PTI Govt presents first ‘tough’ budget, Rs1152bn for defence

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Nation special report

ISLAMABAD: PTI-led government on Tuesday presented its first annual budget with a record outlay of Rs7,036 billion for the upcoming fiscal year, which is 30 percent higher than the budget of the outgoing year.

The proposed budget carries the highest-ever deficit of Rs3,150 billion (7.2 percent of the GDP) despite introducing massive additional revenue generation measures (of worth Rs512 billion) and reduction in expenditure.

The members of joint opposition entered the house wearing black ribbons around their arms 10 minutes after the start of the budget speech by Minister of State for Revenue Hamad Azhar. They staged a strong protest and kept shouting anti-government slogans during his speech.

Expenditure and Revenue

In current expenditures, the government has allocated Rs2,890 billion for interest payment, Rs421b for pension, Rs1,150b for defence, Rs271.5b for paying subsidies, Rs431.2b on running civil government, Rs831.2b for grants and transfers and Rs79b for provision of pay and pensions. The federal Public Sector Development Programme (PSDP) would consume Rs701 billion.

In revenues, the tax collection target for Federal Board of Revenue (FBR) is Rs5,555 billion while non-tax collection target is Rs894.5b. The privatization proceeds would generate Rs150b. The provincial surplus is estimated at Rs423b. The federal government would transfer Rs3,255 billion to the four provinces under National Finance Commission (NFC) award.

Pay and pension

The government has announced 10 percent increase in salaries for government employees from grade 1 to 16, including armed forces employees. For government employees from grade 17 to 20, a 5 percent ad hoc relief has been announced.

However, there would be no increase in salaries for civilian government employees from grade 21 to 22. The federal cabinet has also decided to take a 10 percent voluntary cut in their salaries, keeping in view the economic situation of the country.

Pensions have been increased by 10 percent, while the minimum wage has been set at Rs17,500 per month.

Austerity plan

Minister of State for Revenue said that federal government and armed forces have decided to adopt austerity plan to reduce the soaring expenditures of the country. The defence budget would therefore remain static at Rs1,152 billion for the next fiscal year. Similarly, the civil government has reduced its expenditures by 5 percent to Rs437 billion from Rs460 billion.

Pro-poor people measures

The government has allocated Rs200 billion as subsidy for protecting poor class of the society, which is using 300 unit of electricity every month. A ration card scheme is being introduced, which would facilitate one million needy people.

Similarly, 80,000 people would be benefit from the interest-free loans scheme. The government has allocated Rs110 billion for Benazir Income Support Programme (BISP) and increased the quarterly stipend given to poor people under this scheme Rs5,000 to Rs5,500.

Taxation measures

Minimum taxable income for salaried class has been reduced to Rs0.6 million per annum from Rs1.2 million per annum. There would be 11 progressive tax slabs ranging from 5 to 35 percent proposed for salaried class.

The minimum taxable income for non-salaried class would be Rs0.4 million per annum and eight progressive tax slabs ranging from 5 to 35 percent have also been proposed for this class.

The government has decided that non-filers would not be restricted from purchasing property. Non-filers would be allowed to purchase property of over Rs5 million.

Hammad Azhar announced that a Federal Excise Duty (FED) of Rs5,200 on every 10,000 cigarettes would be imposed. This would help in increasing the tax revenue from Rs114 billion in outgoing fiscal year to Rs147 billion in next fiscal.

The government has also imposed 2.5 percent FED on cars of up to 1000 CC engine capacity. Earlier, small cars were exempted from FED. The budget further proposed 5 percent FED on cars from 1001CC to 2000CC, and 7.5 percent FED on vehicles of over 2000CC capacity.

The government has recommended increasing rate of FED to 17 percent on edible oils (ghee and cooking oil), which would roughly translate to Rs40 per kg rise in the prices. The sales tax rate on sugar has also been proposed to enhance to 17 percent from existing 8 percent.

The government has also proposed increasing FED on cement, cold drinks and LNG. The FED on LNG has been proposed to be increased from Rs17.18 per 100 cubic meters to Rs10 per MMBTU. The minister said this measure has been recommended to bring LNG price to the same level as for local gas. The existing FED rate is substantially lower and generates only Rs2 to 3 million annually, he said.

In order to realise due sales tax from CNG sector, tariff has been raised and it is proposed to re-notify the value for sales tax on supply from gas distribution companies to CNG dealers. The government proposed that gold in jewellery may be taxed at 1.5 percent, diamond at 0.5 percent and making charges at 3 percent, with input adjustment available only in respect of gold.

Defence budget

The defence budget for the fiscal year 2019-20 remains static at the level of outgoing year 2018-19 as the government allocated Rs1152 billion for the purpose, according to the documents.

Minister of State for Revenue Hammad Azhar has, however, assured that there will be no compromise on the efficiency of the armed forces as he presented the budget in the National Assembly on Tuesday. The decision to freeze the defence budget for one year has been taken due to the country’s dire economic condition. According to the budget documents, an amount of Rs1152.535 billion has been allocated in the budget 2019-20 for defence affairs and services. An amount of Rs 2870 million would be spent on defence administration while Rs1149.665 billion has been allocated for defence services.  According to the breakup of the allocation for defence services, employees-related expenses have been estimated at Rs450.413 billion while operating expenses have been estimated at Rs264.656 billion. 

Prime Minister Imran Khan had taken to Twitter on the eve of Eidul Fitr to announce that the military had voluntarily agreed to cut its expenditures due to critical financial situation. Chief of the Army Staff General Qamar Javed Bajwa, while talking to troops during a visit to the Line of Control on the Eid day, had said the armed forces were foregoing routine increase in annual defence budget. The PM had said the military voluntarily agreed to cut its expenditures due to critical financial situation while the army chief stated the impact will be managed by tightening belt. The defence budget freeze will be for one year.

The original defence budgetary allocation for the outgoing fiscal year (2018-19) was Rs1.1 trillion (1150 billion). The allocation made up 21 per cent of last year’s original budget outlay and 3.2pc of gross domestic product. Although the budget figures will remain static, in reality it will mean lesser available money for the troops due to devaluation of the rupee and inflation. The allocation doesn’t include military pension bill, spending on major weapons procurement. The freezing of defence spending in budget 2019-20 at the level of outgoing fiscal year will create a cushion to utilise resources on the merged districts of tribal areas and development needs of other areas.

According to the military officials, there shall be no impact on the response potential to any threat and quality of life of soldiers. No pay raise decision is also only for the officers and not for the soldiers. Voluntary cut in defence budget for a year will not be at the cost of defence and security, according to the military officials.

Another amount of Rs651 million has been allocated for defence production division and Rs911 million for maritime affairs division, according to the documents. The federal government also earmarked Rs456 million for different ongoing and new development schemes of Defence Division under the PSDP 2019-20. Rs61 million have been allocated for procurement/construction of 6 Maritime Patrol Vessels for PMSA.