Pakistan – 2017 Budget highlights | KPMG | GLOBAL

Pakistan – 2017 budget highlights

Pakistan – 2017 budget highlights

KPMG in Pakistan presents highlights of the country’s 2017 budget bill, including an overview of Pakistan’s economy and a round-up of important tax changes.

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Key economic statistics presented in the budget bill for the fiscal year 2016-17 are as follows:

  • GDP growth increased to 5.3 percent, due in part to improved performance by the agricultural sector, primarily important crops.
  • Per capita income increased to 1,629 US dollars (USD), up from USD1,531 last year.
  • Consumer Price Index (CPI) inflation increased to 4.09 percent, compared to 2.79 percent last year, but was kept under control.
  • Tax collections rose by 8 percent, which is a smaller increase than last year.
  • The government asserts that the fiscal deficit will remain on the downward trajectory observed in recent years; the deficit was 4.6 percent last year.
  • The State Bank of Pakistan’s record-low policy rate is retained at 5.57 percent.
  • For the fourth consecutive year, the exchange rate held steady at about USD1 = 104.7 Pakistani rupees (PKR). 
  • The Pakistan Stock Exchange (PSX) index surpassed 52,000.
  • Foreign exchange reserves are maintained at USD21 billion but are down from the record of USD24 billion at the end of October 2016.

Dark clouds continue to gather on the economic horizon, however. The current account deficit reached an alarming USD7.25 billion, primarily due to an increasing trade deficit and declining workers remittances:

  • The trade deficit on goods, services and primary income stood at USD25.9 billion for the period ended July to April 2017, primarily because of declining exports. 
  • Workers remittances fell by around 2.8 percent and amounted to USD15.6 billion during this period. The government remains optimistic of meeting the target of USD20 billion.

As a result, Pakistan’s total external debt and liabilities stood at USD75.7 billion at 31 March 2017. Moody’s predicts that by June 2017, external debt might reach to USD79 billion.

The government’s focus on infrastructure, including the China-Pakistan Economic Corridor, has largely contributed to positive perceptions across the country and arguably remains the primary contributor in the GDP growth – but a cost. Pakistan’s total debt and liabilities stand at a record PKR23.9 trillion at the end of March 2017.

Budget 2017 – round-up of tax changes

Key tax changes announced in Pakistan’s 2017 budget bill are as follows:

  • A super tax of 4 percent for banking companies and 3 percent for persons other than banking companies earning more than PKR500 million, introduced as one-time levy for tax year 2015, was extended to tax year 2016 and is now proposed to be extended for tax year 2017.
  • A public company that does not distribute 40 percent or more of its after-tax profit, either through cash dividends or bonus shares, will be subject to tax on undistributed profits at 10 percent.
  • The tax credit period for companies that opt to get listed on the stock exchange is proposed to be extended to 4 years (from 2 years). The tax credit will be allowed at 20 percent of tax payable for the first 2 years and at 10 percent for the next 2 tax years. 
  • The bill proposes to reintroduce the ability to apply for an advance ruling for non-residents having permanent establishments in Pakistan, which was withdrawn in 2011.
  • The tax on dividends is proposed to increase to 15 percent (from 10 percent). The tax on dividends from mutual funds is proposed to increase to 12.5 percent (from 10 percent). 
  • The tax rate on capital gains on securities is proposed to be enhanced by prescribing a flat tax at a rate of 15 percent for filers and 20 percent for non-filers, replacing the existing three-tiered slab rates based on the security’s holding period.   
  • The budget bill proposes that start-up businesses offering technology-driven products or services would be exempt from tax, including minimum tax, for 3 years. To qualify, the start-up must be certified by the Pakistan Software Export Board and have turnover of less than PKR100 million in each of the last 5 tax years.
  • The rate of minimum tax (i.e. turnover tax) for individuals, associations of persons and companies is increased to 1.25 percent (from 1 percent).
  • The budget bill proposes to allow permanent establishments of non-residents engaged in construction or related contracts and contracts for advertising services rendered by television satellite channels to apply to the Commissioner for an exemption or reduction in withholding tax, in cases where the tax is adjustable.
  • Transfer pricing audits are proposed, independent of income tax audits, and a separate directorate is being established.
  • Penalties are proposed for not meeting requirements to maintain records of transactions with associates or related rules. A penalty is also proposed for failure to provide required information by reporting financial institution or reporting entity.
  • The budget bill proposes to validate all notifications and orders issued and notified by the federal government before the commencement of Finance Act, 2017, despite any judgment of the High Court or Supreme Court.

For details on these and other changes in the budget bill, read the report from KPMG in Pakistan. 

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