Initial Budget Impressions FY22

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Dear Clients,

The Federal Budget FY22 adopted a growth-centric tone and proposed progressive measures to transition the economy to growth.

Key Highlights

– GDP growth rate has been set at 4.8% for FY22 against a projected figure of 3.94% during FY21. Long-term growth target has been set at 6-7%.

– The total outlay for the budget has been set at PKR 8,478bn for FY21, up by 17% YoY. Moreover, FBR’s tax collection target has been increased to PKR 5,829bn, up by 17% YoY.

– Fiscal deficit has been targeted at 6.3% during FY22 vs. 7.0% last year

– Exports are targeted at USD 26.8bn while imports have been projected at USD 55.3bn (trade deficit: USD 28.5bn)

– Current Account Deficit has been targeted at USD 2.3bn (0.7% of GDP)

– PSDP has been increased by 43% YoY to PKR 900bn for FY21

– Minimum wage has been increased by PKR 2500 to PKR 20,000

Notable revenue measures

– Prioritize adding the online market place to the tax net

– Proposal to streamline the 6th and 8th schedule and withdraw exemptions other than those falling under basic food, health and education

– Increasing regulatory duty on the import of non-essential/luxury items

– Rationalization of regulatory duty on mobile phones

– Export of services will be taxed at 1% under the final tax regime

Notable relief measures

– Capital gains tax on the sales of securities has been reduced by 2.5pps to 12.5%

– Reduction in WHT on 12 items including cash withdrawals, travel, extraction of minerals, certain petroleum products and margin financing by NCCPL

– Turnover tax has been reduced by 0.25pps to 1.25%

Closing statement

The budget has greatly focused on providing relief to several sectors including offering exemptions in duties. The key development is the reduction in CGT by 2.5pps to 12.5%, likely enhancing investor sentiments. The auto sector, particularly PSMC, is likely to benefit from increased sales after the reduction in GST and the removal of FED on vehicles under 850cc.  Moreover, the expected benefit to refineries has also materialized in the form of 10yr tax exemptions on BMR or for new projects.

KASB Research

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