KARACHI: With the last budget before the 2018 general elections and the first after completion of International Monetary Fund (IMF)’s EFF program, the analysts expect this budget to be investor friendly and growth oriented with some populist measures ahead of the election year.
Finance Minister is scheduled to present the FY18 Federal Budget in the National Assembly on May 26, 2017 which is likely to be focused on stimulating growth, incentivizing investments along with measures to enhance revenue base through tightening the noose around non-filers further and withdrawal of tax exemptions.
The analysts anticipated some probable relief and election focused measures which include 1 percent reduction in corporate tax rate to 30 percent in-line with the 5-year strategy of bringing down the corporate tax rate from 35 percent in Fiscal Year (FY13) to 30 percent in FY18.
Also, they see likely extension in deadlines for availing tax relief and credit for equity investments, increase in subsidies for the power and agriculture sector, taxi, tractor, small business, housing and other direct subsidy schemes, and higher allocation for social sector welfare such as Benazir Income Support Program.
“The government is considering continuing the zero-rating regime for export oriented sectors i.e. textile, leathers, sports, carpet and surgical goods sectors. While further export oriented sectors might also be added to the list”, said the analyst at Elixir Research.
Duties and taxes are expected to be brought down on raw materials of export oriented sectors while increase in exemption threshold from Rs 400000 to Rs 500000 for salaried class.
According to the analysts, the government may also announce amnesty scheme for regularizing income, tax incentives for new listings and measures to improve tax administration and collections procedures to encourage filing of taxes.
Key taxation measures could be continuation of Super Tax with a possibility of expanding its net to high net worth individuals and raising rate for banks by 1ppt (i.e. 5%), tax measures to make import of luxury items more expensive which include enhancing the scope of Regulatory Duties to such items and increasing tax rates for non-filers on dividend income, banking transactions, cash withdrawals & purchasing of assets.
The government has set a 6 percent real Gross Domestic Product (GDP) growth target for FY18 which seems achievable as it would likely be supported by infrastructure development, improving energy supplies and subsequent uptick in LSM, though persistent slowdown in exports pose a risk, they added. The World Bank forecasts a GDP growth rate of 5.5 percent for FY18 and 5.8 percent for FY19. The government is also likely to set a target of 6 percent for inflation where we expect inflation to peak at 6 percent in FY18 while average CPI inflation is expected to clock in at 5.3 percent compared to 4.3 percent during FY17.
