Budget FY23 is an attempt to satisfy IMF on key matters relating to revenue collection, subsidy reductions and attainment of fiscal discipline.
Unlike last year’s expansionary budget, which resulted in the industry-led GDP growth of 5.97% in FY22 & huge increase in imports, this budget is more focused on economic stabilization.
A lot will depend on global commodity prices as they will determine the outlook on Pakistan macros and the ease with which government can achieve its budgetary targets in FY23.
Please note that tax collection (sales tax, duties, petroleum levy) from oil is roughly around 22% of the total tax collection. Though FY23 revenue collection target is set at Rs7trn (+17% from FY22), achieving this target will be challenging due to economic slowdown and lower collection from oil sales.
Currently, the government is not collecting any taxes from domestic consumers despite rising pump prices by 40% recently.
An effort has also been made to provide relief measures to the poor segment of the society and increase taxations on affluent people.
Taxation measures:
– Tax rate on banking companies has been increased from 39% to 42% & includes an additional 3% super tax. This could fetch around Rs15bn to Rs20bn of taxes.
– Tax on all persons including companies & AOPs where income exceeds Rs300mn are now subject to 2% of additional tax. This could result in additional taxes of Rs40-60bn.
– The capital gain on sale of immovable property has been increased to 15% if sold within one year. This rate will become zero over the period of six years. Withholding tax on filers and non filers on acquisition of property has been increased to 2% and 5% respectively.
– Immovable property valuing above Rs25mn will be subject to a deemed tax. The income for such deemed tax will be 5% of the fair value of such property. Tax at the rate of 1% will be levied on that income. It is to be seen whether such deemed income will be other than actual rent received on such property.
– Advance tax of 1% on foreign transaction through debit/credit card is imposed, 2% for non-filers.
Relief measures:
– Zero sales tax on import of solar panel and distribution, zero tax on Agriculture machinery and inputs including Tractors, Wheat, Rice, Seeds. We estimate zero rating on tractors can impact tax collection by Rs5-7bn.
– Threshold for taxable income for salaried class have been increased from Rs0.6mn to Rs1.2mn.
Courtesy – Topline Securities