to revive the economy and stabilize and strengthen the Islamic Republic of Pakistan as we realise the vision and aspirations of our founding fathers,” he said.

Past 5 Years Revenue

While shedding the light on the revenue generated during the past 5 years, he said that there had been no growth in exports.

During the past 5 years, he said, “The reserves of the State Bank of Pakistan declined from $18bn to $10bn due to the failed policies of the past”.

Pakistan was put on the FATF grey list due to the absence of concrete policies to keep terror financing and money laundering in check, Azhar added.

Protest in the National Assembly

As he spoke in the parliament, the opposition MNAs started waving protest banners in the house and shouted slogans against the failed policies of government.

Azhar continued with saying “the government had been successful during the past nine months before the pandemic which has pulled the country’s economy going in the right direction.

The minister supported his statement saying that trade deficit after the pandemic has been reduced from $21bn to $15bn, which in result brought the budget deficit down to 3.8% by the incumbent government’s policies.

The remittances have been increased to $17bn as the incumbent government had increased employment opportunities for Pakistanis in abroad.

The federal minister proceeded with as a snapshot of the state of the economy when the PTI took the reins of power saying that during the time PTI took over, the national debt had doubled to Rs31 trillion and the country could not keep up with interest payments, he recalled.

The current account deficit (which shows how much money is going out of the country) had reached $20 billion, while the trade deficit (the difference between imports and exports) had reached $32 billion.

“The rupee was kept at an unrealistic and artificially high level, which led to a decline in exports and an increase in imports,” he said.

“The reserves of the State Bank of Pakistan had declined from $18bn to $10bn due to the failed policies of the past, due to which the country was on the brink of default,” he said, noting that the budget deficit had reached Rs2.3tr.

Salient Features of Budget 2020-21

• The total size of Budget 2020-21 is Rs 7,136 billion, 11% lower than the size of budget in 2019-20.
• The resource availability during 2020-21 has been estimated at Rs6,314.9 billion against Rs4,917.2 billion in the budget estimates of 2019-20.
• The net revenue receipts for 2020-21 have been estimated at Rs3,699.5 billion indicating an increase of 6.7% over the budget estimates of 2019-20
• The provincial share in federal taxes is estimated at Rs2,873.7 billion during 2020-21, which is 11.7% lower than the budget estimates for 2019-20.
• The net capital receipts for 2020-21 have been estimated at Rs1,463.2 billion against the budget estimates of Rs831.7 billion in 2019-20 reflecting an increase of 75.93%.
• The external receipts in 2020-21 are estimated at Rs2,222.9 billion. This shows an decrease of 26.7% over the budget estimates for 2019-20.
• The development expenditure outside PSDP has been estimated at Rs70.0 billion in the budget 2020-21.

Public Sector Development Programme for 2020-21

The Public Sector Development Programme (PSDP) volume for 2020-21 is Rs 1,324 billion in which Rs 676 billion has been given to provinces.

Federal PSDP has been assessed at Rs650 billion, out of which Rs418.7 billion are for Federal Ministries/Divisions, Rs 100.4 billion for Corporations, Rs3 billion for Earthquake Reconstruction and Rehabilitation Authority (ERRA), and Rs70 billion for COVID responsive and Other Natural Calamities Program.

Positive trends in first 9 months

Azhar said that the government was successful in implementing policies and achieving. The decline happened by the failed policies of past was also reversed during the first nine months of the outgoing fiscal year, before coronavirus proved to be a major setback for the country’s economy.

He said the current account deficit was slashed by 73% in that period, while trade deficit had been successfully reduced by 31% from $21bn to $15bn and the fiscal deficit was brought down to 3.8% from 5% due to the incumbent government’s policies.

For the first time in 10 years, the government ran a primary surplus of 0.4% of GDP, the minister said.

Azhar also claimed success in tax collection, saying the Federal Board of Revenue (FBR) had increased collection by 17% in the first nine months of the year and “was on track to achieve a big target of Rs4.8 trillion [tax collection].”

He said the government had also presented structural reforms among the state institutions. A dedicated government task force has presented its report in which eight defunct organisations have been highlighted and 33 will be merged with others.

Tackling with the COVID-19 pandemic

Highlighting the government’s efforts in combating coronavirus pandemic, the minister said that the Centre is taking all necessary steps to ensure people’s lives are saved and economic undertakings go on.

“The coronavirus pandemic caused our GDP to shrink by Rs3,300bn,” he said, adding that the non-tax revenue declined by Rs102bn, adding to the country’s poverty and unemployment woes.

The government provided Rs75bn for the health sector, Rs150bn was given for poor families and construction of Panah Gahs as well as Rs200bn for daily wage workers hit by the pandemic.

Budget for next year

The minister said that the PTI government had put the inflation target at 6.5% and said that the Foreign Direct Investment will be increased by 25%.

He said that Rs1,324bn had been placed aside for the development budget while the PSDP had been provided Rs650bn.

“The government had set aside Rs70bn to stop the spread of the coronavirus and allotted Rs80bn to slash the circular debt and for the establishment of Special Economic Zones (SEZ) while Rs70bn have been kept for water resources.

Azhar added that the Rs24bn has been allocated for the ML-1 project and Rs6bn for the Ministry of Climate Change.

Taxes

Azhar claimed that the tax to GDP ratio is reduced to 11% — which is far less as compared to the ratio in the past 20 years.

“Now, I would like to go into the second part of my speech that concerns taxes,” he said. “The tax to GDP ratio is 11%, which is less than what it has been in the past 20 years,” he added.

The PTI government  has not imposed any new taxes on people, he said adding that this is the big a achievement of the government.

“The authorities had brought 6,616 retail outlets into the tax net which increased the limited tax base,” he said.

Azhar reveled that POS sales tax had been slashed by 12% and the minimum tax for hotels had been set at 0.5% from April to September. He said that the government had considered a 27% increase in domestic taxes and efforts has been put to bring down the current account deficit. The government has scrapped the unnecessary imports.

In the current budget, rebate schemes had been revised after a decade to boost business activities and exempted raw materials from custom duty.

He said that the government, to make it easy for transactions to take place, has put in place the rule that a person does not need to show his/her NIC at a transaction not exceeding Rs100,000.

Azhar said the federal excise duty on energy drinks had been increased from 13% to 25%. The minister said that the government has proposed reducing sales tax on mobile phones that are manufactured in Pakistan.

He said that cancer diagnostic kits from custom duty and diet as well as supplementary food and ingredients have been freed from duties and taxes.