Tag: Budget Surplus

  • What Punjab’s 182 billion rupee missed IMF target means for local businesses

    What Punjab’s 182 billion rupee missed IMF target means for local businesses

    Business owners in Punjab are preparing for tough times ahead as the provincial government of Punjab missed the budget surplus goal set by the International Monetary Fund (IMF) for this quarter by a staggering 182 billion rupees. Not meeting the IMF stipulated objectives might foster bad will as international lenders will be weary of extending loans to Pakistan in the future.

    Suppose lawmakers in Islamabad direct Punjab’s provincial government to meet the budget surplus goal at any cost. In that case, it will likely spell bad news for the businesses and people that call it home. This is because a budget surplus can be increased via either reducing government expenditure or levying higher taxes: Neither of which are optimal.

    While customs duties and corporate taxes remain under Islamabad’s control, the provincial government in Punjab has the authority to raise service and property taxes. This is likely to happen as the surplus goal for this quarter was missed by a margin of an uneasy 53%.

    According to Punjab’s Housing, Urban Development, and Public Health Engineering Department (HUDPHED), there were 1,680 approved construction companies in 2022, with many more operating unofficially without approval. If property taxes rise, the construction companies are expected to suffer as their clients will be stuck paying the higher taxes leaving less money for the owners of the companies.

    Moreover, an increase in services tax will cause businesses to lose out on either profits or customers. This is because businesses will have to make the tough decision of either absorbing the higher sales tax while holding prices constant or passing on the tax to their customers in the form of higher prices – which might turn customers away.

    If the government of Punjab decides to raise the surplus by decreasing its expenditures on projects, this will be bad news, too.

    This is because businesses that rely on public contracts will suddenly not be able to secure new contracts. And with the provincial government tightening its metaphorical belt, the employees of these businesses will be pushed to do the same too.

    This is because the loss of contracts might cause businesses to lay their employees off. The result of this decision can only be negative as laid-off workers will think twice before spending money, which will translate into a loss of sales for local businesses.

    While experts believe that following the conditions of the IMF is necessary, this discipline might stir up some issues for businesses. For now, all eyes are on the government of Punjab, and only time will tell what is to happen next.

  • Govt collects Rs75 billion from consumers in one month through petroleum levy

    The Pakistani government collected a significant sum of Rs75 billion in revenue from the petroleum levy (PL) in July 2023. This levy is a crucial income source because it’s not part of the divisible pool. The increase in the petrol levy to Rs55 per litre has driven this boost in revenue.

    If this pattern continues for the remaining 11 months of the fiscal year, the government could surpass its ambitious budget target for the petroleum levy. The target of Rs869 billion might be exceeded by a notable Rs31 billion.

    In July, the first month of the fiscal year, petroleum consumption decreased by 6 per cent compared to the same month in the previous fiscal year. However, when we look at the month-to-month basis, petroleum product consumption remained constant in July 2023 compared to the previous month.

    An anonymous source from the Petroleum Division, speaking to Brecorder, expressed the government’s concern about the potential decline in consumption. Such a decline could jeopardise meeting the budget goals. However, the government has a plan in place. If needed, the petroleum levy could be increased to Rs60 per litre, which is the maximum limit according to an agreement with the IMF under the Stand-By Arrangement (SBA) and the Finance Act 2023–24.

    Predictions for the current month point to a collection of Rs70 billion from the petroleum levy due to recent price increases of Rs17.50 per litre for petrol and Rs20 per litre for high-speed diesel (HSD).

    The government has committed, under the ongoing IMF SBA, to gradually raising the levy rate to an average of Rs55 per litre over the fiscal year. This strategic move is estimated to bring in an additional Rs79 billion. Currently, the government enforces a petroleum levy of Rs55 per litre on petrol and Rs50 per litre on HSD.

    Keep in mind that any rise in the petroleum levy on fuel products could lead to inflation, increasing transportation costs for goods and people as well as input expenses for various sectors.

    Oil industry experts speculate that gasoline prices might increase further by the end of the month. This projected increase is mainly due to the ongoing depreciation of the Pakistani rupee against the US dollar, which is likely to reduce gasoline consumption.

    In the last fiscal year, the government collected Rs580 billion from the petroleum levy, falling short of the Rs855 billion target by Rs275 billion.

    During the first quarter of the fiscal year 2022–23 (July–September 2022), the collection of the petroleum levy was Rs47.476 billion. This lower amount was due to the lower levy rates of Rs10 on petrol and Rs5 on HSD. Subsequently, collections increased significantly to Rs177.805 billion in the first two quarters (July–December) and further to Rs362.480 billion in the first three quarters (July–March 2023) of the previous fiscal year.

    It’s noteworthy that total consumption of petroleum products dropped by 27 per cent year-on-year in the fiscal year ending on June 30, 2023. Consumption decreased from 22.6 million metric tonnes in the fiscal year 2021–22 to 16.61 million metric tonnes in 2022–23 (July–June).