Budget speech: clear and uplifting

Minister for Finance and Revenue Senator Muhammad Aurangzeb’s budget speech had a degree of clarity compared to past budget speeches and was somewhat uplifting unlike those of previous years.

Analytically, the speech presented a clear distinction between the real economic disease and its symptoms. According to the finance minister, the low-growth cycle was identified as a symptom, with extensive government intervention being the real disease. The minister’s solution is to move towards a more market-driven economy. Another issue identified by the minister was a consumption-based economy, for which his proposed solution is a shift towards an investment-based economy.

The speech conveyed two central messages with clarity: the importance of privatisation and the need to limit government intervention in the market. The finance minister emphasised that a market-driven economy would be more efficient and lead to sustainable growth.

Additionally, the budget took a firm stance against non-filers, implementing measures that are explicitly unfavourable to them. This approach is justified, as it aims to broaden the tax base and ensure compliance, ultimately fostering a more equitable and robust economic system. By promoting privatisation and reducing government interference, the speech outlined a clear vision for a more dynamic and investment-friendly economy in Pakistan.

The future direction for the Federal Board of Revenue (FBR) includes digitisation and progressive taxation, where the tax rate increases as taxable income rises. For both salaried and non-salaried individuals and associations of persons, there is no tax on income up to Rs600,000. Above this threshold, non-salaried taxpayers face five progressive tax brackets ranging from 15% to 45%. Salaried individuals have a separate structure with five brackets ranging from 5% to 35% on income exceeding Rs600,000.

The focus of Budget 2024-25 is more on increasing taxes than on fostering growth. Successful economic models around the world prioritise economic growth, with taxation being a byproduct of that growth. These models recognise that stimulating business activity leads to a larger tax base and higher revenues without stifling economic progress. Unfortunately, this crucial element appears to be missing in our budget. By prioritising immediate revenue generation over long-term economic expansion, the budget may hinder Pakistan’s ability to achieve sustainable development.

Pakistan’s Budget 2024-25, while allocating over Rs3 trillion in subsidies and grants, fails to provide significant incentives to boost domestic corporate activity. This stands in stark contrast to neighbouring countries like India (30% standard corporate tax rate) and Bangladesh (proposed 25% rate for FY2024-25).

In fact, Pakistan’s effective corporate tax rate can reach nearly 50%, making it one of the highest in the world. This disparity discourages investment and hinders Pakistan’s competitiveness in the global market.

Despite a clear diagnosis and a call for a market-driven approach, Budget 2024-25 prioritises short-term revenue gains over long-term growth. By neglecting to incentivise domestic businesses and clinging to high tax burdens, Pakistan risks losing its competitive edge and stalling its path to sustainable development.

In conclusion, while Aurangzeb’s budget speech presented a clear and somewhat uplifting vision for a market-driven economy, the budget misses the mark by focusing excessively on immediate tax hikes rather than fostering long-term economic growth. The high tax rates and lack of incentives for domestic corporate activity risk driving talent and investment away, ultimately hindering Pakistan’s economic competitiveness and sustainable development.

To truly prosper, Pakistan must adopt a growth-oriented approach that encourages investment while ensuring a fair and efficient tax system.

Originally published in The News