Chapter 4

FISCAL DEVELOPMENT

Fiscal policy has a significant role in creating an equitable distribution of income and wealth
in society. Particularly, better fiscal management helps mobilize domestic savings and
increase the efficiency of resource allocation. Consequently, it paves the way for achieving
macroeconomic stability along with promoting more sustainable and inclusive growth.
Historically, whenever Pakistan’s economy has witnessed higher growth, it was
unsustainable because it created macroeconomic imbalances. The growth was largely driven
by consumption-led spending as opposed to investment. The non-productive nature of this
growth caused higher external and fiscal imbalances. Consequently, it has seriously
undermined the growth prospects. Furthermore, structural weaknesses like weak tax
administration, a difficult business environment, low tax to GDP ratio and insufficient
resources further aggravated the situation.
In 2018, the economy was at a critical juncture due to rising debt and liabilities, high current
account and fiscal deficit, depleting foreign exchange reserves and circular debt. In
particular, persistently high fiscal deficit due to income-expenditure mismatch resulted in an
unsustainable level of public debt, which in turn, became the major source of
macroeconomic imbalance. In the wake of these challenges, the government introduced
adjustment and demand management policies to ensure economic and financial stability and
to improve the growth prospects. Similarly, Pakistan entered into 39-months Extended Fund
Facility with IMF for the $ 6.0 billion to support the government’s reform program.
These measures helped in handling macroeconomic imbalances, particularly, the constraints
on the fiscal side were put on the path of fiscal discipline and fiscal consolidation. During
the first nine months of the current fiscal year, all major fiscal indicators have witnessed a
marked improvement owing to government’s stringent fiscal strategy to improve the
revenues through comprehensive tax measures and administrative reforms along with
expenditure rationalization. The persistence of these measures would be supportive in
addressing a large primary deficit to ensure debt sustainability over the medium term.
Further, with the promulgation of the Public Finance Management Act 2019, budgetary
management is being strengthened and it will encourage fiscal discipline and transparency,
going forward.
During the first nine months of the current fiscal year, the performances of fiscal indicators
suggest that fiscal consolidation is on track. Overall fiscal deficit reduced to 4.0 percent of
GDP against 5.1 percent of GDP recorded in the same period last year while primary
balance posted a surplus of Rs 194 billion during July-March, FY2020 against the deficit of
Rs 463 billion during the comparable period of FY2019. Total revenues grew by 30.9
Pakistan Economic Survey 2019-20

percent during July-March, FY2020 against 0.04 percent growth during the same period of
FY2019, on account of a substantial rise in both tax and non-tax revenues. Similarly, on the
expenditure side, PSDP spending witnessed a significant rise both at federal and provincial
levels. Overall PSDP expenditure grew by 24.9 percent during July-March, FY2020 over the
previous year.
However, the outbreak of Coronavirus (COVID-19) has negatively affected the near-term
outlook. It has brought significant challenges for the economy by squeezing the economic
gains achieved during the ongoing fiscal year. In particular, fiscal accounts are expected to
come under tremendous pressure.
On one hand, the Government is focused on increasing the expenditures on public health and
strengthening social safety net programs, while on the other, it intends to mitigate the impact
of the COVID-19 on the economy. In doing so, the budget will therefore temporarily deviate
from initial targets. On the revenue side, achieving targets of both tax and non-tax would be
challenging owing to disruption in economic activity, manifested through both demand and
supply shocks. The budget deficit is expected to exceed the target set for FY2020.
Nevertheless, the Government has acted in a timely and well-calibrated manner to lessen the
detrimental effects of COVID-19. It has taken appropriate measures to support the economy
through fiscal and monetary policies. On the fiscal side, a comprehensive fiscal stimulus
package has been initiated in order to accommodate the expenditures required to mitigate the
impact of the COVID-19 shock. The package has created stress on fiscal flows, however, the
impact may become severe if the pandemic lasts for a longer time period. State Bank of
Pakistan has responded timely through appropriate monetary policy response. The measures
have been aimed at a reduction in the policy rate and introduction of various ways to
improve the liquidity of, particularly small-scale businesses. It has introduced various other
temporary and time- bound actions which will ensure monetary stability and functionality of
the financial system in the wake of COVID-19 crisis.
In order to meet the financing requirement for these expenditures, additional resources have
also been mobilized through various international financial institutions including IMF,
World Bank, ADB etc. The government is constantly monitoring the situation in the
country and accordingly additional measures are being deployed to meet the emerging
requirements.

Box-I: Impact of COVID-19 on Public Finances

The COVID-19 pandemic has not only caused severe damage to human lives but it has also taken a toll on
global economic activity. Various necessary safety measures have brought much of the global economic
activity to a halt. IMF has projected the global economy to contract sharply by –3 percent in 2020, much
worse than during the 2008–09 financial crises. With the decline in global output, revenues are expected to
reduce even more sharply.
To date, various policy measures have been taken worldwide in this regard to mitigate the health and economic
effect of the COVID-19 outbreak. However, in response to these measures, fiscal balances in 2020 are
expected to deteriorate significantly in almost all countries, particularly, a substantial widening is expected in
the United States, China and several European and Asian economies. While for Pakistan, the fiscal deficit is
projected to increase by 9.2 percent of GDP in 2020.

68
 Fiscal Development

By increasing expenditures on monitoring, containment

and mitigation, countries are allocating more fiscal Fig: 4.1- General Government
Overall Balance (% of GDP)
resources to the health sector. Moreover, to lessen the
economic impact of COVID-19, countries are providing
additional fiscal
iscal resources to other sectors of the economy.
On the expenditure side, measures include extended -5.5
unemployment benefits, government
government-funded paid sick -7.1 -7.4
-9.2 -8.3 -8.3 -9.2
-9.5
leave, wage subsidies, targeted transfers to affected 11.8-11.2
-11.8-
-12.6
households and firms, and support to hard
hard-hit sectors such
-15.4
as tourism, hospitality services, and travel. On the revenue

France

Canada
Spain

Pakistan
Germany
Italy

China
India
Saudi Arabia
USA

U.K
Japan
side, measures include temporary deferral of corporate and
personal income tax payments and social security
contributions ranging from three months to one year, as
well as temporary tax relief
elief or exemptions, including on Source: Fiscal Monitor, April.2020.
medical goods and services, for affected sectors and
vulnerable firms and households.
In order to finance these additional fiscal measures, governments strategy around the world includes
reprioritizing budget items; using emergency funds or buffers; frontloading existing spending plans, external
aid or grants and undertaking additional borrowing.
Source: Fiscal Monitor - April 2020. IMF

