Federal Budget

FY2018-19 -
Key Highlights
Table of Content
Economy
Budget at a Glance
Budgetary Measures for the Stock Market
Sectoral Impact
Economy

FY18 GDP growth a 13 year high

GDP growth on track with FY18 clocking in at 5.8%; 13 year high
6.5% 6.2%
• FY18 has witnessed continued improvement in economic growth up from 5.4% in FY17 to 6.0% 5.8%
5.4%
5.8% for FY18, the highest in 13 year. GDP growth which averaged around 2.8% during the 5.5%
previous government’s tenure has increased to an average of 4.8% during the present 5.0%
4.5%
government’s tenure. The growth momentum remained above 5 percent for the last two 4.5% 4.1% 4.1%
years in a row and reached 5.8% in FY18 which is a 13 year high on account of a strong 4.0% 3.7%
performance in agriculture, industry and services sectors which grew by 3.8%, 5.8% and 3.5%
6.4%, respectively. 3.0%
2.5%
• With interest rates and inflation still benign, the government had laid special emphasis on FY13 FY14 FY15 FY16 FY17 FY18p FY19f

agriculture sector as well as giving incentives to the industrial sector especially exports Source: Economic Survey and MoF
oriented industries.

• Owing to declining energy shortages and investment under CPEC and improving business
confidence, the fixed investment in the economy is set to rise and would be the key catalyst Fiscal deficit targeted to reduce
for ascent in GDP growth as the government targets 6.2% growth for FY19.
Total Revenue Expenditure Fiscal Deficit
Fiscal deficit to remain a challenge 20.0% 9.0%
8.0%
• Under the IMF program, the government had done well to bring the fiscal deficit under 17.5% 7.0%
control at 4.6% in FY16, but saw a gradual rise to 5.8% in FY17. As per provisional budget 6.0%
15.0%
estimates, the government is targeting fiscal deficit of 5.5% for FY18 which will likely be 5.0%
revised upwards slightly. 12.5% 4.0%
3.0%
• The government is targeting further consolidation with fiscal deficit eyed at 4.9% for FY19 10.0% 2.0%
and 4.5% under the medium term budgetary framework for FY21. FY13 FY14 FY15 FY16 FY17 FY18p FY19f
Source: MoF
Economy
External side challenges needed to be adressed
Import Cover in weeks (SBP reserves)
• During 9MFY18, current account deficit remained at USD12.0 billion and the government 25.0
expects that it will cross USD15.0 billion at the end of current fiscal year. Amid declining 20.0
SBP foreign exchange reserves, the government introduced various measures such as
15.0
export package, a measured PKR devaluation, and hike in import duties. The government
has projected around PKR838 billion in external loan receipts, while external loan 10.0
payments are expected to stand at Rs326bn. 5.0

0.0
• Inflows from foreign amnesty scheme remains critical and can give the much needed

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18
Jul-13

Jul-14

Jul-15

Jul-16

Jul-17
relief on the external side given the rise in external debt repayments. Nonetheless, we feel
that Pakistan will enter a new IMF program in FY19, which will be critical in reducing the
Source: SBP
external account concerns.

Inflation has also remained subdued

Inflation has remained under control
• During 9MFY18, inflation has remained under control at 3.8% due to subdued food prices 12% Inflation Discount Rate
and controlled house rent inflation. The government has projected a 6% per annum 10%
inflation rate from FY2019-21. 8%
6%
•We feel that interest rate will also witness a gradual rise going forward in FY19 as pricing 4%
pressure builds up.
2%
0%
Pro-growth and Pro-industry budget with some key measures to address

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17
Jan-14

Jan-15

Jan-16

Jan-17

Jan-18
the black economy
• The budget envisages broadening of tax based and lowering of tax rates. Despite the fiscal
Source: PBS and SBP
constraints, the government has given a road map of decreasing both corporate and super
tax gradually. Overall, the budget has provided hefty tax relief to individuals and key
measures have been introduced to broaden the tax base especially to bring the real estate
sector in the tax net.
Budget at a Glance

