The Federal Budget for 2024-25 is a topic of intense
discussion across various forums, marked by widespread criticism due to the
daunting deficit of 8.5 trillion PKR. Amid these challenges, I looked into
unconventional solutions by studying documents like the Payment System Review
for Q2 FY 2024 and the Budget Brief for 2024-25.
The Payment System Review highlighted two primary
transaction types: Large Value Transactions (LVT) and Retail Transactions. LVTs
encompass government securities, interbank transfers, third-party transfers and
ancillary clearing; while Retail Transactions include ATM withdrawals, POS
transactions, internet banking, mobile banking, call centre operations,
e-commerce, e-wallets, and over-the-counter transactions.
Examining Q2-24 data revealed significant transaction
volumes:
- LVT transactions totaled 272.70 trillion PKR.
- Retail transactions amounted to 140.33 trillion PKR.
- Total transactions for the quarter reached 413.03 trillion
PKR, indicating a 4% growth from Q1.
Based on this, it's conservatively projected that total
transactions for 2024 could range between 1200 to 1300 trillion PKR.
Meanwhile, the Budget 2024-25 forecasts revenues of 18.877
trillion PKR through increased taxes and levies. To cover the 8.5 trillion PKR
deficit, the government aims for total income of 27.377 trillion PKR.
Now, you might wonder how banking transactions relate to
budget expenditures. Here’s where a different approach comes in: A modest 1%
tax on all transactions within the prescribed payment systems could generate
between 12 to 13 trillion PKR. Given that over 50% of Pakistan’s economy
operates outside the banking sector, integrating this informal economy into the
formal payment system, particularly the Retail System, could potentially
increase tax collections to 24-30 trillion PKR. This strategy could render direct
income taxes on individuals unnecessary, offering significant relief to
salaried individuals by eliminating income tax and withholding taxes at various
levels.
In essence, by incentivizing a shift towards 100%
transactional transparency through formal payment systems and eliminating
conventional taxes, the government could not only surpass its revenue targets
but also alleviate the tax burden on ordinary citizens.
This approach represents a paradigm shift in fiscal policy,
harnessing the vast potential of Pakistan’s payment systems to achieve fiscal
sustainability while fostering economic growth and fairness for all taxpayers.
A shadow projection of revenue against Federal Budget
2024-25 is as under
|
Revenue Stream |
in PKR Trillion |
Remarks |
|
Current Payment System |
13 |
Refer SBP document on Payment System Review |
|
Indirect Taxes (Customs,
Sales, FED) |
7.5 |
|
|
Income from Property
Enterprise |
0.477 |
Refer Federal Budget 2024-25
Table 5(B) |
|
Receipts from Civil
Administration |
2.5 |
Refer Federal Budget 2024-25
Table 5(C) |
|
Misc Receipt |
1.7 |
Refer Federal Budget 2024-25
Table 5 (D) |
|
Total |
25.177 |
|
|
Required Amount |
27.377 |
Budget + Deficit |
|
Surplus/Deficit |
-2.2 |
|
|
Add undocumented economy to be
brought in payment system |
13 |
More than 50% is grey economy. |
|
Final Surplus |
10.8 |
Add marginal corporate IT ‘X’
= 10.8+X trillion |
|
|
||
|
Note:- This income does not
include any type of income tax, levy on cell phones, CVT, WWF & WPF
contribution as mentioned in Table 4 and 5. Proper implementation of
Payment systems will render all duties and taxes to be redundant. |
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