Federal Budget of Pakistan 2022-2023: What is in for the public?
The Federal Budget of Pakistan 2022-2023 is an important document that outlines the government’s financial plans for the next year. It was announced by Finance Minister Miftah Ismail on 10 June 2022. The federal budget for 2022-2023 amounts to 9,502 billion rupees which is an increase of 11.9% from the budget for 2021-2022.
Main Objectives and Priorities of the Federal Government for the fiscal year 2022-2023
Given the rising rate of unemployment along with high inflationary pressure and power outages in the last couple of months, the federal government has set some priorities for the fiscal year 2022-2023. These priorities include restoring the developmental programs, eliminating power outages, boosting agricultural production for food security, and reducing the fiscal deficit to restore fiscal sustainability. Moreover, the government has also planned to continue the ban on imports of luxury items including luxurious cars and mobile phones to save foreign exchange. Apart from that, the federal government has planned to levy heavy taxes on the wealthy people of the country in order to boost their tax revenue which could ultimately help them in reducing losses of public enterprises.
The main objectives of the federal budget 2022-2023 includes controlling the fiscal deficit to boost growth of the economy, maintaining primary balance at a sustainable level, protecting social spending to support the poors of the society. Moreover, mobilization of resources by increasing tax net, increase in non-tax revenue through cost recovery and continuation of sucessful IMF programme are some of the main objectives of the budget.
Expenditures of the Economy
For the fiscal year 2022-2023, the total expenditure is Rs 9,502 billion, divided into current expenditure and development-oriented expenditure.
The current expenditure accounts for Rs 8,694 billion (91.5% of total expenditure), an increase of 15.56% compared to last year. It is split into interest payment, pension, defense services, grants and transfers, subsidies, running of civil government, provision for contingencies and funds, provision for disaster, and provision for pay and pension.
Meanwhile, the developmental expenditure is Rs 808 billion (8.5% of total expenditure), which is less than the previous year’s developmental expenditure. It comprises federal PSDP (Rs 727 billion) and net lending (Rs 81 billion).
Defence Affairs & Services
The current expenditure can further be analyzed by function-wise utilization of the spending. For the upcoming financial year, Rs 1,523 billion will be spent on defence affairs & services, a proportion of 17.52% of the total current expenditure. This current spending is up by 11.7% from the previous fiscal year.
Education Budget of Pakistan
The educational sector is one of the crucial sectors of the Pakistan economy, so it needs a solid academic structure that could lead to a well educated population . However, the PMLN government allocated only Rs 90,556 million to the education budget which is 1.54% lower than the previous budget. This amount of budget is insufficient to tackle the situation as it accounts for only 1.04% of the total current expenditure.
Healthcare Budget
Healthcare is another important sector of Pakistan. With the rising population, the need for a higher healthcare budget had emerged that would enable the government to fulfill the citizens’ demand. For the financial year 2022-2023, the government has allocated Rs 19,582 million for health affairs and services, a decrease of 30.93% than last year, accounting for only 0.23% of the total current expenditure.
General Public Service
General Public Services accumulates for 71% of the total current expenditure. For the year 2022-23, the finance minister announced a budget of Rs 6,175 billion for general public services compared to Rs 5,435.2 billion for the fiscal year 2021-22.
The other functions, including economic affairs, public order and safety, environmental protection, social protection, and others cumulatively add Rs 737,256 million to the current expenditure.
Developmental Budget
The developmental budget of Pakistan comprises the Federal Public Sector Development Program, amounting to Rs 727 billion, and Net lendings, which total Rs 81 billion. Under the Federal PSDP, the government has initiated several developmental programs to bridge the gap between underprivileged and developed regions of the nation. Some of the major division-wise allocations under PSDP include Federal Ministries (Rs 564.96 billion), Corporations (Rs 161.537 billion) and ERRA (Rs 0.5 billion).
Revenues of the Economy
Pakistan economy’s revenue comprises Tax Revenue and Non-Tax Revenue. For the fiscal year 2022-2023, the targeted revenue is Rs 9,502 billion. Among this, Rs 7,004 billion is the targeted FBR tax revenue, 32.43% higher than the previous year, while Rs 2,000 billion is expected to come from non-tax revenue. Out of this Rs 9,502 billion, Rs 4,100 billion (43.1%) is transferable to the provincial government leaving away only Rs 5,402 billion to the federal government.
Tax Revenue
The tax revenue generated by FBR is further divided into direct taxes and indirect taxes. Direct taxes are tax charges levied on the incomes of individuals and corporations, while indirect taxes are those levied on goods and services.
As per the budget, direct taxes comprises of income tax, capital value tax (CVT), ordinary collection (WWF), contribution under companies profit (WPPF). For the fiscal year 2022-2023, the direct taxes collection is expected to be Rs 2,573 billion.
On the contrary, indirect taxes comprises custom duties, sales tax and federal excise.
All of these cummulatively adds Rs 4,431 billion to the tax revenue.
Non Tax Revenue
The non-tax revenue is further classified into levies & fees, income from property & enterprise, receipts from civil administration & other functions, and miscellaneous receipts. Levies & fees contribute Rs 35.151 billion, income from property & enterprise adds 279.647 billion, receipts from civil administration and other functions add Rs 354.044 billion, while miscellaneous receipts add Rs 1,331.053 billion to the non-tax revenue.
Allocation of taxes amongst provincial governments
Taxes which are distributed among the provinces are classified as divisible pool of taxes. The divisible pool of taxes amounting Rs 4,099.773 billion income tax, wealth tax, capital value tax, taxes on the sales and purchases of goods imported, exported, produced, manufactured, or consumed; export duties on cotton, custom duties, federal excise duties. The allocation of revenue depends on several factors, as demonstrated below.
Based on these factors, the pool of taxes is distributed, so for the fiscal year 2022-2023, Punjab would receive 51.74%, Sindh ( 24.55%), KPK (14.62%), and Balochistan would receive 9.09% of the total shareable provincial tax revenue.
Fiscal Deficit
Fiscal deficit refers to the situation when the total budgeted expenditure exceeds the revenue of the economy. Utilizing this equation, we’ll study the federal budget for the financial year 2022-23 and determine whether it is in deficit or surplus.
The total budgeted expenditure of the economy for the next year is Rs 9,502 billion, while the net expected revenue is only Rs 4,904 billion. Since total expenditure exceeds total revenue, this results in a fiscal deficit of Rs 4,598 billion for a federal budget of Pakistan 2022-2023 as compared to Rs 3,990 billion for the past year. If we consider overall fiscal deficit as a % of GDP than it is 4.9% as compared to 6.3% of the last year.
To sum up, the federal budget of Pakistan 2022-2023 comes with some positives and some negatives. The overall budget has increased and along with this the government has an increased tax collection target which could eventually help in decreasing the overall fiscal deficit. However, unfortunately the government has compromised on key affairs of education and heallth care by reducing the budget allocation. Now the question is: How successful would be the government in fulfilling these budget objectives while complying to the IMF instructions? Lets see how the future unfolds.
