Pakistan Gov’t sets optimistic targets for the Budget 2024-25

The Finance Minister has presented the much-awaited federal budget for the fiscal year 2024-25. This budget is crucial for securing the new IMF program and aligns with the government’s aim for fiscal consolidation. However, there are minimal efforts to implement reforms that would bring untaxed sectors into the tax net.

Revenue and expenditure targets

Revenue Targets

The government has set an ambitious revenue target of PKR 12.9 trillion for FY25, compared to the revised estimate of PKR 9.2 trillion for FY24. This represents an above-average growth of approximately 40%.

Revenue Breakdown:

Revenue Source	FY24 (PKR Trillion)	FY25 (PKR Trillion)	Growth (%)
Total Revenue	9.2	12.9	40%
Income Tax	3.6	5.4	48%
Indirect Taxes	5.5	7.5	35%

Expenditure Targets

The government’s current expenditure target for FY25 is PKR 17.2 trillion, up 21% year-on-year. This includes a significant increase in debt servicing and defense spending.

Expenditure Breakdown:

Expenditure Category	FY24 (PKR Trillion)	FY25 (PKR Trillion)	Growth (%)
Current Expenditure	14.2	17.2	21%
Debt Servicing	8.3	9.8	18%
Defense	1.9	2.1	14%
Subsidies	1.1	1.4	27%
PSDP	0.66	1.4	112%

Fiscal Deficit and Financing

The fiscal deficit is targeted at PKR 7.2 trillion for FY25, equivalent to 5.9% of GDP, down from 7.4% in FY24. The primary surplus is expected to be 2.0% of GDP, up from 0.4% in FY24.

Deficit and Financing:

Item	Amount (PKR Trillion)
Fiscal Deficit	7.2
Domestic Financing	7.8
External Financing	0.7

Sectoral impacts

Banking Sector

The banking sector is expected to see higher taxable income, increasing the effective tax rate.

Textile Sector

The textile sector, contributing 8.5% to GDP and employing 40% of the labor force, faces challenges due to increased taxes and a higher minimum wage.

Automobile Sector

The automobile industry will likely remain under pressure due to increased customs duties on imported vehicles and higher sales taxes on tractors.

Winners and Losers

The budget is generally neutral for the stock market but has varied impacts across different sectors:

Sector Impact:

Sector	Impact
Banks	Negative
Textiles	Negative
Automobiles	Positive
Steel	Positive
Cement	Neutral
Fertilizer	Neutral
Power	Neutral

Key changes in taxation

Personal Income Tax

• The highest tax bracket now applies to annual salaries exceeding PKR 4.1 million.
• Minimum taxable income remains at PKR 0.6 million.

Corporate Taxation

• Export income is to be taxed under the normal tax regime instead of the final tax of 1%.
• The CGT rate for non-filers increased up to 45%, while it remains flat for filers at 15%.

Indirect Taxes

• Sales tax increased from 15% to 18% on supplies by Tier-1 retailers dealing in leather and textile products.
• Non-filers face higher taxes on property transactions.

Indirect Tax Rates:

Item	FY24 Rate	FY25 Rate
Sales Tax (Retailers)	15%	18%
Property Tax (Non-filers)	10%	20%

Conclusion

The 2024-25 federal budget focuses on fiscal consolidation while aiming to secure the IMF program. The increased tax burden on various sectors and individuals highlights the government’s efforts to boost revenue, though it may face resistance from affected parties.

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Disclaimer:

The information in this article is based on research by Foundation Securities. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.