Pakistan’s 2024-25 Budget: The Continuation of Regressive Taxation

As Pakistan gears up for the fiscal year 2024-25, the question of whether regressive taxation will continue to dominate the budget is a topic of heated debate. Regressive taxation, a type of tax that is assessed regardless of income, often places a larger burden on low-income earners. This form of taxation has been a significant part of Pakistan’s fiscal policy in recent years, and its continuation in the 2024-25 budget is a matter of concern for many.

The budget for the fiscal year 2024-25 is set to be presented in the National Assembly on Wednesday, June 12. In the lead-up to the announcement of the federal budget, the Ministry of Finance has revealed initial proposals to increase salaries for government employees. Despite these proposals, there are significant constraints. The International Monetary Fund (IMF) has emphasized the need for cost reductions and pension reforms, suggesting that substantial increases in salaries and pensions might not be feasible.

The International Monetary Fund (IMF) has predicted an increase in Pakistan’s trade deficit during the next fiscal year. This prediction, coupled with the government’s borrowing needs to finance its surging budget deficit, has led to a significant increase in public debt. The State Bank data for March shows that public debt is almost three times the previous amount.

Despite these challenges, the government has proposed several measures in the 2024-25 budget to address these issues. These include a potential salary hike of 15 to 20 percent for federal employees. However, these proposals have been met with skepticism, particularly from the IMF, which has emphasized the need for cost reductions and pension reforms.

The upcoming budget presentation is expected to reveal how these proposals are balanced with the IMF’s recommendations and the government’s fiscal policies. The outcome will have significant implications for Pakistan’s economic future and the well-being of its citizens.

The Securities and Exchange Commission of Pakistan (SECP) has proposed a reduction in withholding tax (WHT) on dividends. This proposal, if accepted, could provide some relief to taxpayers. However, the Pakistan Stock Exchange (PSX) has proposed that the rate of tax for all listed companies be permanently lowered, a move that could potentially exacerbate the regressive nature of the taxation system.

The Ministry of Information Technology and Telecommunication (MoITT) is likely to get a budget of Rs. 11.82 billion for the upcoming year. This increase in budget allocation could potentially lead to advancements in the IT sector, thereby contributing to the country’s economic growth. However, the government is also considering ending the solar net metering policy and imposing fixed charges, a move that could have significant implications for the renewable energy sector.

The presentation of the Federal Budget 2024-25 is facing big uncertainty as many issues remain unresolved. The federal government has proposed to increase the regulatory duty on the import of used vehicles in the upcoming federal budget. This proposal, if implemented, could potentially make used cars more expensive in the next fiscal year.

The State Bank of Pakistan (SBP) is at risk of losing all credibility if it still manages to delay easing its monetary policy despite falling inflation. The federal government has for now delayed the International Monetary Fund’s (IMF) demand to increase the tax burden on the salaried class. These developments indicate that the government is grappling with the challenge of balancing fiscal responsibility with the need to support its citizens.

The 2024-25 budget presents a complex picture of Pakistan’s fiscal policy. While there are proposals for salary increases and tax reductions, the dominance of regressive taxation and the constraints imposed by international bodies like the IMF present significant challenges. As Pakistan moves towards the announcement of its budget, the question remains: will regressive taxation continue to dominate, or will there be a shift towards a more progressive taxation system? Only time will tell.

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