Fiscal Performance (July-June,

June, FY2019)
A brief review of major fiscal indicators duri
during
ng FY2019 indicate a sharp deterioration as
overall fiscal deficit increased to 9.1 percent of GDP owing to the unprecedented decline in
revenue collection and a significant rise in current expenditures. Earlier, a significantly
higher level of fiscal deficit
cit was recorded at 8.8 percent in FY2012 followed by 8.2 percent
in FY2013.
Total revenues remained below the revised target of 14.5 percent of GDP and stood at 12.9
percent of GDP during FY2019. Although both tax and non non-tax
tax revenues recorded a
significant
ant decline, however, non
non-tax revenues reduced substantially to 1.1 percent of GDP
against 2.2 percent of GDP recorded in the preceding year. The decline in non-tax
non revenue
largely stemmed from a sharp reduction in SBP profit and mark mark-up
up payments (PSE
&others).
ers). On the other hand, non
non-tax
tax revenues witnessed higher growth in royalties on gas
and oil, discount retained on crude oil and other levies owing to increase in rupee value of
crude oil. However, a sharp decline in revenues from both SBP profit and mark-up
mark (PSE &
others) offset the impact of an increase in collection within energy
energy-related
related components.
Total tax revenue collection stood at 11.8 percent of GDP, of which, FBR tax collection
recorded at 10.1 percent of GDP during FY2019. The slowdown in tax collection c was
primarily attributed to decline in the sales tax rate on major petroleum products, suspension
of the withholding tax on mobile phone top top-ups,
ups, decline in PSDP expenditures, import
compression and reduced rate on salary income.
On the expenditure
re side, despite a sharp decline in development spending, a significant rise
in current expenditure kept total expenditures at a higher level. Development expenditures
and net lending reduced from 4.7 percent of GDP in FY2018 to 3.2 percent of GDP in
FY2019. With the increase of 18.7 percent of GDP in current expenditures, total spending
stood at 22.0 percent of GDP during FY2019. Consequently, with widening revenue- revenue
69
Pakistan Economic Survey 2019-20

expenditure gap, fiscal deficit reached 9.1 percent of GDP during FY2019 against 6.5
percent of GDP recorded in FY2018.

Fig:4.2- Revenue-Expenditure Gap (% of GDP)

30.0

24.0 Expenditures
18.0
Fiscal Deficit
12.0

6.0 Revenues
0.0
FY2008

FY2009

FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020
Table: 4.1 Fiscal Indicators as Percent of GDP
Overall Expenditure Revenue
Year Fiscal Total Current Development/1 Total Tax Non-
Deficit Tax
FY2008 7.3 21.4 17.4 4.0 14.1 9.9 4.2
FY2009 5.2 19.2 15.5 3.5 14.0 9.1 4.9
FY2010 6.2 20.2 16.0 4.4 14.0 9.9 4.1
FY2011 6.5 18.9 15.9 2.8 12.3 9.3 3.0
FY2012 8.8 21.6 17.3 3.9 12.8 10.2 2.6
FY2013 8.2 21.5 16.4 5.1 13.3 9.8 3.5
FY2014 5.5 20.0 15.9 4.9 14.5 10.2 4.3
FY2015 5.3 19.6 16.1 4.2 14.3 11.0 3.3
FY2016 4.6 19.9 16.1 4.5 15.3 12.6 2.7
FY2017 5.8 21.3 16.3 5.3 15.5 12.4 3.0
FY2018 6.5 21.6 16.9 4.7 15.1 12.9 2.2
FY2019* 9.1 22.0 18.7 3.2 12.9 11.8 1.1
FY2020 B.E 7.5 24.4 20.5 3.9 16.9 14.6 2.3
/1
including net lending, * on the basis of revised GDP numbers, B.E: Budget Estimates
Source: Budget Wing. Ministry of Finance

Similarly, the fiscal year 2019 witnessed a deterioration in primary and revenue balances
which highlighted growing debt pressure and limited fiscal space for critical development
expenditures. During FY2019, primary balance posted a deficit of Rs 1,353.8 billion (-3.6 %
of GDP) against the deficit of Rs 760.5 billion (-2.2 % of GDP) in FY2018. Likewise,
revenue deficit stood at Rs 2,203.3 billion (-5.8% of GDP) in FY2019 against the deficit of
Rs 626.3 billion (-1.8% of GDP) in FY2018.
According to provincial fiscal operations, all the four provinces posted a combined surplus
of Rs 190.0 billion in FY2019 against the deficit of Rs 17.5 billion in FY2018. However,
Punjab generated a significantly higher surplus of Rs 122.3 billion followed by Sindh (Rs
42.1 billion).

70
 Fiscal Development

Review of Public Expenditures

The efficient utilization of public expenditures for priority areas is at the forefront of the
government’s reform agenda. The aspiration is to support higher inclusive and sustainable
economic growth. However, the legacy of inefficient fiscal management has posed multiple
challenges for the present government in allocating sufficient resources for priority areas.
Particularly, higher interest payments, untargeted subsidies and loss-making SOEs added to
the rigidity of current expenditures.
Table 4.2: Trends in Components of Expenditure (As % of GDP)
Year Total Current Mark-up Defence Development Non Fiscal Revenue Primary
Expenditure Expenditure Payments Expenditure* Interest Deficit Balance Balance
Non-
Defence
Exp
FY2006 17.1 12.6 2.9 2.9 4.4 11.2 4.0 0.5 -1.1
FY2007 18.1 14.9 4.0 2.7 4.7 11.4 4.1 -0.8 -0.1
FY2008 21.4 17.4 4.6 2.6 4.2 14.2 7.3 -3.3 -2.7
FY2009 19.2 15.5 4.8 2.5 3.4 11.8 5.2 -1.4 -0.3
FY2010 20.2 16.0 4.3 2.5 4.1 13.4 6.2 -2.1 -1.9
FY2011 18.9 15.9 3.8 2.5 2.8 12.6 6.5 -3.5 -2.7
FY2012 21.6 17.3 4.4 2.5 3.9 14.6 8.8 -4.5 -4.3
FY2013 21.5 16.4 4.4 2.4 3.5 14.7 8.2 -3.0 -3.8
FY2014 20.0 15.9 4.6 2.5 4.5 12.9 5.5 -1.5 -1.0
FY2015 19.6 16.1 4.8 2.5 4.1 12.3 5.3 -1.8 -0.6
FY2016 19.9 16.1 4.3 2.6 4.5 13.0 4.6 -0.9 -0.3
FY2017 21.3 16.3 4.2 2.8 5.3 14.3 5.8 -0.8 -1.6
FY2018 21.6 16.9 4.3 3.0 4.6 14.3 6.5 -1.8 -2.2
FY2019 22.0 18.7 5.5 3.0 3.1 13.5 9.1 -5.8 -3.6
FY2020 B.E 24.4 20.5 6.6 2.6 4.0 15.2 7.5 -3.6 -0.9
* excluding net lending
Source : Budget Wing, Ministry of Finance and EA Wing’s Calculations

During FY2019, total expenditures grew by 11.4 percent to Rs 8,345.6 billion (22.0 percent
of GDP) against Rs 7,488.4 billion (21.6 percent of GDP) in FY2018. Despite a decline in
development expenditures during FY2019, accelerated growth in current expenditures
attributed to a sharp rise in growth of total expenditures. Overall, current expenditure
contributed 85.1 percent in total expenditures during FY2019 against the share of 78.2
percent witnessed in FY2018. During FY2020, the share was budgeted to decline to 84
percent.

