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Express Tribune
22-06-2025
- Business
- Express Tribune
SBP seeks tax on foreign investment
Listen to article As the local currency comes under renewed stress, the State Bank of Pakistan (SBP) on Saturday proposed linking tax benefits with a minimum one-year retention period for foreign investments in government debt and equity markets to bring predictability in outflows. Dr Mohammad Ali Malik, an SBP executive, suggested the 10% reduced income tax rate should be tied to at least one-year retention of investment made through the Special Convertible Rupee Account (SCRA). He made the proposal during a meeting of the National Assembly Standing Committee on Finance, chaired by Pakistan People's Party (PPP)'s Syed Naveed Qamar. Federal Board of Revenue (FBR) Chairman Rashid Langrial said that investors were securing tax advantages by making short-term investments. He recommended a minimum six-month holding period for investments in Roshan Digital Accounts and other schemes to qualify for tax benefits. With this, the central bank seeks more predictable dollar outflows. However, the committee warned that such a move could deter investors, which the government could not afford. Dr Malik argued that the condition would not disrupt current inflows, as significant investments in treasury bills, government bonds, and SCRAs were not presently being made. He said linking tax incentives with long-term investments could help stabilise outflows. Under SBP regulations, non-residents may freely invest and trade in government marketable securities, including Pakistan Investment Bonds (PIBs), Treasury Bills (TBs), registered corporate debt instruments, and the Water and Power Development Authority (WAPDA)'s registered bonds through SCRAs. Following months of stability, the rupee has again come under pressure due to increased debt repayments. The rupee's value has depreciated to around Rs284 per US dollar in the interbank market, with even higher rates in the open market. A senior executive from a private commercial bank said large interbank transactions are being settled at nearly Rs3 above the average market rate. In an economic alert issued Saturday, advisory firm Tola Associates warned that ongoing unrest in the Middle East and Pakistan's reliance on imported oil posed serious risks of economic disruption. Crude oil prices, it stated, have surged over the past two weeks, rising from $63.76 on June 2 to $76.31 per barrel by June 19 due to the ongoing Gulf conflict. Tola Associates noted a dual inflationary impact on Pakistan's economy: higher crude prices widen the current account deficit and weaken the rupee against the dollar, which further fuels inflation. If crude oil hits $80 per barrel, the rupee may slide to Rs285.4 per dollar; if it rises to $100, the rupee could depreciate further to Rs292.1. In that case, local petrol prices may need to rise by Rs35 per litre, the firm said. The government has already formed a committee, chaired by Finance Minister Muhammad Aurangzeb, to review the implications of Israel's illegal act of war against Iran on Pakistan's economy and petroleum flows. Tola Associates said that the direct impact of higher crude prices on domestic petrol rates may further fuel inflation and make life more difficult for the people of Pakistan. It has estimated the additional impact of inflation by 1.8% in case crude oil price increases to $80 and 8.7% if the prices surge to $100. The current account deficit is also projected to widen to $4.3 billion in the next fiscal year, if crude oil hits $100 price. The standing committee also reviewed another proposal: taxing income from government debt investments even if withdrawn before maturity. Currently, some investors evade taxes by prematurely selling and rebuying securities — a tactic known as "coupon washing." The FBR proposed in the budget that tax be charged on the investment regardless of early withdrawal, estimating an additional Rs10 billion in revenue. However, the committee adjusted the proposal, reducing the required holding period from one year to six months. Last month, the FBR had discussed the coupon washing measure with the International Monetary Fund (IMF). But the IMF was sceptical that people who buy government securities do not pay taxes. Additionally, the committee approved raising the cash withdrawal threshold for non-filers — subject to a 0.8% tax — from Rs50,000 to Rs75,000. However, it rejected the FBR's recommendation to increase the tax rate to 1%, which had been 0.6% before the budget proposal.