Revenue Summary
PKR Bn FY18 FY19
June year end Budget Revised Deviation % of GDP Budget YoY Growth % of GDP

GDP (Market Price) 35,919 34,396 -4% 100% 38,388 12% 100%
Tax Revenues 4,330 4,147 -4% 12.1% 4,889 18% 12.7%
FBR Revenues 4,013 3,935 -2% 11.4% 4,435 13% 12.9%
Direct taxes 1,595 1,563 -2% 4.5% 1,735 11% 4.5%
Indirect taxes 2,418 2,372 -2% 6.9% 2,700 14% 7.0%
i) Customs duties 581 600 3% 1.7% 735 23% 1.9%
ii) Sales tax 1,605 1,547 -4% 4.5% 1,700 10% 4.4%
iii) Federal excise 232 225 -3% 0.7% 265 18% 0.7%
Other taxes 317 212 -33% 0.6% 454 114% 1.2%
Non-Tax Revenue 980 845 -14% 2.5% 772 -9% 2.0%
PSE dividends 93 80 -14% 0.2% 76 -4% 0.2%
SBP Profits 260 260 0% 0.8% 280 8% 0.7%
Interest (Provinces/PSEs) 96 130 35% 0.4% 124 -5% 0.3%
Defense receipts 142 15 -89% 0.0% 16 5% 0.0%
Gross Revenue Receipts 5,310 4,992 -6% 14.5% 5,661 13% 14.7%
Less: Provincial Transfers (2,384) (2,317) -3% -6.7% (2,590) 12% -6.7%
Net Revenue Receipts 2,926 2,676 -9% 7.8% 3,070 15% 8.0%
Source: Ministry of Finance
Budget at a Glance

Expenditure Summary
PKR Bn FY18 FY19
June year end Budget Revised Deviation % of GDP Budget YoY Growth % of GDP
Current Expenditure 3,477 3,870 11% 11.3% 4,179 8% 10.9%
Debt Servicing 1,363 1,526 12% 4.4% 1,620 6% 4.2%
Defense 920 999 9% 2.9% 1,100 10% 2.9%
Others 1,194 1,345 13% 3.9% 1,458 8% 3.8%
PSDP – Federal (Net) 1,001 750 -25% 2.2% 800 7% 2.1%
Gross PSDP 2,113 1,550 -27% 4.5% 1,650 6% 4.3%
Less: Provincial Share (1,112) (800) -28% -2.3% (850) 6% -2.2%
Other Dev. Expenditure 152 153 1% 0.4% 180 18% 0.5%
Net Lending 123 83 -32% 0.2% 87 5% 0.2%
Total Expenditure 4,753 4,856 2% 14.1% 5,247 8% 13.7%

Federal Deficit 1,826 2,180 19% 6.3% 2,176 0% 5.7%

Provincial Surplus 347 274 -21% 0.8% 286 4% 0.7%
Federal Fiscal Deficit 1,479 1,906 29% 5.5% 1,890 -0.9% 4.9%
Fiscal Deficit as % of GDP 4.1% 5.5% 4.9%
Source: Ministry of Finance
Budgetary Measures for the Stock Market
 Tax on bonus shares has been abolished which is currently applicable at 5% rate.
 Corporate tax rate to be reduced from presently applicable rate of 30% to 25% in a phased manner by FY2023 by
lowering it @1% per year.
 Super tax, which was imposed in FY2015 (on income above PKR500 million @ 4% for banking companies, @3%
on non-banking corporate entities) to be phased out in 3 years.
 Contrary to expectations, inter-corporate dividend and Capital Gain Tax (CGT) regime have been maintained.
 Mandatory dividend payout ratio for companies has been reduced from 40% to 20% and incremental tax for
non-compliance has also been trimmed to 5% from currently applicable 7.5% rate.
 Investment limit for tax credit in mutual fund investment has been raised from PKR1.5 million to PKR2 million.
 Withholding tax @ 5% on issuance of bonus shares by mutual funds have also been exempted.
 Tax Credits under Section 65, Sub Sections (B, C, D, E) extended upto 30-06-2021 for establishing a new industrial
undertaking, purchase of machinery through equity and extension, expansion and BMR of machinery.
 Sectoral Impact
Sectors Key Measures Impact
• Prize scheme for overseas Pakistanis where home remittance transactions sent
through commercial banks, and other financial institutions will be included in
monthly lucky draws
Positive
Banking & Insurance • Super tax @ 4% will be gradually phased out in 3 years
• WHT on banking transactions to be reduced to 0.4% for non-filers
• Withholding tax on payments remitted abroad through credit/debt/prepaid cards
@1% and 3% for filers and non-filers