Fig: 4.3 - Growth in Expenditures (%)

Total Expenditure
60 Current
50 Development

40
30
20
10
0
-10
-20
-30
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 (B.E)

71
Pakistan Economic Survey 2019
2019-20

Current expenditures grew by 21.3 percent to Rs 7,104 billion (18.7 percent of GDP) in
FY2019 against Rs 5,854.3 billion (16.9 percent of GDP) in FY2018. Major contribution in
current expenditures came from higher mark mark-up payments which grew by 39.4 percent
owing to a rise in domestic interest rates. In absolute term
term, it increased to Rs 2,091
2 billion in
FY2019 against Rs 1499.9 billion during FY2018. Share of mark mark-up
up payments in total and
current expenditures increased to 25.1 and 29.4 percent, respectively during FY2019 against
20.0 percent and 25.6 percent, respectively in FY2018.
Anotherr major component within current expenditures is defence related expenditure which
grew by 11.3 percent to Rs 1,146.8 billion in FY2019 against Rs 1,030.4 billion in FY2018.
Defence expenditures contributed 13.7 and 16.1 percent share in total and current
expenditures, respectively, in FY2019 against the share of 13.8 and 17.6 percent,
respectively during FY2018.
Regarding current subsidies, it has witnessed a sharp rise in FY2019 in both absolute and
growth terms. It increased from Rs 114.2 billion in FY2018 to Rs 195.3 billion during
FY2019, thus grew by 71.1 percent. Its contribution within current expenditures increased to
2.7 percent in FY2019 from 2.0 percent recorded in FY2018. A significant rise in subsidy
was largely attributed to higher energy
energy-related
ated subsidies due to power generation.
Within current expenditures, other components also recorded a sharp rise during FY2019.
For instance, Superannuation Allowances & pension (17.7 percent), Grants (other than
Provinces) (15.2 percent), Other General P
Public
ublic Services (45.9 percent), Public Orders and
Safety affairs (37.6 percent), Economic affairs (24.7 percent) and Social protection (18.4
percent).

Fig:4.4- Expenditures % of GDP

Current Expenditure Development Expenditure Total Expenditure

24.4
21.6 21.5 21.3 21.6 22.0
20.0 19.6 19.9 4.0
3.9 5.3 4.6 3.1
3.5 4.5 4.1 4.5

17.3 16.4 15.9 16.1 16.1 16.3 16.9 18.7 20.5

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020

(B.E)

Contrary to the rise in current expenditures, development expenditures and net lending
reduced by 24.8 percent
ercent to stand at Rs 1,219.2 billion against Rs 1,621.7 billion in FY2018.
The decline was largely attributed to a sharp reduction in PSDP spending both at the federal
and provincial level. PSDP spending stood at Rs 1,008.2 billion in FY2019 against
Rs 1,456.2
,456.2 billion, thus reduced by 30.8 percent. Federal PSDP declined to Rs 502.1 billion

72
 Fiscal Development

(Net excluding development grants to provinces), while provincial stood at Rs 506.2 billion
during FY2019 against Rs 576.1 billion and Rs 880.1 billion respectively during
ing FY2018.
Structure of Tax Revenues
Pakistan’s tax structure is characterized
Fig:4.5- Tax Revenues % of GDP
by the narrow tax base, massive tax
evasion, a large number of concessions Federal Provincial Tax Revenues
and exemptions, regressive tax regime, 14.6
reliance on indirect taxes and tax 12.6 12.4 12.9
1.4
11.8
administration challenges.. The combined 10.2 9.8 10.2
11.0
1.0 1.0 1.2
1.1
effect of these challenges has resulted in 0.7 0.8
0.8
0.5
the low tax-to-GDP
GDP ratio over the years.
13.2
11.6 11.4 11.7 10.7
9.7 9.2 9.4 10.2
During FY2019, overall tax revenues
reduced to 11.8 percent of GDP. Within
total tax collection, FBR which collects a
FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020
substantial portion of tax revenues

B.E
witnessed
nessed a sharp decline in its collection.
It reduced to Rs 3,828.5 billion (revised)
in FY2019 against the collection of Rs 3,843.8 billion (revised) in FY2018, thus posted a
negative growth of 0.4 percent. While in terms of GDP, it reduced to 10.1 percent during
FY2019 as compared to 11.1 percent of GDP in FY2018. Weak tax collection is largely
attributed to a slowdown in economic growth, low tax rates on major petroleum products,
suspension of withholding tax collection on mobile top
top-ups,
ups, import compression,
compressi reduced
government spending and a reduced rate on salary income.

Table 4.3.: Structure of Federal Tax Revenue Rs Billion

Year Total Tax Rev as Direct Indirect Taxes
(FBR) % of GDP Taxes Customs Sales Excise Total
FY2006 713.5 8.7 225.0 138.4 294.8 55.3 488.5
[31.5] {28.3} {60.3} {11.3} [68.5]
FY2007 847.2 9.2 333.7 132.3 309.4 71.8 513.5
[39.4] {25.8} {60.3} {14.0} [60.6]
FY2008 1,008.1 9.5 387.9 150.7 377.4 92.1 620.2
[38.5] {24.3} {60.9} {14.9} [61.5]
FY2009 1,161.1 8.8 443.5 148.4 451.7 117.5 717.6
[38.2] {20.7} {62.9} {16.4} [61.8]
FY2010 1,327.4 8.9 526.0 160.3 516.3 124.8 801.4
[39.6] {20.0} {64.4} {15.6} [60.4]
FY2011 1,558.2 8.5 602.5 184.9 633.4 137.4 955.7
[38.7] {19.3} {66.3} {14.4} [61.3]
FY2012 1,882.7 9.4 738.4 216.9 804.9 122.5 1,144.3
[39.2] {19.0} {70.3} {10.7} [60.8]
FY2013 1,946.4 8.7 743.4 239.5 842.5 121.0 1,203.0
[38.2] {19.9} {70.0} {10.1} [61.8]
FY2014 2,254.5 9.0 877.3 242.8 996.4 138.1 1,377.3
[38.9] {17.6} {72.3} {10.0} [61.1]
FY2015 2,589.9 9.4 1,033.7 306.2 1,087.8 162.2 1,556.2
[39.9] {19.7} {69.9} {10.4} [60.2]

73
Pakistan Economic Survey 2019
2019-20

Table 4.3.: Structure of Federal Tax Revenue Rs Billion

Year Total Tax Rev as Direct Indirect Taxes
(FBR) % of GDP Taxes Customs Sales Excise Total
FY2016 3,112.7 10.7 1,217.3 404.6 1,302.7 188.1 1,895.4
[39.1] {21.3} {68.8} {9.9} [60.9]
FY2017 3,367.9 10.6 1,344.2 496.8 1,329.0 197.9 2,023.7
[39.9] {24.5} {65.7} {9.8} [60.1]
FY2018 3,843.8 11.1 1,536.6 608.4 1,485.3 213.5 2,307.2
[39.7] {26.4} {64.4} {9.3} [60.0]
FY2019 3,828.5 10.1 1,445.5 685.6 1,459.2 238.2 2,383.0
[37.8] {28.8} {61.2} {10.0} [62.2]
FY2020 BE 5,555.0 12.6 2,081.9 1,000.5 2,107.7 364.8 3,473.1
[37.5] {28.8} {60.7} {10.5} [62.5]
[]as % of total taxes, {} as % of indirect taxes
Source: Federal Board of Revenue

Within FBR tax collection, direct taxes de

declined by 5.9 percent in FY2019. Similarly, sales
tax collection
lection reduced by 1.8 percent owing to the sharp decline in the GST rate on
Petroleum Products on both import and domestic stages, reduced GST on natural gas and
import compression. However, customs duty and FED posted a healthy growth of 12.7
percent and 11.6 percent respectively.

