Special report: An in-depth assessment of Budget 2018-19

Special report: An in-depth assessment of Budget 2018-19

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Democracy in Pakistan is historically linked to lower GDP growth rates, widening deficits and instability. And yet people of the country seem to prefer the democratic route. Politicians might have a vested interest but why are citizens invested in a democracy that fails to deliver?

The Budget 2018-19 provides some clues to the answer. Opinions can diverge on different aspects of the budget but no one can refute the fact that it is ‘people centric’. Whatever the agenda, no political party in this well connected world can hope for any future if it alienates itself from the public. Democratic governments therefore are forced to care for the masses.

Through Finance Bill (Amendment) 2018/2019, clause 53 of Second Schedule of Income Tax Ordinance, 2001 has been withdrawn.

The tax exemptions have been allowed on the following perquisites and allowances provided or granted by government to the ministers of the federal government, namely:-

(a) rent-free accommodation in so far as the value thereof exceeds ten per cent of the basic salary of the Ministers concerned;

(b) house-rent allowance paid by Government in lieu of rent-free accommodation in so far as it exceeds five hundred and fifty rupees per month;

(c) free conveyance; and

(d) sumptuary allowance.

Further the tax exemption has been allowed under clause 51 on perquisite represented by the right of the President of Pakistan, the Provincial Governors and the Chiefs of Staff, Pakistan Armed Forces to occupy free of rent as a place of residence any premises provided by the Government.

However, with the amendment to the Finance Bill (Amendment), 2018 it is proposed that this exemption allowed to provincial governors should be withdrawn.

Following is the table of new tax slabs to be applicable on persons deriving income other than salary income:

 

S No. Taxable Income Rate of Tax
01 Where the taxable income does not exceed Rs400,000 0 percent
02 Where the taxable income exceeds Rs400,000 but does not exceed Rs800,000 Rs1,000
03 Where the taxable income exceeds Rs800,000 but does not exceeds Rs1,200,000 Rs2,000
04 Where the taxable income exceeds Rs1,200,000 but does not exceed Rs2,400,000 5 percent of the amount exceeding Rs1,200,000
05 Where the taxable income exceeds Rs2,400,000 but does not exceeds Rs3,000,000 60,000+15 percent of the amount exceeding Rs2,400,000
06 Where the taxable income exceeds Rs3,000,000 but does not exceed Rs4,000,000 Rs150,000+20 percent of the amount exceeding Rs.3,000,000
07 Where the taxable income exceeds Rs4,000,000 but does not exceed Rs5,000,000 Rs350,000+25 percent of the amount exceeding Rs4,000,000
08 Where the taxable income exceeds Rs5,000,000 Rs600,000 + 29 percent of the amount exceeding Rs5,000,000

Provided that where the taxable income exceeds eight hundred thousand rupees the minimum tax payable shall be two thousand rupees.

The non-filers were restricted in the budget 2018/2019 to purchase immovable property above Rs5 million and purchase of any engine capacity motor vehicles from Tax Year 2019 and onwards.

Finance Minister Asad Umar on the floor of house presented amendment to Finance Act 2018 and said that complained had been received from overseas Pakistani regarding difficulties in investing in immovable properties and purchase of motor vehicles due to restriction.

The finance minister said that overseas Pakistanis were mainly non-filers and considering the hardship faced by them it was decided to lift the condition.

The previous government through budget 2018/2019 imposed this restriction to increase the number of return filers for documentation of economy.

The government had to retract the change in income tax exemption limit. In the recent economic package the limit was raised from Rs0.6 million to Rs1.2m. Dr Miftah, in his budget speech proposed a flat tax of Rs1,000 per annum on income in the band of Rs0.4m to Rs0.8m and Rs2,000 per annum for income brackets of Rs0.8m-Rs1.2m.

Besides the financial cost, if implemented, the earlier proposal would have halved the number of income tax payers that are already shamefully low at 1.4m to 0.7m in a population exceeding 200m.

In comparison to urban dwellers, the rural population was not offered direct benefits in the form of increase in support prices though some measures were announced to moderate the cost of farming by duty cuts on key inputs such as fertiliser and seeds. It is, therefore, difficult to project increment in their monthly income.

“The sense of freedom is valuable for argumentative Pakistanis but for the majority struggling for a decent life the baseline is economic. For people it is probably the quality more than the pace of growth that matters.

A classic example of voters’ behaviour from the region is the 2004 BJP election debacle in India following the party’s high growth glorification through the ‘India Shining’ campaign”, commented an expert.

Some economists dismiss the thrust of the current proposals as ‘expenditure centred’ and ‘populist’ citing weak fundamentals. Mounting twin deficits, piling debt, weakening currency and draw down on reserves pose a risk, they say, to the sustainability of the 13 year high real sector growth.

For citizens, who often find it hard to demystify economic jargon, the litmus test is their personal experience and the perceived impact of budgetary policies on the wellbeing of their families. As the proposed measures translate into a hike in the disposable income of urban families — through direct salary increase, subsidies, price control and cut in income tax — they will support it.


The rural population has not been offered direct benefits in the form of increase in support prices through some measures were announced to moderate the cost of farming by duty cuts on key inputs such as fertiliser and seeds. It is, therefore, difficult to project increment in their monthly income


“It is simple. People sentiments matter in a democratic order. Politicians are aware that through the ballot voters can turn tables. A political government, therefore, has no option but to pay attention to the population’s lot.

“A ruling party that aspires for favourable election results knows nothing is more convincing than tangible economic relief to win popular support. It, therefore, makes perfect sense for people to root for democracy,” a market watcher responded.

The management of the external front and the expanding resource gap will surely be a huge challenge for the next caretaker and the government that assumes power after the elections.

If implemented, the Abbasi government’s budget will be well received by ordinary people, most businessmen, traders, bankers and brokers. Realtors are understandably irked and people associated with the construction industry complain of not getting the attention their sector deserved.

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Rava Desk

Rava is an online news portal providing recent news, editorials, opinions and advice on day to day happenings in Pakistan.

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