Business Recorder
10-06-2025
- Business
- Business Recorder
Pakistan increases defence spending by 20% after recent clashes with India
Pakistan has allocated Rs2.56 trillion for its defence budget in the incoming fiscal year (FY26), a 20% increase from the proposed budget last year. The government proposed Rs2.13 trillion in FY25 budget, which was later revised to Rs2.19 trillion. When compared with the revised budget last year, the increase in the upcoming budget will stand at around 17%. The increase in budget spending comes at a time when tensions between neighbouring Pakistan and India remain high. Finance Minister Muhammad Aurangzeb announced Pakistan's federal budget 2025-26 'for a competitive economy' on Tuesday, targeting a modest 4.2% growth for the coming fiscal year, compared to 2.7% expected in the outgoing FY25. 'The country's defence is our top priority,' said Aurangzeb during his address, as he lauded the role of the country's leadership, especially the armed forces, for their role against recent clashes with India. Pakistan had allocated Rs2.12 trillion for defence in the FY 2024-25. Its defence budget was raised by 16.4% last year. The government, in recognition of services from the armed forces, also proposed to provide special allowances to the officers and soldiers of the armed forces. These expenses will be met from the defence budget for the fiscal year 2025-26. Addressing the federal cabinet meeting, Prime Minister Shehbaz Sharif said that Pakistan is now in a take-off position, and all economic indicators are satisfactory. 'After defeating India in a conventional war, now it has to surpass it in the economic field as well,' the PM said. 'If there is passion and desire, nothing is impossible; everyone will have to work together day and night to move forward,' he added. Earlier, Tola Associates, a tax advisory and consultancy firm, has proposed to raise the defence budget to Rs2.8 trillion, reflecting a 32% increase as compared to the last fiscal, 'due to the war situation with the neighbouring country and the new recruitment of army personnel'. Ties between Pakistan and India nosedived after a deadly attack in Indian Illegally Occupied Jammu and Kashmir (IIOJK) last month that New Delhi said was backed by Islamabad. Pakistan denied involvement, but intense fighting broke out when India struck what it said were 'terrorist camps' in Pakistan. They agreed on a ceasefire, which has largely held.
Business Recorder
10-06-2025
- Business
- Business Recorder
Pakistan increases defence spending by over 20% after recent clashes with India
Pakistan has announced to raise its defence budget significantly by over 20% as the government allocated Rs2.55 trillion for the incoming fiscal year (FY26). The increase in budget spending comes at a time when tensions between neighbouring Pakistan and India remain high. Finance Minister Muhammad Aurangzeb announced Pakistan's federal budget 2025-26 'for a competitive economy' on Tuesday, targeting a modest 4.2% growth for the coming fiscal year, compared to 2.7% expected in the outgoing FY25. 'The country's defence is our top priority,' said Aurangzeb during his address, as he lauded the role of the country's leadership, especially the armed forces, for their role against recent clashes with India. Pakistan had allocated Rs2.12 trillion for defence in the FY 2024-25. Its defence budget was raised by 16.4% last year. Addressing the federal cabinet meeting, Prime Minister Shehbaz Sharif said that Pakistan is now in a take-off position, and all economic indicators are satisfactory. 'After defeating India in a conventional war, now it has to surpass it in the economic field as well,' the PM said. 'If there is passion and desire, nothing is impossible; everyone will have to work together day and night to move forward,' he added. Earlier, Tola Associates, a tax advisory and consultancy firm, has proposed to raise the defence budget to Rs2.8 trillion, reflecting a 32% increase as compared to the last fiscal, 'due to the war situation with the neighbouring country and the new recruitment of army personnel'. Ties between Pakistan and India nosedived after a deadly attack in Indian Illegally Occupied Jammu and Kashmir (IIOJK) last month that New Delhi said was backed by Islamabad. Pakistan denied involvement, but intense fighting broke out when India struck what it said were 'terrorist camps' in Pakistan. They agreed on a ceasefire, which has largely held.
