Budget 2020-21: COVID-19’s Impact on Pakistan and Government plans to overcome it
The budget presentation by Industry and Production Minister Hammad Azhar referring to the outbreak of coronovirus.
The government’s efforts to get the economy back on track – which had surely seen considerable progress in the first nine months of the year – were undone by the outbreak and the inevitable lockdown imposed later.
Almost all industries and businesses were affected. There was a loss of about 3.3 trillion rupees in GDP, resulting in a 0.4% contraction in GDP.
Meanwhile, the budget deficit widened from 7.1% to 9.1% of GDP.
The Federal Board of Revenue (FBR), which achieved an ambitious (revised) target of around Rs4,900bn in potential revenue, lost Rs900 billion due to the coronovirus shutdown.
The government’s non-tax revenue also increased to Rs. There was a loss of 1022-2013.
Similarly, exports and remittances also declined and unemployment rose rapidly along with poverty.
Steps taken to deal with COVID-19
Despite the economy taking a hit, the government succeeded in bringing together an incentive package package of over Rs 1,200 billion, of which Rs875 billion has been recovered from the federal budget.
The funds are allocated as follows:
– For the purchase of medical equipment, protective clothing and other materials, Rs. 75 billion.
– 16 million among the most vulnerable citizens and shelters at Rs.
– Rs.200 billion to be distributed daily to villagers through direct cash transfer.
– To subsidize goods through Utility Stores Corporation for Rs. 50 billion.
– To provide refunds to exporters to be provided to FBR and Ministry of Trade for Rs. 100 billion.
– For electricity and gas bills, Rs. 100 billion.
– For 3 months small enterprises to cover electricity bills for 3 months Rs. 50 billion.
– For subsidized fertilizer, covered loans and various other relief measures for farmers, Rs. 50 billion.
– 100bn for emergency fund Rs.
In order to provide relief to the people amid restrictions, the Government, in line with its objectives, provided food and medical equipment for Rs. Also introduced a tax rebate of 15 billion.
In order to protect the farmers from the adverse effects of the virus on the economy, Rs.280bn was spent on the purchase of wheat to support their livelihood.
Petrol prices fell by Rs 42 and diesel by Rs 47 per liter, which turned into Rs70bn in relief for customers.
Construction to pave the way for economic stimulus
The Prime Minister announced special incentives for the construction sector, which included a fixed tax regime for builders and developers.
Under the rule:
– Construction has been given the status of industry.
– No questions about the source of funds for the projects.
– Tax levied on a per square foot / per square yard basis.
– No restriction on material except cement and steel.
– No restriction on services except those provided by companies.
– Builders and developers can take credit of income / profit from the project up to ten times the tax paid.
– For low-cost housing projects, the tax is reduced by 90%.
– Families will be exempted from capital gains tax on a house.
The new measures were implemented for new projects starting before December 31, 2020 and are open to existing incomplete projects that opt for taxation under the scheme.
Both new and existing projects will have to be registered with the FBR by filling a prescribed form on the IRB web portal.
Existing projects will self-declare completion percentage and pay fixed tax for the remaining project under the new fixed tax scheme.
There is also a tax exemption on dividends selected by builders and developers for taxation under the scheme.
The government also brought changes in its monetary policy to become better equipped to fight the virus.
The State Bank of Pakistan cut its policy rate to 5.25 percent, reducing it from 13.25% to 8%.
Businessmen will be given a 3-month tenure at a 4-month discounted rate of Rs. 96 billion payroll loans were provided.
775,000 borrowers for one year were provided relief on repayment of Rs.449bn in loan concessions, while Rs75bn loan was rescheduled.
Banks have been allowed to extend an additional 800 billion in personal and business loans through the expansion of credit limits.
Facility for importers and exporters
To facilitate importers and exporters, the government extended the time period to meet its performance requirement.
Supply of goods to exporters has been allowed from 6 am to 12 am. As an additional measure of relief, the terms of long-term loans have also been softened.
Foreign exchange receipts through exports will be receivable up to 270 days.
Exporters will be able to supply shipping documents and the limits for advance payment have been extended to facilitate imports.