Pakistan's new budget taxes the already struggling middle class while rich 'eat the cake'

Pakistan's new budget taxes the already struggling middle class while rich 'eat the cake'

A major uproar erupted in Islamabad after Pakistan's National Assembly passed the controversial budget for the upcoming fiscal year with little to no amendments. The Budget has remained problematic right from the beginning with many calling it tax-heavy and lacking any sort of coherent reforms.

What makes this year's budget so significant is the fact that this is not only the first budget released by the newly formed government, but it also comes after the country faced the biggest economic crisis since its inception. The motion was introduced by Finance Minister Muhammad Aurangzeb on Friday, which was preceded by fiery speeches from the opposition, Dawn reported.

Opposition lawmakers, particularly from the Pakistan Tehreek-e-Insaaf (PTI) referred to the budget as "unrealistic, anti-people, anti-industry, and anti-agriculture". They also mentioned that it is no secret that the document was dictated by the demands made by the IMF before they agreed on a bailout package.

Leader of the Opposition Omar Ayub Khan denounced the budget as “economic terrorism against the people”.

“The economic hitman has prepared the budget and the target are people of Pakistan,” he remarked. “Inflation will increase due to this budget. There will be no economic growth with this budget,” he explained, adding that electricity prices would go up to PKR 100 per unit.

According to Dawn, in the Friday session, the National Assembly approved 53 supplementary demands for grants pertaining to various ministries and divisions for 2022-23 and 25 demands for the fiscal year 2023-24.

While defending his budget, the Pakistani Finance Minister emphasised that the economy had achieved macroeconomic stability. “We will lead the country towards sustainable economic growth by continued stability,” he said. Here's a look at what makes Pakistan's 2024-2025 budget so problematic.

What does it entail?

The parliament passed the federal budget with a total outlay of PKR 18.9 trillion. The Shehbaz Sharif administration claimed that they are aiming for a 3.6 per cent GDP growth and set an ambitious target of acquiring PKR 13 trillion from taxes.

Aurangzeb's budget not only raises taxes for the salaried classes but also removes tax exemption for all the income brackets. In this year's budget, Pakistan also set up a non-tax revenue target of PKR 3.5 trillion and aims to secure PKR 30 billion from privatisation.

Things became even more complicated for the middle class as the Petroleum levy increased by PKR 20 on petroleum and diesel, and PKR 25 on superior kerosene oil, light diesel and high-octane, e-10 gasoline. The Shehbaz Sharif administration also said that they will be promoting digitisation to ensure thorough documentation of the economy.

Aurangazeb mentioned that while some measures can be hard to digest they are important to get out of the shackles of the IMF and gain self-reliance quickly.

What are the changes?

Before the budget was passed on Friday, the National Assembly introduced certain amendments. The following table depicts what makes the budget that was passed, different from what was proposed:

A budget that will make it difficult to live and expensive to leave

What makes the Pakistani budget so controversial is the fact that instead of providing any relief to the middle class, the National Assembly increased the effective income tax rate of a salaried person to 39 per cent, for the association of persons to 44 per cent and for the non-salaried individual the number jumped to 50 per cent from last year.

Interestingly, the Shehbaz Sharif administration exempted income tax on sales of properties by serving retired bureaucrats and serving and retired military personnel.

The taxes on the already stressed salaried class are being increased at a time when the particular section of society has lost almost half of its purchasing power in the last five years.

Many critics believe that the budget is inflationary in nature. While PTI's Omar Ayub said that the budget would shoot up electricity bills, many pointed towards the imposition of sales tax on infant formula milk, as well as on packaged milk.

It is pertinent to note that these products are being what the opposition called "overtaxed" at a time when 40 per cent of the country's children under the age of five are facing stunted growth. Malnourishment is also prevalent across the board.

While the Shehbaz Sharif administration already made it hard to live in the country with the stringent tax reforms, they also made leaving Pakistan more expensive.

This can be reflected by the fact that the government has massively increased the FED rate on international travel tickets to generate an additional PKR 55 billion in the next fiscal year.

For the economy class, the tax rate has been increased by 150 per cent to PKR 12,500. For the business class, the tax rate has been increased by 40 per cent and the new tax per ticket is PKR 350,000 for the Americas, PKR 105,000 for the Middle East and Europe and Rs210,000 for Australia, New Zealand and the Pacific.

The government has also imposed a 3 per cent FED on the allotment or transfer of property by filers and 5 per cent by non-fliers. Things became even more stringent after the government brought in non-resident Pakistani citizens who have a “significant economic presence in Pakistan," into the ambit of the tax laws.

But the lawmakers gave themselves a raise

Meanwhile, the Pakistani National Assembly approved an amendment to the 2024 Finance Bill regarding the increase in the perks and privileges of lawmakers. However, what makes the matter outrageous is the fact that the raise is only for the lawmakers who have the majority votes in the parliament.

According to Dawn, the controversial amendment was moved by Abdul Qadir Patel of the Pakistan People's Party and was heavily opposed by the PTI.

With this amendment, the power of the federal government to determine the salaries perks and privileges of parliamentarians was transferred to the respective finance committees of the house.

Hence, Pakistan's 2024-2025 budget indicated that while the salaried population continues to suffer the burden of taxes, the privileged might enjoy whatever perks the already-crippling economy has to offer.