Pakistan's Federal Budget FY20 serves up mixed bag of tax measures

Pakistan Minister of State for Revenue, Hammad Azhar, presented the incumbent's governments first federal budget on 11 June with a total outlay of PKR8.2trn (US$53.9bn), which is 38.9 per cent higher than the FY18-19 Federal Budget.

The FY19-20 Budget has been prepared to achieve the following economic targets: real GDP growth of 2.4 per cent, inflation between 11-13 per cent, a tax-to-GDP ratio of 12.6 per cent, a fiscal deficit of 7.1 per cent, tax revenues of PKR5.55trn, a primary deficit at 0.6 per cent of GDP and a current account deficit of US$6.5bn.

Some of the taxes measures will have directly impact on the cement industry, according to research houses, whereas the cement industry's representative body is reviewing the tax measures and yet to announce its reaction.

Pakistan's State Minister for Revenue has proposed to increase the Federal Excise Duty (FED) on cement, which is currently levied at PKR1.50/kg, implying PKR75/bag will attract a levy of approximately PKR2.0/kg, leading to a final bag price of PKR100. Expert opinion suggests this is a negative step for the cement industry. With surplus capacities coming online and "price wars continuing, especially in north region" against a background of a ‘weak cement cartel’, cement manufacturers could be unable to fully pass on the impact of a hike in the FED, thus leading to an erosion in cement manufacturers' bottomlines. 

The government has approved a development portfolio of PKR1.86trn (Federal PSDP: PKR912bn) against the FY19 PSDP of PKR1.2trn (Federal PSDP: PKR700bn). The programme will focus on infrastructure, including energy, transport and communication, water, physical planning. 

According to Al Habib Capital Market, some other negative measures include:-
A. It is proposed that the minimum turnover tax be enhanced from 1.25 to 1.5 per cent from 0.2 to 0.25 per cent, from 0.25 to 0.3 per cent and from 0.5 to 0.75 per cent in Budget FY19-20
B. Budget FY19-20 has laid out a plan for freezing corporate tax rate at 29 per cent for the next two years
C. Corporate industrial undertakings investing in purchase of plant and machinery for extension, expansion and BMR are allowed tax credit equal to 10 per cent of purchase price of machinery. This facility is available up to FY20-21 with tax credit allowed to companies which purchase and install plant, and  machinery up to 30 June 2019. It is proposed to reduce the said tax credit from the current 10 to five per cent of purchase value of machinery.