Federal Budget for FY 2023-24 has been announced by the Government on the 9th of June 2023 (Friday). Due to the prevailing economic condition of the country and the delayed finalization of the IMF program, coupled with the political situation of the country, the budget was considered to be a difficult one. However, a mid-way has been chosen by the Government to avoid hindrances in the IMF program and also the upcoming elections.
Federal Budget, ‘Responsible’ or ‘Election’ budget.
In this post, we will get a brief overview of the budget speech of the finance minister. The finance minister has termed the budget a ‘Responsible Budget’ and not an ‘Election Budget’. The decisions taken seem to be pro-IMF program to stabilize the economic condition of the country which is declining at a rapid pace towards the default due to constantly falling FE reserves with the central bank and devaluation of the Pakistan Rupee.
Key Points of Budget Speech
Following are the key points of the budget as announced in the budget speech: –
- The import duties on the import of essential items will be kept unchanged.
- Trade facilitation and ease of doing business will be facilitated.
- Industrial and Agriculture sectors will be provided with support for growth.
- Support will be provided to Information Technology (IT), IT-enabled services sector, and Small and Medium Enterprises (SME) sectors.
A brief picture of Macro Aspects of the Federal Budget for FY 2023-24
- The total outlay of the Budget FY24 is set at PKR 14.5 trillion.
- Tax collection for the year has been targeted at PKR 9.2 trillion and non-tax revenue collection has been set at PKR 2.96 trillion.
- The targeted provincial revenue is PKR 5.3 trillion.
- The total development budget for the fiscal year has been set at PKR 1,150 trillion. Out of this, the allocation for PSDP is PKR 950 billion, and for Public Private Partnership programs the allocation is PKR 200 billion.
- The target for pension has been set at PKR 761 billion.
- The targeted subsidies for the year are PKR 1,074 billion.
- The targeted defense expenditure for the fiscal year is PKR 1,804 billion.
- Markup expense has been targeted at PKR 7.3 trillion.
- The growth rate for Gross Domestic Product (GDP) has been targeted at 3.5% concerning the previous fiscal year (YoY)
- Consumer Price Index (CPI) for the fiscal year 2023-24 is expected to be 21%.
- The fiscal deficit for the FY 2023-24 is targeted to be 6.5% of GDP. In the previous fiscal year, it was expected to be 7% of the GDP.
- The expectation for the primary deficit for the year is 0.4% of the GDP.
- The target for exports has been set at US$ 30 billion.
- The remittances have been targeted at US$ 33 billion.
- Allocation for Benazir Income Support Program (BISP) has been set at PKR 450 billion.
- PKR 86 billion has been allocated for dams.
Key Incentives for the Agriculture Sector in the Federal Budget for FY 2023-24
- The allocation for agricultural loans has been increased from PKR 1,800 billion to PKR 2,200 billion.
- The target for conversion of 50,000 tube wells to solar energy.
- All duties and taxes for imports related to quality seeds promotion be abolished.
Major Incentives for the Construction Sector in the Federal Budget for FY 2023-24
- Relief in taxation for the construction sector has been introduced in the budget 2023-24. A tax credit of 10% or PKR 0.5 million has been announced for construction projects started on or after the 1st of July 2023. The tax credit will be available for the next three years. The tax credit will also be allowed to individuals for the construction of personal houses.
- Tax benefits allowed to Real Estate Investment Trusts (REIT) have been further extended for the tax year 2024.
- Income Tax exemption allowed to the residents of Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) has been further extended for one year i.e. up to 30th of June 2024.
- Tax exemption allowed to persons on profits arising from the sale of immovable property or special purpose vehicles to any REIT scheme has been extended for one year up to the 30th of June 2024.
- To encourage the construction sector, a reduced rate of tax i.e. 20% on additional advances by banks has been introduced.
- A final tax of 2% on buying immovable property through foreign remittance to be abolished and incentives for people sending more than US$50,000 remittance from abroad.
- Regulatory Duty on import of glass is to be increased from 15% to 30%.
Incentives for the IT sector in the Federal Budget for FY 2023-24
- Conditions for filing sales tax returns by freelancers and exporters of IT and IT-enabled services (up to US$ 24000 per annum) to be relaxed.
- IT sector is declared as Small and Medium Enterprises (SMEs), to avail all benefits being availed by SMEs
- Reduced tax rate (0.25%) on exports of IT services and IT-enabled services for tax years 2024 to 2026.
- Extending the reduced rate of 0.25% on export proceeds of IT Services and IT-enabled services for the tax year
- 2024 up to tax year 2026
- Reduced rate of tax (20%) on additional advances for IT and ITeS for banks, to encourage more lending
- to the IT sector
- Exemption of all taxes for IT and IT-enabled service providers to import software and hardware equal
- to 1% of their exports
- Exemption of sales tax on import of IT equipment by exporters of IT and ITeS registered with Pakistan
- Software Export Board.
Other Points
- Introduction of a 10% tax on Bonus share issues for all companies. The tax for non-filers will be double i.e. 20% of the value of bonus shares.
- Increase in Minimum wages from Rs25,000 to Rs30,000 for Islamabad Capital Territory.
- From the tax year 2023 onwards, any unexpected income, profits, or gains generated in the preceding five tax years due to economic factors will be subject to an additional tax of up to 50%.
- An advance tax of 0.6% on cash withdrawal has been reintroduced for non-filers. The tax will be applicable for withdrawals of PKR 50,000 or more during one day from any bank account.
- The minimum tax on turnover for companies listed with Pakistan Stock Exchange is to be reduced from 1.25% to 1.0%.
- Concessions on import of Completely Built Units (CBUs) and parts of Hybrid Electric Vehicles
- Based on different income brackets, the Super Tax has been expanded to 10% for individuals earning Rs500 million or above.
- The advance tax deduction on remittances abroad through credit, debit, or prepaid cards has been raised from 1% to 5%. For non-filers, the tax deduction will be 10%.
- Exemption of duties on solar and other green energies is to be allowed.
- Special incentives for the agricultural sector have been introduced. These include reduced rates of loans for farmers.
- The duty-free import of plant, machinery, and equipment for the establishment of industries in the former FATA areas has been extended until June 30, 2024.
- Remittance Cards will be issued to persons remitting more than US$50,000.
- Agro-based industries being established in rural areas and meeting the revised SME threshold on or after July 1, 2023, will be eligible for a tax holiday of five years.
- Policy for the Bonded Bulk Storage of Petroleum, Oil, and Lubricant (POL) products for Refineries and Oil Marketing Companies (OMCs).
- The cap on duties and taxes for used Asian cars with an engine capacity of 1300cc and above will be eliminated.
- GST on Branded Textiles and leather goods to increase from 12% to 15% on Tier 1 Retailers (A retailer operating as a unit of a national or international chain of stores)
- Prime Minister’s Youth Business Scheme extended for one year
- A new digital account for micro-deposits will be introduced by the NSS, offering relatively higher interest rates.
- Commercial importers will face a tax increase of 0.5%
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Disclaimer
The post is for educational and information purposes and covers the highlights of the Budget Speech dated 9th June 2023. The post’s contents may not be used in any official or legal document.