Centre taps provincial grant for defence

Finance Minister Muhammad Aurangzeb on Saturday said that provincial contributions to federal spending had been partly reflected in next year’s defence budget, adding that talks were under way on a three-year contribution framework.

Addressing his post-budget news conference, the finance minister elaborated on the use of over Rs1 trillion grant provided by the provinces to the Centre, enabling it to meet pressing financial needs that exceeded the available federal fiscal space.

The finance minister was accompanied by Information Minister Attaullah Tarar, Minister of State for Finance Bilal Azhar Kayani, Finance Secretary Imdadullah Bosal, FBR Chairman Rashid Langrial and Head of the Tax Policy Office Najeeb Memon.

Aurangzeb said that the arrangement was in place for the next year, after the government raised defence spending by 18% amid regional uncertainty.

The provincial grants will be used for defence purposes and to provide a fiscal buffer against the second- and third-round inflationary effects of the Middle East war, as well as to meet the country’s broader security requirements, said the finance minister.

Expressing hope that the conflict “comes to an end sooner than later”, Aurangzeb stated that energy infrastructure has been hit and so, “to expect that the Strait of Hormuz will open up, that things will normalise, or whether it’s LNG or other resources that have been hit, will normalise in a week or two weeks, that’s not going to happen”.

“So, it is going to spill over into the next fiscal year,” he added.

The minister said that discussions with the International Monetary Fund about some of the major tax relief measures were ongoing, as the government also approved a host of relief measures worth Rs20 billion for civil servants.

In an effort to calm disgruntled employees, who had been protesting for the past few days, the government accepted over a dozen of their demands, including merging two allowances and increasing the compensation under other allowances.

In the same vein, the finance minister said that the government was “in constant consultations with the IMF (on relief measures)”.

The government has proposed Rs360 billion relief measures but the sources said that the IMF had objections over halving withholding tax on property transactions that would cost the exchequer Rs115 billion.

The sources said that the government and the IMF would settle these issues in the coming days.

To a question about the IMF’s objections to the tax relief and whether the government will withdraw the relief or levy more taxes to offset over Rs100 billion impact, the finance minister said that “whatever will be done it will be done with their consultation”.

The government has also set aside Rs430 billion cash buffers in the budget to meet the exogenous shocks.

While responding to a question regarding protecting Rs430 cash buffers in the event of any revenue shortages, the minister said the government would try to protect these buffers, hoping that all the targets would be achieved.

Pay and Allowances

To a question, the Secretary Finance said that the government has merged the 2022’s ad hoc relief allowance of 15% and 2025’s 10% in the basic pay. This was one of the main demands of the federal government employees. The 7% increase has been given after merging these two allowances, resulting in a higher raise than the announced 7%.

The total cost of these relief measures including the ad-hoc allowance is estimated at little over Rs20 billion.

According to another relief, the government has given a disparity reduction allowance of 5% of the basic pay to all the employees in BPS-1 to 22 on the existing terms and conditions for those who are already in receipt of Disparity Reduction Allowance.

It has increased the rate of conveyance allowance by 50% of the existing amount, which had been kept frozen for a longer time. Likewise, the government has revised the constant attendant allowance for the Civil Armed Forces by increasing it from Rs7,000 to Rs30,000 per month.

The government has also revised the special area compensatory allowance for troops of the Pakistan Coast Guards and gave 10% in allowance by discontinuing the existing allowance admissible at the rate of 40% but at 1994 salary level.

The government has given 100% IMPAS Allowance on running basic pay to Immigration & Passport Department as per terms and the special pay for officers and staff of Cabinet & Cabinet Committees wings of the Cabinet Division has been revised from Rs6,000 to Rs20,000 per month.

It has also given 150% special NACTA/NIFTAC allowance to NACTA/NIFTAC employees but discontinued 100% risk allowance.

A 150% provisional allowance to police officers posted in Frontier Constabulary has also been approved.

It has increased a special allowance for the grade 22 employees of National Highway and Motorway Police from 10% to 50%. The government gave a special National Police Academy allowance of 50% to the officers posted at National Police Academy.

The special conveyance allowance has also been revised from Rs6,000 to Rs10,000.

NFC

The finance minister once again said that there was a need to revise the resource distribution formula among the four provinces as giving 82% of the resources on the basis of population was contributing to higher population in the country.

To a question, the minister said that Prime Minister Shehbaz Sharif’s commitment with Khyber-Pakhtunkhwa to bring legislation to increase provincial share on account of merged districts population would be honoured.

The finance minister also expressed gratitude to the provinces for the “way they have sort of stepped up in helping us for some of the more pressing needs”.

“Some of those have been reflected in the defence budget,” he added, noting that for this year, that arrangement is in place and “from our perspective, it’s a three-year discussion and we will take that forward with the provinces for the next couple of years as well”.

Salaried class

The cabinet ministers termed the budget pro-salaried and pro people, saying the budget would also stimulate growth.

“If we had to take this budget towards pro-business, pro-growth, so construction, obviously, housing construction plays a very important role, and the transaction taxes that we have brought down, you have already seen about that,” he stated.

Discussing agriculture, he said, “This has increased by 15% year on year, and this has crossed 2 trillion, which is the overall agricultural financing.”

Minister of State for Finance Kayani noted that “fundamentally, this is the budget of the salary class, this is the budget of the industrialists, this is the budget of the exporters, this is the budget of the construction sector”.

Kayani added, “this is the budget of the person who wants to build his own house and who does not have the means to do so”.

“The salary class is at the top of the list,” Kayani said, adding that “that is why it has always been said that the government will give relief to the salary class when it gets a chance”.

Kayani also discussed the reduction in the minimum and advance taxes for exporters, “whether it was the elimination of the first six slabs of super-tax and the last slab had to be reduced from 500 million to 10% to 8%”.

“These were basically the primary demands of our exporters and our formal industry,” he said.

Information Minister Attaullah Tarar termed the budget “relief-oriented” and said the reforms of the FBR are unprecedented and historic. “There have never been such major reforms in the history of the country,” Tarar said.

Discussing the petroleum levy, the finance minister clarified that “the amount of the levy is not increasing”.Read More