FY2021-22: Rs8.5tr federal budget announced with historic PSDP allocation

ISLAMABAD: Amidst ruckus by the opposition, Finance Minister Shaukat Tarin unveiled on Friday the federal budget 2021-22 in the National Assembly.

He started his budget speech by stating that the biggest challenge for the incumbent government was to bring the national economy back on the path of recovery.

Pakistan’s economy has witnessed a V-shaped recovery after contracting by 0.47 per cent in FY 2020-21. The provisional GDP growth rate for FY 2021 is estimated to be 3.94 per cent against the targeted growth of 2.1 per cent through the policy initiatives undertaken during FY 2020-21.

The nominal GDP for FY 2021 is projected to increase from Rs45,567 billion to Rs47,709 billion, whereas, the Economic Stimulus of Rs1.24 trillion announced in March 2020 has been extended for the FY 2021 and an amount of Rs155 billion has been released to mitigate the socio-economic impacts of Covid 19 pandemic.

Exports during July-April FY 2020-21 increased by 6.5% to $21.0 billion ($19.7 billion last year). On a YoY basis, exports increased by 61.3% to $2.3 billion in April 2021 ($ 1.4 billion in Apr 2020).

Remittances grew significantly by 29.0% to $24.2 billion and surpassed the target of $21.5 billion as compared to $18.8 bn during Jul-Apr, FY 2020-21 during the same period last year.

The inflation based on Consumer Price Index (CPI) during Jul-Apr, FY 2020-21 is down to 8.6% as against 11.2% during the same period last year.

FBR tax collection grew by 14.4% to Rs.3,780 billion during Jul-Apr FY 2020-21 against Rs.3,303 billion last year.

A refund of Rs.253 billion was issued by FBR to the business community during JulApril, FY 2020-21, which are 66.5% higher than the previous year’s Rs.151.8 billion issued during the same period last year.

Moreover, Pakistan has entered the international capital market after a gap of over three years by successfully raising USD 2.5 billion.

World Bank recognized Ehsaas Emergency Cash Programme as amongst the top four social protection interventions in the world in terms of the numbers of people covered.

The IMF and Pakistan have resumed the $6bn Extended Fund Facility and completed the second to the fifth review under the program. The IMF has appreciated that the government policies have been crucial in supporting the economy and saving lives and livelihoods in the Covid 19 pandemic.

Inflows of foreign exchange through the Roshan Digital Account (RDA) crossed the $1 billion mark in a short span of time after the launch of the scheme.

Moody’s rating agency upgraded Pakistan’s outlook to ‘Stable’ from ‘under review for downgrade’ (in August, 2020). Fitch affirmed Pakistan’s rating at B- with stable outlook.

Key priorities

The key priorities set by the federal government for FY 2021-22 include inclusive and sustainable economic growth; pro-poor initiatives and social safety net through the Ehsaas Programme’s vertical and horizontal expansion; reduction in inflation and price control and monitoring; increased development spending for more job creation and PM’s initiatives including Kamyab Jawan and Kissan Programmes.

Moreover, the impact mitigation of Covid-19, and the continuation of the Stimulus Package; 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 SME support programs; facilitating expatriates remittances and savings through Roshan Digital Account and Pakistan Remittances Initiatives and other schemes are also among the key priorities of the government for the new fiscal year.