In terms of share within total FBR tax collection, Sales tax remained the major revenue
source with a higher contribution of 38.1 percent followed by the direct taxes with 37.8
percent. Similarly, the share of customs stood aatt 17.9 percent while FED contribution in
total FBR tax collection reached 6.2 percent during FY2019. It implies that the tax structure
of Pakistan over the years still remains heavily dependent on indirect taxes.
Currently, the contribution of indirect ta
taxes
xes is 62.2 percent in total FBR tax collection which
has reduced from 68.5 percent in FY2006. On the other hand, the contribution of direct taxes
has increased steadily over the years on account of various reforms/initiatives undertaken in
the past like introduction
ntroduction of USAS, the promulgation of Income Tax Ordinance, 2001. As a
result of these initiatives, the emphasis has shifted to voluntary compliance, automation of
entire business processes and reduction of corporate tax rates from a peak of 49 percent to
29 percent in the tax year 2019.

74
 Fiscal Development

The share of sales tax has witnessed a

gradual decline over the years due to shifting Fig:4.7- Share of Direct and Indirect
Taxes in Total FBR Collection (FY2019)
of services to the provincial governments Customs
18%
like telecommunication, banking and
insurance services which were the major Direct Tax
source of revenue of sales tax. Similarly, the 38%

contribution of customs duty in total FBR

collection has come down from 45.7 percent
in FY1991 to around 18 percent in FY2019.
The decline in share is attributed to a gradual
decline in maximum statutory rates of
customs duty from 125 percent in FY1988 to Excise
Sales
38%
20 percent in FY2020. 6%

Historically, FED has been an important source of FBR revenues, however, it has witnessed
a declining trend over the years and now it is limited to only a few commodities like
cigarettes, cement, beverages, international travel etc. The contribution of FED in the total
collection has dropped from 20 percent in FY1991 to 6 percent during FY2019.
The present government is focused on introducing a tax structure that is not only capable to
generate sufficient revenues to meet government’s need, but also embodies fairness and
equity in taxation, reduces the burden of high taxes that distorts economic incentives,
improve tax enforcement and promotes efficient and responsive tax administration. In this
regard, various reforms / special initiatives and steps have been envisioned by FBR, aligned
with progress in the sectoral policies for the facilitation of taxpayers. These initiatives are
intended to give fruitful results in the form of better revenue collection in line with efforts to
facilitate the taxpayers for the best outcome (Box-II).

Box-II: Major Initiatives Taken by FBR

A. Automation of Business Processes
For simplification/ automation of registration of sales tax and income tax, a mobile app has been launched for
online registration. However, biometric verification has been outsourced to NADRA to avoid any contact
between a tax collector and taxpayer. In addition, ‘Tax Assan’ App has also been launched which cater for
filing of simple returns.
B. Income Tax Enforcement Measures
I. Withholding Taxes
– Special WH Tax Management Plan
– Taxpayer Education/Awareness Outreach Initiative
– Focused & Risk Based WH Taxes Monitoring
II. Broadening of Tax Base (BTB) Initiatives
i. Data obtained from DISCOs and Gas Companies for broadening of the tax base
– Data of more than 3.5 million industrial and commercial users gathered
– Informal letters issued to all such consumers for registration
– In the first phase notices to industrial consumers issued for registration
ii. To develop a 360-degree view of tax payers, data sources like banks, vehicles and real estate
transactions have been captured and a Data Bank developed.
iii. Number of tax filers has reached to around 2.7 million, which is a record high in the history of FBR

75
Pakistan Economic Survey 2019-20

for the tax year 2018.

C. Registration of Persons for Sales tax
Industrial and commercial data of DISCOs have been obtained which are being utilized for registration of
those traders who have obtained commercial or industrial connections but are not registered for sales tax.
D. Sales Tax (Enforcement Measures)
i. Point of Sales (POS): Development of a mobile app for customers to get cash back on Sales Invoices
ii. Track & Trace System for Specified Goods (i.e., Tobacco, Cement, Sugar, Beverages and
Fertilizers)
iii. Establishment of Port Teams for Third Schedule items
iv. Joint Anti-smuggling field intelligence exercise
v. Inland Revenue Enforcement Network (IREN)
– Establishment of IREN to check smuggling and counterfeit products and counterfeit products in
tobacco, electronics, Cosmetics and beverages.
Other Initiatives
i. Plaza Mapping at Lahore, Karachi and Islamabad
ii. Launch of Device Identification, Registration and Blocking System (DIRBS) to control smuggling of
mobile devices
iii. Discouraging imports of luxurious goods through additional Regulatory Duties (RDs)
iv. Forensic audit in Sugar, Tobacco and Steel Industries to address leakages and tax evasion and in
these industries
Under Customs Implementation Plan, the following are the priority initiatives
i. More contribution / collection through realizing stuck-up revenue through administrative measures
like Auctions, Recovery, litigation disposal etc
ii. Enhance Effectiveness of the Risk Management Process/ Establishment of National Targeting Centre
to prevent loss of revenue through mis-declarations in values, quantities, & description
iii. Strengthening of Post Clearance Audit Organization and Function to ensure that consignments
cleared through Green channel are scrutinized and possible evasions/short payments are recovered
iv. Design, Develop and Roll Out of WeBOC-global for ease of doing business and promote bonafide
imports
Besides above listed steps / initiatives, the government has also launched a five year reform program by
obtaining a loan from the World Bank which includes:
i. Transformation of Business Model
ii. Organizational capacity building by HR system improvement
iii. Simplification of laws and procedures
iv. Taxpayer facilitation through behavioral change
Source: Federal Board of Revenue (FBR)

Fiscal Performance (July-March, FY2020)

The fiscal performance during the first nine months of the current fiscal year has remained
strong. With the continuous efforts to ensure fiscal discipline, the government has
successfully reduced the fiscal deficit to 4.0 percent of GDP during July-March, FY2020
against the deficit of 5.1 percent in the comparable period of FY2019. Similarly, primary
balance posted a surplus of Rs 193.5 billion (0.5 percent of GDP) during July-March,