Express Tribune
06-06-2025
- Business
- Express Tribune
Caution urged on foreign advice
Listen to article Amid Pakistan's heavy reliance on foreign consultants to run its economy, an independent think tank has advised the government to choose a path between a truly home-grown economic model and a foreign lender-driven policy agenda. The Tola Associates policy advice came in the middle of a major shift in national tariff policy, where foreign consultants are advising a complete opening of the economy. However, the concerned economic ministries oppose this due to potential adverse implications for businesses and jobs. Pakistan's economy is currently bipolar, and policymakers must choose between home-grown recipes and the International Monetary Fund's (IMF) policy prescriptions, according to the report released on Thursday. The report suggests that home-grown policies should aim to keep policy rates closer to the inflation rate to reduce debt servicing, maintain the currency at its true value, stimulate growth, and reduce the fiscal deficit. In contrast, the IMF's policies focus on monetary tightening, import-led growth, and tariff reduction, which have consequently led to high inflation and suppressed economic growth, the report stated. The government has agreed on a plan to lower import tariffs by almost half over the next five years. In the first year alone, this would result in a Rs200 billion negative impact on revenues. While the IMF has no objection to the steep reduction in import revenues, it is unwilling to allow much-needed relief to all segments of the salaried class. The relief for the salaried class may not even cost Rs100 billion, nearly half the fiscal cost of liberalising the economy — a move that also carries employment risks. The Tola Associates report stressed that next year's economic strategy must prioritise introducing targeted policy measures for industrial development. These include rationalising interest rates for industrial borrowers, reducing electricity tariffs, abolishing export financing schemes on semi-finished and finished goods, and implementing a balanced tariff structure on raw materials. Encouraging import substitution and offering performance-based subsidies — particularly in key sectors such as textiles, leather, and engineering goods - is critical, the report added. However, past experiences suggest that import substitution policies have shown limited results, and the country must shift toward implementing export-focused policies. The report also highlights how efficient crop production could enhance exports by an estimated $2.2 billion. Increasing cotton yields, boosting rice exports, and reducing input costs to return to wheat surplus status were among the key recommendations. Based on its estimates, the report stated that if the current account deficit stays within the government's FY25 target of 0.4% of GDP, the exchange rate should ideally stabilise around Rs272 per US dollar. Including incorporated valuation adjustments for FY25, the rate should not exceed Rs282, it added. However, market fundamentals indicate that the rupee is under pressure, with importers struggling to find adequate dollar liquidity at reasonable rates. Major players like Pakistan State Oil (PSO) and Pak Arab Refinery Company (PARCO) are being forced to pay higher interbank rates. According to Tola Associates' estimates, Pakistan can achieve a current account surplus of 0.1% of GDP by improving cash crop yields in the next fiscal year. If that surplus is realised, the currency could appreciate by up to Rs23, leading to a 4.6% drop in inflation. This, in turn, would create room to reduce interest rates, cut debt servicing costs, and open up significant fiscal space, the report added. Pakistan can substantially bring down interest rates in the next fiscal year to single digits. A 1% reduction in the policy rate could lower the debt servicing cost by Rs515 billion. Aligning interest rates with inflation could allow for a 4.6% rate cut, saving up to Rs2.4 trillion in interest expenses, according to the report.
Business Recorder
31-05-2025
- Business
- Business Recorder
CA balance incorporated: PKR kept artificially undervalued at 282.2 vs $1: Tola
LAHORE: The value of the rupee (PKR) is 249.2/USD after incorporating the Current Account balance of the Jul-April period of FY25, said Tola Associates in its latest economic outlook. The report has pointed out that the PKR value has been kept artificially undervalued at PKR 282.2/USD as the present value of PKR is 249.9/USD. Tola Associates have also drawn a graph depicting four scenarios: (a) First scenario provides PKR valuation as of June 30, 2024; (b) Second scenario illustrates the valuation of PKR valuation based on the actual CAD, ie, $665 million in FY24; (c) The third scenario provides PKR value based on the government's CAD projection of 0.9% of GDP; (d) and the last scenario is calculating the PKR value based on the adjusted CA projection of the government adjusted for the Jul-April FY25). Fitch forecasts Pakistan rupee at 285 against US dollar by June, 295 by FY26 end It further said that a 10-rupee depreciation results in a 2% increase in inflation, and vice versa. In the inter-bank market, the value of the national currency stands at PKR 282.2/USD as of 29th May 2025. Over the past week, the USD to PKR parity rate has shown a slight declining trend, whereby the PKR has devalued. It said the export-led growth has three vectors including the agricultural sector, the manufacturing sector and the IT industry. Along with this, public financial management has an important role to play which involves expenditure control and revenue enhancement. Pakistan's economic outlook reflects cautious optimism as inflation experienced a remarkable decline, dropping to 0.3% in Apri12025. Over the past year, inflation fell dramatically from 29.7% in November 2023 to 11.2% by May 2024 and reached just 0.7% in March 2025, a record drop within a single year. However, the inflation outlook remains vulnerable to several risks, including additional fiscal measures to address revenue shortfalls, a potential resurgence in food inflation, and rising global commodity prices. Despite these challenges and the anticipated phasing out of the favorable base effect, the Monetary Policy Committee assessed that the current monetary policy stance is appropriate for stabilizing inflation within the target range. Copyright Business Recorder, 2025
