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Is Federal Budget 2021-22 growth-oriented?

MM News Staff by MM News Staff
March 24, 2022
Govt announced budget with an expansionary and feel-good approach

With certain limitations imposed by the ongoing COVID-19 pandemic and the International Monetary Fund (IMF) programme, the government announced its third budget with an expansionary and feel-good approach, significantly increasing subsidies and incentives for big business and agriculture sectors.  

Most economists have termed the Federal Budget 2021-22 a public-friendly and growth-oriented budget because of its focus on facilitating commoners in the form of removal of different kinds of taxes and duties on the commodities used by them. Let’s take an in-depth review of the Federal Budget 2021-22.

Budget 2021-22

Finance Minister Shaukat Tarin had unveiled the third budget for fiscal year 2021-22 with an outlay of Rs. 8.487 trillion — almost 19 percent higher than last year’s budgeted expenditure of Rs. 7.136 trillion.

The finance minister announced that for FY22, the government had set GDP growth target at 4.8%. The total allocations for the Public Sector Development Programme (PSDP) have been budgeted at Rs. 2,135 billion for FY22, up from Rs. 1,324 billion last year.

The budget included exemptions and relief measures for nearly all industries, and new businesses and products being brought into the tax net seemed far fewer in comparison. The automobile sector was a heavy beneficiary with tax exemptions for small cars and four-wheelers.

Relief to Common Man

Regulatory duty on the import of cocoa paste, butter, and powder will be reduced. This could mean a reduction in the prices of chocolate products and other baked goods.

Locally manufactured cars having an engine capacity of 850cc or less will be exempted from value-added tax (VAT) while the sales tax on these cars will also be reduced from 17 percent to 12.5 percent. Additionally, four-wheelers will also be exempted from federal excise duty. So, if you were looking to buy a new ride for yourself, it’s going to be easier.

The federal excise duty on telecommunication will be reduced by 1pc from 17 percent applicable previously. Withholding tax (WHT) on telecommunication services will also be reduced to 3 percent.

The threshold for withholding tax on the monthly electricity bill for domestic users who are not on the Active Taxpayers List (ATL) will be reduced from Rs75,000 to 25,000. The withholding tax on cash withdrawals and on non-cash banking transactions will be removed. The withholding tax on domestic air travel will be ended.

Budget for development

The government focus is also on circular debt financing and power subsidies, revenue mobilization without new taxes, support of the housing sector and the construction industry through Naya Pakistan Housing Scheme and Small and Medium Enterprises (SME) support programs, facilitating expatriates’ remittances and savings through Roshan Digital Account and Pakistan Remittances Initiatives and other such schemes.

To encourage IT industry in the country, import of plant, machinery and raw material by Special Technology Zone is proposed to be exempted from sales tax. The budget has increased the Public Sector Development Programme (PSDP) from Rs630 billion to Rs900 billion. This is a massive increase of around 40 percent.

Rs91 billion are being allocated for construction of water reservoirs. On the salaried individual front, there is a 10 percent increase in salaries and pensions as well.

Final words

The government has increased public sector salaries for the first time in three years, while also pushing the minimum wage up significantly. However, it is quite clear that inflation and de-growth continue to remain serious concerns, especially when the country remains susceptible to both IMF pressure and the COVID-19 pandemic.

The budget, if implemented in its true essence, would definitely bear fruit; but at the end of the day it is still a short to medium-term approach. There is still a long way to go before the PTI government can claim to have delivered on its economic promises.

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