76
 Fiscal Development

FY2020 against the deficit of Rs 463.3 billion (-1.2 percent of GDP) last year. The
improvement in the fiscal account is largely attributed to higher provincial surplus and a
sharp rise in non-tax revenues. Overall, total revenues posted an impressive growth that
outpaced the rise in expenditures.
Table 4.4: Consolidated Revenue & Expenditure of the Government
FY2020 B.E July-March (Rs Billion) Growth
FY2020 FY2019 FY2020
A. Total Revenue 7,458.0 4,689.9 3,583.7 30.9
% of GDP 16.9 11.2 9.4
a) Tax Revenue 6,431.0 3,594.3 3,162.1 13.7
% of GDP 14.6 8.6 8.3
Federal 5,822.0 3,273.1 2,874.4 13.9
of which FBR Revenues 5,555.0 3,044.3 2,704.5 12.6
other Federal 267.0 228.8 169.9 34.7
Provincial Tax Revenue 609.0 321.2 287.7 11.6
b) Non-Tax Revenue 1,027.0 1,095.6 421.6 159.9
% of GDP 2.3 2.6 1.1
B. Total Expenditure 10,740.0 6,376.1 5,506.2 15.8
% of GDP 24.4 15.3 14.5
a) Current Expenditure 9,025.0 5,611.6 4,798.4 16.9
% of GDP 20.5 13.4 12.6
Federal 6,096.0 3,887.7 3,180.9 22.2
Mark-up Payments 2,891.0 1,879.7 1,459.2 28.8
% of GDP 6.6 4.5 3.8
Defence 1,153.0 802.4 774.7 3.6
% of GDP 2.6 1.9 2.0
Provincial 2,929.0 1,723.9 1,617.4 6.6
b) Development Expenditure & net 1,715.0 781.4 684.2 14.2
lending
% of GDP 3.9 1.9 1.8
PSDP 1,662.0 722.5 578.5 24.9
Other Development 80.0 29.2 77.4 -62.2
c) Net Lending -27.0 29.7 28.3 4.9
e) Statistical discrepancy 0.0 -16.9 23.7
C. Overall Fiscal Deficit -3,282.0 -1,686.2 -1,922.5 -12.3
As % of GDP -7.5 -4.0* -5.1**
Financing of Fiscal Deficit 3,282.0 1,686.2 1,922.5 -12.3
i) External Sources 1,829.0 682.4 524.5 30.1
ii) Domestic 1,453.0 1,003.8 1,398.0 -28.2
- Bank 484.0 601.8 787.7 -23.6
- Non-Bank 819.0 402.0 610.4 -34.1
Privatization Proceeds 150.0 0.0 0.0
GDP at Market Prices 44,003 41,727 37,972 9.9
*On the basis of provisional GDP
**On the basis of revised GDP
Source: Budget Wing, Finance Division

According to the consolidated fiscal operations, revenue collection grew by 30.9 percent
during July-March, FY2020 in contrast with 0.04 percent growth in the same period of
FY2019 despite a slowdown in economic activity and import compression. In absolute

77
Pakistan Economic Survey 2019-20

terms, total revenues stood at Rs 4,689.9 billion (11.2 percent of GDP) during July-March,
FY2020 against Rs 3,583.7 billion (9.4 percent of GDP) in the same period of FY2019.
Both tax and non-tax revenues have performed better in boosting overall revenue collection.
Tax revenues increased to Rs 3,594.3 billion during the first nine months of the current
fiscal year against Rs 3,162.1 billion in the comparable period last year, posting a growth of
13.7 percent. Tax revenues picked up in response to various policy measures implemented
at the start of FY 2020. Out of total tax collection, federal and provincial tax revenues
increased by 13.9 percent and 11.6 percent respectively during July-March, FY2020. Within
total federal tax collection, FBR accumulated Rs 3,044.3 billion (7.3 percent of GDP) during
July-March, FY2020 against Rs 2,704.5 billion (7.1 percent of GDP) in the same period of
FY2019, posting a growth of 12.6 percent.
Non-tax revenues witnessed a strong recovery during July-March, FY2020 against the
decline of 16.7 percent in the comparable period of last year. In absolute term, it amounted
to Rs 1,095.6 billion during July-March, FY2020 against Rs 421.6 billion in the same period
of FY2019. The major source of this rebound was a substantial rise in receipt of outstanding
telecom licenses renewal fees and SBP profit. The breakup shows that out of the total,
Rs 635.5 billion were accumulated as SBP profit followed by Rs 113.2 billion from PTA
profit, Rs 70.0 billion under mark-up (PSEs & others), Rs 65.6 billion from royalties on
oil/gas and Rs 26.6 billion as a dividend.
On the expenditure side, total expenditures incurred during July-March, FY2020 grew by
15.8 percent to Rs 6,376.1 billion (15.3 percent of GDP) as compared with Rs 5,506.2
billion (14.5 percent of GDP) in the comparable period of FY2019. Within the total, current
expenditure remained the major source of increase with 16.9 percent growth in nine months
of the current fiscal year. In absolute terms, it increased to Rs 5,611.6 billion during July-
March, FY2020 against Rs 4,798.4 billion in the comparable period of last year. The
increase in current expenditure is primarily attributed to higher mark-up payments, grants
for social spending and expenditures on social protection.
It is worth mentioning that there has been a substantial rise in the grants during the current
fiscal year as these increased by more than 50 percent to stand at Rs 363.1 billion against
Rs 227.1 billion in the comparable period last year. Higher social spending reveals the
government’s commitment to improve the living standards of people apart from providing
them with basic necessities of life.
On the other hand, the mark-up payments on both domestic and foreign debt consumed
Rs 1,879.7 billion during July-March, FY2020 against Rs 1,459.2 billion in the comparable
period of last year, thus grew by 28.8 percent. Increase in mark-up payments has been
observed mainly on domestic debt as a result of higher interest rates and re-profiling of
domestic debt.
Further breakup of current expenditures shows that defence expenditures grew by 3.6
percent to reach Rs 802.4 billion in the first nine months of the current fiscal year against
Rs 774.7 billion in the same period of FY2019.
During July-March, FY2020, subsidies amounted to Rs 169.5 billion against Rs 96.8 billion

78
 Fiscal Development

in the same period of FY2019, registering a growth of 75 percent. The break-up shows that
Rs 133.9 billion has been provided for inter-Disco tariff differentials and Rs 8.5 billion to
WAPDA (receivables from FATA). Similarly, Rs 11.7 billion subsidy has been released to
the LNG sector for providing gas to the industry on lower rates. Most importantly, against
the budgeted amount of Rs 2.5 billion to Utility Stores Corporations (USC) for Ramazan
package, the government has provided an amount of Rs 10 billion subsidy during the first
nine months of the current fiscal year.
Development expenditure (excluding net lending) grew by 14.6 percent during July-March,
FY2020 and stood at Rs 751.7 billion against Rs 655.9 billion in the same period last year.
The sharp rise has been realized across both federal and provincial levels. In particular,
PSDP expenditures grew by 24.9 percent during July-March, FY2020 in contrast to a sharp
decline observed during the same period last year. In absolute term, PSDP expenditures
escalated to Rs 722.5 billion in the first nine months of the current fiscal year against
Rs 578.5 billion in the comparable period last year.
Within PSDP, provincial development expenditures witnessed a remarkable performance by
posting a growth of 38.4 percent and amounted to Rs 382.0 billion during July-March,
FY2020 against Rs 276.0 billion in the comparable period last year. Similarly, federal PSDP
grew by 12.6 percent to stand at Rs 340.5 billion as compared with Rs 302.4 billion in the
same period of FY2019.
In order to finance the fiscal deficit, domestic and external resources generated Rs 1,003.8
billion and Rs 682.4 billion respectively during July- March, FY2020. Of domestic sources,
financing from bank stood at Rs 601.8 billion and from non-bank amounted to Rs 402.0
billion during the period under review.
Detailed analysis reaffirms this fact that overall, fiscal accounts have registered a significant
improvement during the first nine months of the current fiscal year. However, the outbreak
of COVID-19 has brought a plethora of challenges to further improve the fiscal indicators.
The government has taken swift actions to control the spread of the virus along with
introducing an economic stimulus package. The aspiration is to increase health expenditures,
strengthening social safety net programs and supporting economic activity.
Nevertheless, in doing so, major risks have emerged towards the end of the current fiscal
year such as expected revenue shortfall and a sharp rise in expenditures due to higher
subsidies and grants. Consequently, the short term economic impact of COVID-19 is
expected to be significant, creating large fiscal and external financing needs.

