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Budget Overview 2017

May 27, 2017

@asadcmka
Asad Rizvi 

In my pre-budget note “Budget Perspective” I said that the budget will have nothing much to offer because we are a “Cash Squeeze Economy”. My estimate is that Pakistan’s economy is cash short by roughly Rs7 to Rs 8 Trillion.

Budget paper did not care to discuss much about the future strategy that how government plans to counter the growing economic concerns.

The approach looks pretty relaxed and complacent focusing mostly on revenue expenditure that covers routine expenses such as salaries and pensions, while capital expenditure that refers to long term spending, which is investments infrastructure was casually discussed, probably aware of funding squeeze.

Hence, I can safely point out the missing link, as the golden rule of Public Finance demands Revenue Expenditure to be financed by Revenue Receipts.

One thing is for sure that after going through the budget detail and keeping in view the timing that involves quite a few facts, I can easily sense that the government opted to wait until the final judicial ruling, which is due in near term.

In my view, if the judicial opinion goes in their favor the government will go for all out aggressive ad hoc spending in shape of mini budget.

Overall, the impact of budget will not bring any change in the livelihood of people, which is going to be more or less same, as it was before the budget announcement, unless retailers take unnecessary price advantage in the absence of active consumer protection law.

OVERVIEW

Stock Market projection from My “Outlook 2017” = PSX @ 47,806 = Range 42.000 to 53,000. Likely to hit upside, but I am not ruling out large correction”.

Flat rate of 15 pct for filers and 20 pct for non-filers is a move in right direction because it is heaven for tax evaders.

My projected target of 53.000 is met, now care should be taken, as market could react to the Budget Tax proposal. I am not ruling out extreme volatility and sharp dip.

-Preferential treatment given to Real Estate Market is disastrous for the economy and main cause of economic mess. It provides tailor made opportunity to park illegal money to the evaders.

Today, extraordinarily high rent is a major cause of if high food and commodity prices in Pakistan that has broken the backbone our nation. A genuine salaried tax payer can never buy a property in Pakistan.

Agriculture Credit target of Rs 1.001 Trillion is the best part of Budget announcement, which needs to be align with Bank Credit to Private Sector. It will ensure governments 6 pct growth target.

It is easily possible by setting a formula. All SBP needs to do is to set up a quarterly target of Rs 250 Billion and those missing/violating the target should be asked to offload 4-times the size of its Bonds Holdings (T/Bills-PIB-Sukuk). Simultaneously SBP should withdraw of lower is Corridor interest rate floor.

-Enhancing of rates of withholding tax for non-filers is not the cure to the problem, as they should be panelized at all cost for violating rules/law. It is simply an excuse and acceptance on part of the government that it cannot take action against the upper class. Instead poor class of the population will have to pay the price for their wrong doings.

Withholding tax of 1 pct from 0.5 pct on Electronics, manufacturer, wholesaler, distributer etc is a move on right direction. When economist/analyst argue that Rupee Depreciation will help in arresting rise in imports, then this is a better option as it will all help in adding revenue though indirect.

Corporate Tax reduced to 30 pct from 31 pct is a preferred choice of business community. In 2013 corporate tax was 35 pct. This is especially very supportive for Banks, as it has substantially eased pressure of 4 pct Super Tax imposed on them. Now it’s for the banks to deliver by providing Credit to Private Sector and Agriculture Sector.

Despite sharp fall in SBP Policy Rate over last couple of years, Banking Sector is still enjoying hefty profit and earned Rs 190 Billion, as profit fell by mere Rs 9 Billion due to 62 pct investment in risk free government paper.

Referring to Super Tax, Banks often talk of Constitutional violation, but let me remind banks that Bank Lending to Private Sector is 51 pct against 62 pct investments in government bonds. This is why economy is suffering.

-Taxes imposed on Cement and Steel is minor in size and does not hurt majority of the population.

(Disclaimer applies in my post, which means that the perspective is my personal view. I have made every effort to ensure accuracy of information provided. However, accuracy cannot be guaranteed. This article is strictly for information and not intended for Trade or Business Transaction). 

 

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