Salient Features of Budget 2021-22

• No new taxes on salaried persons 
• 10 percent increase in salaries and pensions of the government employees
• Rs260bn for Ehsaas Program
• Tax collection target set at Rs5829bn
• The remittances with the 25% increase, reached $29 bn in FY2020.
• GDP growth target has been set at 4.8%
• Development budget has been increased from Rs630bn to Rs900bn
  4 to 6 million families will be given loans of upto Rs500,000
• Rs57 billion have been fixed for the first phase of the Dasu Hyder Project.
• Rs23 billion reserved for Diamir Bhasha Dam.
• Rs6 billion earmarked for Mohmand Dam and Rs 14 billion have been proposed for Neelam Jhelum Project.
• Rs100 billion for the development of underprivileged areas
• Rs30 billion earmarked for health, Rs 44 billion for higher education, Rs16 billion for sustainable growth
• Rs601 billion for the development of South Balochistan through 199 uplift projects
• US$1.1 billion would be spent on the purchase of COVID-19 vaccine. 100 million people to be vaccinated by June 2022.
• Rs20 billion have been reserved for PIA and Rs16bn for the Pakistan Steel Mills in the budget.
• Rs98 billion for Karachi Transformation Plan from PSDP and Rs 125 billion from Supreme Court fund.
• Rs9.3 billion for ML-1 project and Rs12 billion allocated for Hyderabad-Sukkur transmission line.
• Provincial share in the federally collected taxes to stand at Rs3,411 billion. Provinces’ share in NFC increased, to receive an extra Rs707bn.
• Rs14 bn allocated for the Billion Tree Tsunami project.
• HEC to get Rs66 billion besides an allocation of Rs44 billion for uplift projects
• Rs 5 billion allocated for fresh local bodies election
• Rs5 billion earmarked for holding fresh census in the country
• The withholding taxes on mobile services lowered from 12.5 percent to 10 percent
• ‘Meri Gari scheme’ launched. Custom, regulatory duty abolished from 800CC vehicles. Vehicles having old models and manufacturing dates exempted from advance custom duty.
• Telecom sector gets status of industry. 10-year tax exemption for special technology zone authority
• Custom duty from vaccine and medicines of livestock abolished
• Tariff exemptions on some ingredients of poultry feed
• Sugar included in the third schedule of sales tax act, helping in the elimination of artificial hike in prices of the commodity
• Federal Excise Duty on telecommunication reduced from 17 percent to 16 percent besides imposing FED on telephone calls and using internet for over three minutes. The FED is also imposed on mobile messaging.
• Tax exemption on paper used for Quran publication, auto-disable syringe and oxygen cylinders
• Exemption announced on payments through bank cards for purchases besides elimination of FED on electric vehicles, completely knocked down (CKD) parts and kits.
• Regulatory duty on the import of luxury items hiked.
• Sales tax rate on cars under 850 cc dropped to 12.5 pc
• Turnover tax for traders dropped to 1.25 pc
• The Information Technology sector and related services declared zero-rated categories
• Additional federal excise duty from cooking and vegetable oils scrapped
• Medical supplies including Auto disable syringes and oxygen cylinders see tax cuts
• Duties on electronic vehicles for this fiscal year have been abolished

Budget Speech

Addressing the budget session, Shaukat Tarin said that the Pakistan Tehreek-e-Insaf government inherited a crumbling economy that forced the government to take tough decisions.

“PM Khan took out the ill economy from the ICU with his difficult decisions,” he said and added that the premier is not afraid of making the tough decisions.

Sharing the achievements of the incumbent government, Shaukat Tarin during the budget speech said that tax collections saw an 18 percent increase last year as the country crosses the limit of Rs4000 tax collection. “We have made 75 percent more tax refunds,” he said.

Earlier, the federal cabinet meeting headed by Prime Minister Imran Khan approved the Budget for 2021-22, giving a nod to a 10 percent increase in salaries and pensions of the government employees.

Development budget increased by 36.6%

With an increase of 36.4%, the federal government has proposed Rs900 billion for the development budget for the fiscal year 2021-22.

According to the budget 2021-22 document, the annual development budget for Punjab has been fixed at Rs500 billion for the upcoming fiscal year 2021-22 after an increase of Rs190 billion.

The current fiscal year’s development budget is Rs310 billion. For Sindh, the development budget has been fixed at Rs321 billion for FY22 as compared to the current year’s Rs194 billion. The provincial budget for uplift schemes has been increased by Rs127 billion.

With an increase of Rs44 billion, the federal government has fixed Rs133 billion for Balochistan’s development. The development budget of Khyber Pakhtunkhwa (KP) has been decreased by Rs26 billion and has been fixed at Rs248 billion as compared to the current year’s budget for uplift schemes of Rs274 billion.

GDP growth rate set at 4.8%

The federal government has projected Gross Domestic Product (GDP) growth rate at 4.8% for the upcoming fiscal year 2021-22.

According to the budget document available with ARY News, the agriculture sector growth rate has been set at 5 per cent and for important crops, the growth rate has been forecast at 2.2%.

The growth rate for cotton has been proposed at 10% of the overall GDP projected by the federal government for the upcoming FY22, read the budget document.

For the industrial sector, the growth rate has been set at 6.5 per cent and 6.2% has been estimated for the manufacturing sector.

Growth target for the large manufacturing sector has been proposed at six per cent, while for the construction sector it has been projected at 8.3 per cent.