FBR Tax Collection (July-April, FY2020)

FBR tax collection has witnessed a remarkable turnaround during the current fiscal year
after posting negative growth of 0.4 percent in FY2019. The overall FBR tax collection
grew by 10.8 percent to Rs 3,300.6 billion during July-April, FY2020 against Rs 2,980.0
billion in the comparable period last year. Within the total, the domestic component of tax
revenue collected by the FBR grew by 14.7 percent to stand at Rs 2,777.7 billion in first ten
months of the current fiscal year against Rs 2,421.1 billion in the comparable period last
year.

79
Pakistan Economic Survey 2019-20

The rise in tax collection is attributed to various policy initiatives implemented at the start of
FY2020 such as charging sales tax on more items at the retail price under 3rd Schedule,
reinstatement of taxes on telecom services and an upward revision of tax rates on various
salary slabs. In addition, an upward revision in the federal excise duty (FED) rates and the
abolishment of the zero-rating regime on five export-oriented sectors provided further
impetus to FBR tax collection.
Tax wise details are presented in the following table:
Table 4.5: FBR Tax Revenues (Rs Billion)
Revenue Heads FY2019 July-April % Change
Actual FY2019 FY2020*
A. DIRECT TAXES
Gross 1,147.8 1,285.3 12.0
Refund/Rebate 76.1 62.1
Net 1,445.5 1,071.7 1,223.2 14.1
B. INDIRECT TAXES
Gross 1,944.2 2,165.8 11.4
Refund/Rebate 35.9 88.4
Net 2,383.0 1,908.3 2,077.4 8.9
B.1 SALES TAX
Gross 1,186.5 1,424.8 20.1
Refund/Rebate 21.2 76.4
Net 1,459.2 1,165.3 1,348.4 15.7
B.2 FEDERAL EXCISE
Gross 184.0 206.1 12.0
Refund/Rebate 0.0 0.0
Net 238.2 184.0 206.1 12.0
B.3 CUSTOM
Gross 573.7 534.8 -6.8
Refund/Rebate 14.7 12.0
Net 685.6 558.9 522.8 -6.5
TOTAL TAX COLLECTION
Gross 3,092.0 3,451.0 11.6
Refund/Rebate 112.0 150.5
Net 3,828.5 2,980.0 3,300.6 10.8
*: Provisional
Source: Federal Board of Revenue

I. Direct Taxes
The net collection of direct taxes has registered a growth of 14.1 percent during the first ten
months of FY2020. The net collection has increased from Rs 1,071.7 billion to Rs 1,223.2
billion. The bulk of the tax revenues of direct taxes is realized from income tax. The major
contributors of income tax are withholding tax, voluntary payments and collection on
demand.
II. Indirect Taxes
The gross and net collections of indirect taxes have witnessed a growth of 11.4 percent and
8.9 percent respectively. It is accounted for 62.9 percent of the total FBR tax revenues.

80
 Fiscal Development

i. Sales Tax
Within indirect taxes, net collection of sales tax increased by 15.7 percent. The gross and net
sales tax collection during July-April, FY2020 has been Rs 1,424.8 billion and Rs 1,348.4
billion respectively, showing a growth of 20.1 percent and 15.7 percent respectively. In fact,
around 55.0 percent of total sales tax was contributed by a sales tax on import during
July-April, FY2020, while the rest was contributed by the domestic sector.
ii. Federal Excise Duty
The collection of federal excise duties (FED) during July-April, FY2020 has recorded 12.0
percent growth. The net collection has stood at Rs 206.1 billion during July-April, FY2020
as against Rs 184.0 billion during the same period last year. The major revenue spinners of
FED are cigarettes, cement, services and beverages.
iii. Customs Duty
Customs duty has registered a negative growth of 6.8 percent and 6.5 percent in gross and
net revenues respectively. The net collection has decreased from Rs 558.9 billion during
July-April, FY2019 to Rs 522.8 billion during July-April, FY2020. The major revenue
spinners of customs duty have been vehicles, mineral fuels, iron and steel, electrical
machinery, plastic, edible fruits etc.
Impact of COVID-19 on FBR Tax Collection
COVID-19 pandemic has casted a significant impact on revenue collection efforts of FBR.
During the first eight months of FY2020, FBR recorded total revenue collection of Rs 2,738
billion with a growth rate of 17.5 percent over last fiscal year. FBR was able to achieve 91.4
percent of its (first revised) target for the period. However, after the outbreak of COVID-19
pandemic, an average negative growth rate of 13.4 percent was recorded during March 2020
and April 2020 as compared to last year as well as compared to the projected collection. The
situation is likely to exacerbate further during the month of May and slight recovery is
expected in the last month of the financial year because of usual lumped government
spending.
Assessment of the full impact of COVID-19 on FBR’s tax collection merits analysis of the
various expected and projected revenue figures prior to the time of crisis emergence. FBR’s
target which stood at Rs 4,807 billion was revised downwards to Rs 3,908 billion keeping in
view the economic slowdown consequent to the pandemic. The aforementioned revision had
thus forecasted a revenue loss of Rs 899 billion. Nevertheless, the actual shortfall is
expected to be higher than what has been projected.
The Federal Government has recently announced an incentive package for the construction
sector, fulfilling the longstanding demand of builders and developers for fixed income tax
and declaration of the construction sector as an industry. The package would not only revive
the construction industry but also serve as a catalyst to enhance business activity in forty
different economic sectors. Furthermore, FBR is also striving for simplification of laws and
procedures to reduce the cost of doing business and lower administrative burden.
The total impact of COVID-19 pandemic is yet to be determined. The dynamic and

81
Pakistan Economic Survey 2019-20

challenging nature of the crisis necessitates an equally dynamic and vigorous strategy that is
capable of being evolved in response to the demands made on it.
Provincial Budget
Total expenditures of all provinces are expected to increase by 23.8 percent, to stand at
Rs 4,090 billion in FY2020 against the revised estimates of Rs 3,302.5 billion in FY2019.
Within the total, current expenditures are budgeted to rise by 12.7 percent to Rs 2,952.7
billion in FY2020 against the revised estimates of Rs 2,619 billion during FY2019. On the
other hand, development expenditures are expected to remain at Rs 1,137.3 billion in
FY2020 against the revised estimates of Rs 683.5 billion in FY2019, reflecting a growth of
66.4 percent. The share of current and development expenditures in total expenditures is
expected to remain at 72 percent and 28 percent respectively during FY2020.

