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The Federal Budget 2019-20

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The Federal Budget 2019-20

Rarely if ever, except perhaps during the initial years after our independence in 1947, has Pakistan faced such dire economic straits as those that confront it today. Consequently, the template of the federal budget was cast by the IMF programme terms that the country recently agreed with the Fund at the staff-level and has duly complied with all the prior actions required under the programme such as depreciation of the rupee, raise in discount rate and increase in utilities charges which will continue to change as part of the pass through principle as well as POL prices.

The most significant aspect of the budget is the extremely ambitious target of FBR revenue collection of Rs 5.55 trillion. The broad principles of proposed taxation measures for achieving this highly unrealistic target are said to be embodied in the Medium Term Policy Framework envisioned by the PTI government. This framework pivots around bridging the gap in actual revenue collection and actual potential in the medium term according to government estimates. An attempt has also been made to reduce the government’s tax expenditure of Rs 540.98 billion that it incurred in FY 2018-19 as a consequence of multiple tax exemptions and concessions that were accorded to different sectors of the economy. The government rightly contends that while such concessions serve as an incentive to some but at the same time create distortions that undermine competition within the market and result in erosion or forfeiture of substantial government revenue. Another outcome of the gradual scaling down of such incentives would be the direly needed widening of the tax net. Besides phasing out tax concessions the government aims to seek uniformity in sales tax rates and review special procedures as multiple rates and different procedures make the system cumbersome and create distortions. One of the stated aims is to make efforts for an effective and harassment-free environment to ensure taxpayer compliance for which an IT-based interface instead of actual physical contact between the tax collector and the taxpayer through virtual platforms is an imperative. This would go a long way in reducing the trust deficit between the taxpayers and the FBR and minimise the cost of compliance. It is also a declared aim to move away from the regressive system of presumptive taxation that has distorted the relationship between income and asset creation beyond recognition. This would necessitate elimination of most of the withholding taxes that had become the mainstay of revenue collection (due to their ease of collection) and will also lead to improvement in Ease of Doing Business. All these and a main thrust towards documentation of the economy through use of data analytics are all in fact ‘signature Shabbar Zaidi initiatives’ that he had been advocating for decades before he assumed command of the FBR recently.

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