A new squabble but a smart KP budget

The new Khyber Pakhtunkhwa budget for the next financial year seems to be a smartly crafted document that commits to producing a significant surplus of Rs100 billion while proposing a slew of populist and expansionary measures in line with the ruling PTI’s election manifesto.

The estimate of the budgeted provincial receipts of Rs1.75 trillion appears a bit on the ‘higher side’ as some of the revenues, like the sum of nearly Rs158bn booked on account of net hydel profits and windfall levy on oil and federal funds for the merged districts of ex-Fata may not materialise — fully or partially — forcing the authorities to drastically adjust expenditure, particularly the record planned development outlay of Rs416.3bn.

The development budget constitutes a little over a quarter of the total expenditure of Rs1.65tr booked for the next fiscal year. Any shortfall in its income would also affect KP’s ability to produce a surplus at the end of the year.

In spite of these worries, one must concede that the authors of the provincial budget have kept from making irresponsible and irrational projections. Moreover, the province’s finance team has also introduced a few very significant reforms to expand the provincial own tax and non-tax revenues by rationalising existing tax rates and imposing levies on various sectors of the economy.

KP’s finance team has introduced a few significant reforms to expand its tax and non-tax revenues by rationalising existing rates and imposing levies on various sectors

Speaking with this correspondent, the Advisor to the Chief Minister on Finance Muzamil Aslam asserted the new budget is designed to boost the province’s own revenue mobilisation to over Rs83bn through tax and levy rate cuts and expansion of taxpayers’ base, reduce or contain nonessential current expenditure.

“The previous (caretaker) government’s decision to increase the tax rate on property transactions, for example, has almost halved the collection under this levy. So we have proposed to cut it down to 3.5 per cent next year from 6pc. Likewise, we have imposed levies on different sectors to expand revenue base and collection,” he said by phone from Peshawar. He says the provincial government is reducing its expenses as the federal government is not clearing its dues like net hydel profits and windfall levy on oil.

In his budget speech, KP Finance Minister Aftab Alam Afridi pointed out that the budget emphasis is on social protection, peace, employment opportunities, and economic development. He said reforms are being introduced in sales tax, property tax, tobacco tax and cess, among others, to improve revenue collection. “The government has decided to improve the tax net instead of increasing the taxes, and for that purpose several steps have been taken,” he said.

“The budget 2024-25 is not just a budget document. Rather, it is a roadmap for the development and prosperity of the province and reflection of the government’s strong resolve to uphold social justice and gender equality,” he said.

‘In the broader context, we have helped the federal government by committing a surplus of Rs100bn — they should be thanking us’

Among major initiatives announced in the budget includes a 10pc hike in salary and pension for government employees and pensioners, an increase in the minimum wage from Rs32,000 to Rs36,000 per month, allocation of Rs28bn for PTI’s flagship Sehat Card Plus programme, provision of Rs29bn for wheat subsidy, Rs12bn for three youth employment programmes, and Rs3bn for transport subsidy for the Peshawar Bus Rapid Transit (BRT).

The provincial finance minister says the youth employment schemes would create 100,000 jobs for the youth. In addition, the government has set aside Rs3bn for the Ehsaas Apna Ghar scheme, under which 5,000 houses would be constructed.

A new squabble

Nonetheless, the province’s decision to break away from old convention and announce its budget before the federal budget has ignited a new, unnecessary controversy.

The federal government led by the PML-N has taken exception to the Ali Amin Gandapur government’s decision, with the Minister of State for Finance and Revenue Ali Pervaiz Malik, dubbing it part of the PTI’s alleged attempts to sabotage Pakistan’s ongoing talks with the International Monetary Fund (IMF) for a new larger and longer loan to build its international reserves and stabilise its economy.

“They’ve done this before when the PDM government was trying to revive the agreement with the Fund. You are as well aware as I that the IMF loan is the only way to anchor current economic stability,” he told this reporter by telephone.

“What was the hurry to push the provincial budget the day the IMF mission had left, with the federal government still in the process of developing an economic roadmap in the light of the framework given by the lender? This is also against the spirit of federalism; it’s a very irresponsible step,” he concluded. He is of the view that the Gandapur government should have waited for the federal budget announcement.

Mr Aslam rejected federal criticism of the decision, saying the federal government has so far not determined the date for announcing its budget. “Even if the federal government presented its budget on June 7, there would be very little time for the provincial government to present and pass its budget due to Eidul Azha.

“We have not bypassed anyone, nor is there anything in the law stopping us from presenting the provincial budget before the announcement of the federal budget. In the broader context we have helped the federal government by committing a surplus of Rs100bn. They should be thanking us,” he concluded.

Published in Dawn, The Business and Finance Weekly, May 27th, 2024