Table 4.6: Overview of Provincial Budgets Rs Billion

Items Punjab Sindh Khyber Balochistan Total
Pakhtunkhwa
FY2019 FY2020 FY2019 FY2020 FY2019 FY2020 FY2019 FY2020 FY2019 FY2020
RE BE RE BE RE BE RE BE RE BE
A. Tax Revenue 1,406.5 1,898.9 789.7 1,027.6 398.8 540.7 232.5 295.9 2,827.5 3,763.1
Provincial Taxes 209.0 295.0 221.5 266.5 19.8 33.0 8.4 14.7 458.7 609.2
GST on Services (transferred 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
by Federal Govt)
Share in Federal Taxes 1,197.5 1,603.9 568.2 761.1 379.0 507.7 224.1 281.2 2,368.8 3,153.9
B. Non-Tax Revenue 47.2 58.3 67.3 76.1 39.9 46.0 18.1 33.2 172.5 213.6
C. All Others 42.2 -29.7 66.3 21.8 60.7 202.1 5.8 3.5 175.0 197.7
Total Revenues (A+B+C) 1,495.9 1,927.5 923.3 1,125.5 499.4 788.8 256.4 332.6 3,175.0 4,174.4
a) Current Expenditure 1,225.0 1,298.8 751.8 870.2 411.8 526.3 230.4 257.4 2,619.0 2,952.7
b) Development 227.9 350.0 230.9 360.2 175.6 319.0 49.1 108.1 683.5 1,137.3
Expenditure
Total Exp (a+b) 1,452.9 1,648.8 982.7 1,230.4 587.4 845.3 279.5 365.5 3,302.5 4,090.0
Source: Provincial Finance Wing, Finance Division.

Overall provincial revenue receipts are estimated to increase by 31.5 percent to reach Rs
4,174.4 billion in FY2020 as compared to the revised estimates of Rs 3,175.0 billion during
FY2019. Tax revenues accounting for 90 percent of total provincial revenues are expected to
remain at Rs 3,763.1 billion in FY2020 which are 33.1 percent higher than last year’s
revised estimates. Whereas, non-tax revenues are budgeted to be at Rs 213.6 billion during
FY2020 which are 23.8 percent higher than the revised estimates of Rs 172.5 billion in
FY2019.

Allocation of Revenues between Federal Government and Provinces

According to the distribution of resources structured by the 7th NFC Award, the net
transfers to provinces are Rs 3,410.7 billion in the budget estimates FY2020 indicating an
increase of 32.8 percent over revised estimates in FY2019.

82
 Fiscal Development

Table 4.7: Transfers to Provinces (NET) Rs billion

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
R.E B.E
Divisible Pool 1,063.1 1,117.5 1,287.4 1,476.6 1,751.5 1,996.3 2,230.1 2,368.8 3,153.8
Straight Transfer 145.6 103.5 124.4 97.4 100.4 125.1 86.0 93.8 100.8
GST on services - 83.7 1.5 0.7 0.1
Special Grants/ 53.9 61.2 53.8 33.7 32.6 23.4 26.5 28.1 96.5
Subventions
Project Aid 47.8 71.3 85.2 61.9 60.2 77.9 133.1 114.0 112.4
Program Loans 4.6 4.2 59.1 18.1 29.6 15.9 26.5 52.8 50.7
Japanese Grant 0.1 0.0 0.0 0.0 0.0 0.0 4.5 0.0
Total Transfer to 1,315.0 1,441.5 1,611.5 1,688.4 1,974.3 2,238.5 2,502.2 2,662.0 3,514.2
Province
Interest Payment 12.9 14.8 14.1 13.3 9.8 13.6 16.2 22.9 24.1
Loan Repayment 36.1 32.1 38.7 38.6 47.8 17.3 55.1 71.4 79.4
Transfer to 1,266.0 1,394.5 1,558.8 1,636.6 1,916.8 2,177.6 2,430.9 2,567.7 3,410.7
Province(Net)
Source: Various issues of Budget in Brief.

The provincial share in federal taxes and straight transfers to provinces are budgeted to
increase by 32.2 percent to reach Rs 3,255 billion during FY2020 against the revised
estimates of Rs 2,463 billion in FY2019.
Provincial Fiscal Operations
During FY2019, total revenues of provinces grew by 2.0 percent to Rs 2,995.9 billion
against Rs 2,938.5 billion in FY2018. The slowdown in revenue growth stemmed from weak
growth in the provincial taxes, the decline in non-tax revenues and federal loans and grants.
Table 4.8: Overview of Provincial Fiscal Operations Rs billion
Items FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 Jul-Mar
FY2019 FY2020
Tax 1,197.1 1,365.7 1,596.2 1,744.5 2,145.4 2,287.6 2,618.8 2,799.6 2,066.9 2,252.8
Revenue
Provincial 107.2 150.7 190.0 205.8 283.3 321.8 401.4 401.8 287.7 321.2
Taxes
Share in 1,089.9 1,215.0 1,406.3 1,538.7 1,862.2 1,965.8 2,217.4 2,397.8 1,779.1 1931.6
Federal
Taxes
Non-Tax 48.0 71.3 49.4 75.6 93.3 79.5 146.7 86.3 65.3 79.6
Revenue
All Others 88.9 107.4 121.8 82.3 55.1 61.2 173.0 110.0 66.1 134.9
Total 1,334.0 1,544.4 1,767.4 1,902.4 2,293.9 2,428.2 2,938.5 2,995.9 2,198.3 2,467.4
Revenues
Current 980.6 1,110.0 1,187.4 1,400.1 1,559.8 1,739.3 2,080.7 2,350.8 1,630.0 1741.8
Expenditure
Development 375.4 371.5 430.5 498.8 592.4 852.2 880.1 506.2 276.0 382.0
Expenditure
(PSDP)
Total Exp 1,356.1 1,481.6 1,617.9 1,898.9 2,152.2 2,591.5 2,960.9 2,857.0 1,906.0 2,123.8
Source: Fiscal Operations (various issues), Budget Wing

Provincial taxes witnessed a marginal growth of 0.1 percent to reach Rs 401.8 billion in
FY2019 compared to Rs 401.4 billion in FY2018. Within provincial taxes, the collection
from property taxes, stamp duty, excise duties and other sources grew by 26.6 percent, 12.2
percent, 8.4 percent and 14.2 percent, respectively. In contrast, the collection from General
Sales Tax on Services (GSTS) posted a sharp decline of 9.4 percent, which more than offset
the healthy collection from other components under provincial taxes.

83
Pakistan Economic Survey 2019-20

Fig: 4.8- Composition of Provincial Revenues (Rs billion)

3500

Share in Federal Taxes Federal Loans & Grants Non-Tax Revenue Provincial Taxes

2500

1500

500

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

-500

On the other hand, the federal government was able to transfer 8.1 percent more funds to the
provinces from the divisible pool. In absolute terms, it increased to Rs 2,397.8 billion in
FY2019 against Rs 2,217.4 billion during FY2018. Non-tax revenues witnessed a sharp
decline of 41.2 percent to stand at Rs 86.3 billion during FY2019 as compared to Rs 146.7
billion in FY2018. The major factor responsible for significant decline in non-tax revenue
was the reduction in profit from hydroelectricity which stood at Rs 21.1 billion during
FY2019 against Rs 61.3 billion recorded in FY2018.
The share of federal transfers stood at 80 percent while provincial own revenue receipts (tax
and non-tax) contributed 16.3 percent in total revenues during FY2019.

