KPK budget

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SOURCEBusiness Recorder
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Khyber Pakhtunkhwa (KPK) government projected a budget surplus of 45 billion rupees which when taken in conjunction with the Punjab budgeted surplus of 233 billion rupees gives a total of 278 billion rupees. The budgeted federal provincial surplus target for 2019-20 is 423 billion rupees leaving a shortfall of 133 billion rupees given that the Sindh budget for next fiscal year envisages no surplus (though a zero deficit) while the budget for Balochistan envisages a deficit of 48 billion rupees (it is unclear whether the federal government would extend assistance to meet the Balochistan deficit). This is likely to lead to the International Monetary Fund (IMF) exerting pressure on the federal government to bridge the shortfall, as in the case of other expected shortfall in budget revenue collection under other heads, through either heavier taxes and/or lower expenditure outlay. The mitigating measures as and when taken by the Centre are likely to impact on the purchasing power of the income of households in all the four provinces.

Also Read: CPEC development projects underway in KPK

One would hope that the foregoing would bring it home to the federal government in general and the Ministry of Finance in particular that coming up with budgetary targets to balance the books without due consultations with the relevant stakeholders inevitably leads to mini-budgets and/or curtailment of development funds, especially during times when an IMF programme is under consideration.

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Be that as it may, the KPK government has budgeted current expenditure at 526 billion rupees, development expenditure at 319 billion rupees (a total of 693 billion rupees is budgeted to be spent in settled districts and 162 billion rupees for erstwhile Federally Administered Tribal Areas which must be supported) and 10 billion rupee capital expenditure. However, allocations follow priorities set by Prime Minister Imran Khan notably higher allocations for social sectors, tourism and climate change. Revenue from federal transfers would continue to form the bulk of the provincial resources (533 billion rupees), profit from hydro (56 billion rupees) and the province’s own receipts 53 billion rupees.

The KPK budget however envisages major tax initiatives as follows: flat tax of 1,000 rupee per month on those with an income from 20,000 to 30,000 rupees per month, 1,200 rupees per month on those earning between 30,000 to 50,000 rupees monthly, 1,500 rupees per month on those earning between 100,000 to 200,000 rupees per month, 2,000 rupees per month on those earning 100,000 to 200,000 rupees every month, 3,000 rupees for income of 200,001 rupees to 0.5 million per month and 5,000 rupee tax for income of more than 0.5 million rupees. It is not clear whether this flat tax would be limited to agriculture income or to income from all sources which may imply double taxation on income – to FBR as well as the KPK government. Public sector employees from grade 1 to 6 will not pay income tax while 1,000 rupees per month would be payable by employees of grade 7 to 12, 1,500 rupees every month will be charged to grade 13 to 17, 1,800 rupees monthly tax for grade 18, and 2,000 rupees every month for grade 19 while 3,000 rupees would be payable for grade 20 officers.

Additionally, a tax of 27,000 to 100,000 rupees per annum would be payable by businesses worth 10 million to 20 million rupees, respectively; a tax on marriage halls will be 60,000 rupees; on restaurants and hotels 40,000 rupees, on dentists 15,000 rupees per annum, general physicians 10,000 rupees, and specialist doctors in Peshawar 80,000 rupees per year and in areas other than Peshawar, divisional and districts headquarters 50,000 rupees per year. Tax on naswar, whose consumption may rise as a consequence of a raise in income tax rates, will be increased by 50 paisas per kilogramme. A tax of 30,000 rupees on CNG and gas stations as well as 325 rupees per acre will be charged against land measuring 5 to 12 acres.

THE RUPEE: mixed patterns

To conclude, it is unclear whether the provincial assembly will pass these new taxes but in the event that it does the province would have to strengthen its tax authority’s capacity to ensure compliance with these new taxation measures.

(This news/article originally appeared in Business Recorder on June 24th, 2019)

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