• Reduction of sales tax on all fertilizers from 5% to 2%

• Reduction in sales tax on agricultural machinery from 7% to 5%
• Reduction of sales tax on supply of feed stock gas to fertilizers from 10% to 5%
Fertilizer • Reduction in sales tax on LNG used as feedstock from 5% to 0% & removal of Positive
currently applicable value addition tax @ 3%
• Removal of cash subsidy of Rs100 per bag on urea
• Agri credit target has been raised to PKR1,100 billion

• Hike in Sales Tax on steel melters from PKR 10.5/unit to PKR 13/unit
• Allocated budget of PKR 1.03 trillion under Public Sector Development Program Positive for flat rolled
Steel Sector
(PSDP) producers
(Engineering)
• Increase in Regulatory Duty on scrap, billets and flat rolled steel from 5% to 10%. Negative for long rollers
• Continuity of Tax Credits under section 65, Sub Sections (B, C, D, E)

• FED Increased by PKR 12.5 per bag

Cement • Custom Duty on coal reduced Neutral
• PSDP focusing on motorways and dams slightly raised to PKR1,030 billion
 Sectoral Impact
Sectors Key Measures Impact
• The GoP is also working on a new export package which will focus on value added
exports and non-traditional markets
• Reduction of CD on import of coal by 2%
Textile • Zero-Rating Regime for Textile Exports maintained
Positive
• Reduced mark-up rate under LTFF and ERF to continue
• Refund claims are proposed to be cleared in 12 months starting 1st Jul-18. And all
new refund claims after the said day will be cleared on a monthly basis

• Sales tax on LNG supply to be reduced to 12% from 17%

Oil & Gas Marketing • PDL ceiling on POL products raised
Neutral
• VAT on LNG import abolished

• Withdrawal of custom duty on two catalysts for PTA industry Hydrogen Bromide/
Palladium-on-carbon which is presently 11% and 3% respectively
Chemical
• Duties on Acetic Acid is reduced to 16% from 20% Positive
• Custom Duty on Carbon Black lowered from 20% to 16%

Power Generation &

Distribution • Increase in subsidy to WAPDA/PEPCO from PKR102.5 billion to PKR134 billion which
Neutral
Companies mainly comprises of Inter-Disco tariff differential.
 Sectoral Impact
Sectors Key Measures Impact

• Refineries with a minimum expansion size of 100k bpd to be exempted from income
Refinery tax for a period of 20 years Neutral

Consumer • Customs duty on silicon electrical steel sheets for transformers to be reduced to 5%
Positive

• Booking, registration or purchase of a new locally manufactured motor vehicle or for

registration of an imported vehicle shall not be accepted for a non-filer
• Custom duty on import of electric cars is proposed to be reduced from 50% to 25% in
Autos addition to exemption from regulatory duty of 15%. Import of CKD kits for assembly Negative
of domestically produced electric cars is proposed at 10%

• Scope of PM Health Program , previously in 41 districts, to be expanded to all the

Pharmaceuticals Positive
districts of the country