Fig: 4.9- Contribution in Total Revenues

Own Revenue Receipts Federal Transfers Federal Loan and Grants

6.7 7.0 6.9 4.3 2.4 2.5 5.9 3.7

80.9 81.2 81.0 75.5 80.0

81.7 78.7 79.6

14.4 13.5 14.8 16.4 16.5 18.7 16.3

11.6

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

The growth in provincial expenditures witnessed a significant decline during FY2019 which
was largely attributable to a sharp decline in development spending and sluggish growth in
current expenditures as compared to the preceding year. Total provincial expenditures stood
at Rs 2,857.0 billion during FY2019 against Rs 2,960.9 billion in the comparable period of
FY2018, thus posting a decline of 3.5 percent. Within total expenditures, current
expenditures grew by 13 percent to stand at Rs 2,350.8 billion in FY2019 against Rs 2,080.7
billion during FY2018. While development expenditures reduced significantly by 42.5
percent to Rs 506.8 billion during FY2019 as compared to Rs 880.1 billion in FY2018.

84
 Fiscal Development

The provinces posted a cumulative surplus of Rs 190.0 billion during FY2019 against the
deficit of Rs 17.5 billion in FY2018. Punjab posted a record surplus of Rs 122.3 billion
followed by Sindh (Rs 42.1 billion), Balochistan (Rs 19.1 billion) and KP (Rs 6.6 billion).
Performance during July-March, FY2020
Fiscal consolidation efforts followed by the provinces have paid off in terms of posting a
higher surplus. All the four provinces generated a cumulative surplus of Rs 394.1 billion
during July-March, FY2020 against the surplus of Rs 291.6 billion in the same period of
FY2019. Punjab and Balochistan contributed the most to this surplus with Rs 122.6 billion
and Rs 106.3 billion respectively.
The higher surplus was achieved on the back of healthy growth in total revenues that grew
by 12.2 percent to reach Rs 2,467.4 billion as compared with Rs 2,198.3 billion in the
comparable period last year. Despite a significant part of provincial revenues stemmed from
the federal side in the form of provincial share and federal loans and transfers, provincial
own revenues receipts (provincial taxes and non-tax) have also performed better in nine
months of the current fiscal year.
Out of total revenues, tax revenues grew by 9 percent to Rs 2,252.8 billion during July-
March, FY2020 against Rs 2,066.9 billion in the same period of FY2019. Within tax
revenues, federal transfers grew by 8.6 percent, while provincial taxes increased by 11.6
percent. Under provincial taxes, collection from property taxes and the general sales tax on
services (GSTS) grew by 23.9 percent and 19.7 percent respectively. In particular, GSTS
remained one of the major revenue spinners as it posted positive growth during July-March,
FY2020 against the decline of 4.7 percent last year. In contrast, the collections from excise
duty and motor vehicle taxes decreased in response to lower growth in the production of cars
and motorcycles during the period under review.
Non-tax revenues witnessed a sharp rise during the first nine months of the current fiscal
year against the decline recorded in the comparable period last year. It grew by 21.9 percent
to Rs 79.6 billion during July-March, FY2020 against Rs 65.3 billion in the comparable
period last year. The increase in non-tax revenue has been realized on account of profits
from hydroelectricity and irrigation.
Consequently, with the significant rise in provincial taxes and non-tax revenues, the
provincial own revenue collection grew sharply by 13.5 percent during July-March, FY2020
against the decline of 13.2 percent in the comparable period of FY2019.
On the other hand, total provincial expenditures grew by 11.4 percent during July-March,
FY2020 and stood at Rs 2,123.8 billion against Rs 1,906.0 billion in the same period last
year. The rise in expenditures has been observed on the back of a significant rise in
development spending during the current fiscal year.
Development expenditure grew by 38.4 percent during July- March, FY2020 against the
negative growth of 52.2 percent recorded in the same period last year. In absolute terms,
development expenditures stood at Rs 382.0 billion during July-March, FY2020 as
compared with Rs 276.0 billion in the comparable period of FY2019. A significant part of

85
Pakistan Economic Survey 2019-20

the development expenditure has been allocated to economic affairs, mainly to construction
and transport, agriculture and food.
Conversely, current expenditures witnessed a slow growth and increased by 6.9 percent
during the first nine months of current fiscal year relative to 13.8 percent growth recorded in
the same period of last year. In absolute terms, it increased to Rs 1,741.8 billion against
Rs 1,630.0 billion last year.

Public Financial Management Reforms in the Federal Government

In FY2020, Government of Pakistan continued its agenda for reforms in Public Financial
Management (PFM). In this regard, a major breakthrough is the promulgation of the Public
Finance Management Act, 2019. This piece of legislation was long overdue as Article 79 of
the constitution of Islamic Republic of Pakistan makes it mandatory to manage public
finances through an Act of Parliament.

The Act envisages strengthening management of public finances with the view to improving
definition and implementation of fiscal policy for better macroeconomic management, to
clarify institutional responsibilities related to financial management, and to strengthen
budgetary management. Major thematic areas of the Act include efficient maintenance of
public resources/ assets to optimize utilization, effective cash management and precise cash
forecasting and institutional integration of concerned public entities to mitigate risks
associated with fiscal performance and debt management. The Act also envisages to
incorporate international best practices in public accounting to reduce discrepancies in
financial records, in making performance-based budgeting, and to enhance transparency in
budget making hence increasing the role of Parliament in oversight and accountability of
economic decision making.

To implement the PFM Act, 2019 in letter and spirit, the government has notified a Cash
Management and Treasury Single Account (TSA) Policy, 2019-29. This policy provides the
framework for operationalization of cash consolidation to facilitate federal government to
utilize idle cash held outside public coffers.

In order to make PFM reforms a holistic exercise, various other initiatives have already been
taken which include the gradual introduction of high-end information technology (IT) to
automate Public Procurements with an end-to-end integration with e-Payment system,
completely shifting the mode of transaction for payments of pays and pensions of
Government employees from manual to Direct Credit Scheme (DCS), alignment of human
resource data of health and education sectors with respective financial data in an IT- enabled
ecosystem, the introduction of Management Information System (MIS) for auditing health
and education sectors, development of Open Public Finance Data Portal for increased citizen
access to key fiscal information on health and education sectors, and inclusion of provincial
governments in PFM reforms through providing performance grants against the achievement
of numerous fiscal performance indicators. Finance Division is leading the implementation
of the aforementioned PFM reforms’ initiatives, and it is expected to be completed by the
end of FY2021.

86
 Fiscal Development

Conclusion
With the government’s stringent fiscal strategy, the imbalances in fiscal accounts reverted to
the path of fiscal discipline and fiscal consolidation. Efforts to improve the revenues through
comprehensive tax measures and administrative reforms along with expenditure
rationalization paid off in terms of a significant decline in the fiscal deficit. The government
has successfully brought down the fiscal deficit to 4.0 percent of GDP during July-March,
FY2020 against 5.1 percent of GDP in the comparable period last year. Similarly, the
primary balance posted a surplus of Rs 194 billion during July-March, FY2020 against the
deficit of Rs 463 billion.
However, the COVID-19 pandemic has altered the near-term outlook. It has brought
significant challenges for the economy; in particular, fiscal accounts, which have continued
to improve substantially, are expected to come under significant pressure. At present, the
government is increasing the expenditures on public health and strengthening social safety
net programs, along with introducing various other measures to lessen the impact of the
COVID-19 on the economy. Resultantly, the budget will therefore temporarily deviate from
the initial target. Similarly, achieving revenue targets of both tax and non-tax segments
would be challenging due to disruption in economic activity. Hence, the budget deficit is
expected to exceed the target set for FY2020.

87