Pakistani Finance Minister Muhammad Aurangzeb. Photo: Reuters/File
ISLAMABAD:
Finance Minister Muhammad Aurangzeb said on Saturday that provincial contributions to federal spending had been partially reflected in next year’s defense budget, adding that discussions were underway on a three-year contribution framework.
Addressing his post-Budget press conference, the Finance Minister explained the use of over Rs 1,000 billion in subsidy provided by the provinces to the Centre, enabling it to meet urgent financial needs that were beyond the available federal fiscal space.
The Finance Minister was accompanied by Information Minister Attaullah Tarar, Minister of State for Finance Bilal Azhar Kayani, Finance Secretary Imdadullah Bosal, FBR Chairman Rashid Langrial and Tax Policy Bureau Chief Najeeb Memon.
Aurangzeb said the deal was in place for next year, after the government increased defense spending by 18% amid regional uncertainty.
Provincial grants will be used for defense purposes and to provide a fiscal buffer against the second- and third-round inflationary effects of the Middle East war, as well as to meet the country’s broader security needs, the finance minister said.
Expressing hope that the conflict “will end as soon as possible”, Aurangzeb said energy infrastructure has been affected and therefore, “expecting the Strait of Hormuz to open, things to normalize, or whether it is LNG or other resources that have been affected, to normalize in a week or two, that is not going to happen.”
“This will therefore have repercussions on the next financial year,” he added.
The minister said discussions with the International Monetary Fund on some of the key tax relief measures were underway, with the government also approving a raft of relief measures worth Rs20 billion for civil servants.
In order to calm the disgruntled employees, who have been demonstrating for several days, the government accepted more than a dozen of their demands, including the merger of two allowances and an increase in compensation for other allowances.
In the same vein, the Finance Minister said the government was “in constant consultations with the IMF (on relief measures)”.
The government has proposed relief measures of 360 billion rupees, but the sources said the IMF had objections to halving the withholding tax on real estate transactions, which would cost the Treasury 115 billion rupees.
The sources said the government and the IMF would resolve these issues in the coming days.
To a question on the IMF’s objections to the tax relief and whether the government would withdraw the relief or levy more taxes to offset the impact of over Rs100 billion, the finance minister said “whatever is done, it will be done with their consultations”.
The government has also provided cash reserves of Rs 430 billion in the budget to deal with exogenous shocks.
While responding to a question regarding protection of cash reserves of Rs430 in case of revenue shortage, the minister said the government would try to protect these reserves, hoping that all targets would be achieved.
Salary and allowances
Replying to a question, the Finance Secretary said the government has merged the ad hoc relief allocation of 15 per cent for 2022 and 10 per cent for 2025 in the basic salary. This was one of the main demands of federal officials. The 7% increase was granted after the merger of these two allocations, which results in an increase greater than the 7% announced.
The total cost of these relief measures, including the ad hoc allocation, is estimated at just over Rs20 billion.
In another relief, the government has provided disparity reduction allowance of 5% of the basic salary to all employees from BPS-1 to 22, as per existing conditions, for those already availing the disparity reduction allowance.
He increased the rate of transport allowance by 50% of the existing amount, which had remained frozen for longer. Likewise, the government has revised the constant support allowance for the Civil Armed Forces by increasing it from Rs7,000 to Rs 30,000 per month.
The government also revised the Special Zone Compensatory Allowance for Pakistan Coast Guard troops and provided 10% compensation by removing the existing allowance admissible at the rate of 40% but at 1994 salary level.
The government has given 100% IMPAS allowance on the basic salary of the Immigration and Passport Department, as per the conditions, and the special salary of officers and staff of the Cabinet Wings and Cabinet Committees of the Cabinet Division has been revised from Rs 6,000 to Rs 20,000 per month.
It also gave a 150% NACTA/NIFTAC special allowance to NACTA/NIFTAC employees, but removed the 100% risk allowance.
A provisional allowance of 150% for police officers assigned to the border police was also approved.
He increased the special allowance granted to grade 22 employees of the National Roads and Motorways Police from 10 to 50 percent. The government has given a special 50% National Police Academy allowance to officers posted to the National Police Academy.
The special transport allowance has also been revised from Rs6,000 to Rs10,000.
NFC
The Finance Minister once again said that there was a need to revise the formula for distributing resources among the four provinces, as giving 82% of resources on the basis of population was helping to increase the country’s population.
Replying to a question, the minister said Prime Minister Shehbaz Sharif’s commitment with Khyber-Pakhtunkhwa to bring in legislation to increase the provincial share due to the population of the merged districts would be honoured.
The finance minister also expressed gratitude to the provinces for “the way they’ve kind of stepped up to help meet some of the most pressing needs.”
“Some of them have been reflected in the defense budget,” he added, stressing that for this year this arrangement is in place and “from our point of view this is a three-year discussion and we will also continue this discussion with the provinces over the next two years.”
Salaried class
Ministers described the budget as pro-worker and people-friendly, saying it would also boost growth.
“If we were to move this budget in a direction that is pro-business, pro-growth, so pro-construction, obviously housing construction plays a very important role, and the transaction taxes that we have reduced, you’ve already seen that,” he said.
On agriculture, he said: “It increased by 15% year-on-year, and it exceeded 2 trillion, which is the overall agricultural financing.”
Minister of State for Finance Kayani stressed that “basically, it is the budget of the wage class, it is the budget of industrialists, it is the budget of exporters, it is the budget of the construction sector”.
Kayani added: “It’s the budget of someone who wants to build their own house and can’t afford it.”
“The salary class is at the top of the list,” Kayani said, adding that “that is why it has always been said that the government will give relief to the salary class when it gets the chance.”
Kayani also discussed the reduction of minimum and advance taxes for exporters, “whether it is the elimination of the first six tranches of super-taxes and the reduction of the last tranche of 500 million to 10% or to 8%.”
“These were basically the main demands of our exporters and our formal industry,” he said.
Information Minister Attaullah Tarar called the budget “aid-oriented” and said the FBR reforms were unprecedented and historic. “There have never been such important reforms in the history of the country,” Tarar said.
Regarding the tax on oil, the Minister of Finance clarified that “the amount of the tax is not increasing”.
