The new budget was set to arrive this Friday but it already looks to have been postponed, per rumours swirling around regarding some ‘important legislation’ that apparently needs to be passed before the budget session. The nature of the legislation the government wants to push through is unclear, as is why legislation important for the next financial year is being pushed through at this late stage. However, that is not what matters most to those that the budget will impact the most: the people. They will be more worried about whether this budget will bring some relief from their ongoing economic woes or add on to the taxes and tariffs. The pre-budget economic signals are ominous. Inflation is back in the double-digits and surged to a 22-month high of 11.7 per cent in May, driven by rising transport and fuel costs due to the Middle East conflict. Amidst this price pressure, the FBR revenue shortfall has reportedly widened to Rs868 billion during the first 11 months of the current fiscal year 2025-26, though an aide to the finance minister insists revenue collection targets are being met.
Rather predictably, the IMF has asked Pakistan to increase the standard General Sales Tax (GST) rate by one percentage point, from 18 per cent to 19 per cent. This is not news that people feeling real pain every time they go to the pump need to hear. And indirect taxation, be it the GST or the petrol levy, cannot be a long-term method of dealing with persistent revenue shortfalls. However, if the tax base does not widen and growth and investment increase, what else is there to turn too? These must be the things that the upcoming budget focuses on. Thus far, there are indications that this is indeed what the government is working towards. The Annual Plan Coordination Committee (APCC) has recommended a national development outlay of Rs4.7 trillion for the next budget and recommended a macroeconomic framework, including envisaging a GDP growth rate of 4.0 per cent and CPI-based inflation of 8.2 percent for the next fiscal year. Development funds have been a major victim of the IMF strictures, with utilisation so far stands at Rs528 billion against an allocation of Rs1,000 billion. Employment is targeted to increase by 2.0 million and some reports say major reductions in customs and regulatory duties are expected for some sectors and that the government has promised steps to spur industrial growth as well.
However, promises like these in the lead up to a budget are not exactly new. Similar things were heard last year and yet similar challenges remain (revenue collection and a narrow tax base) and progress on some fronts is even reversing (inflation). While all of this might not be the government’s fault, and, to be sure, Pakistan has made every effort to resolve the Middle East conflict, dealing with the fallout is its duty. With growth coming in at around 3.7 per cent this fiscal year, even a 4.0 per cent target for the next fiscal seems ambitious, particularly with a policy rate at 11.5 per cent and taxes, once again, seeming like they will go up. But if pain is inevitable, one can at least ensure that it is spread more broadly.
