TO understand this budget, it is important to flush out the centerprovince standoff that delayed it: (1) the IMF wanted the government to expand the tax base to capture retailers, agriculture, and real estate; (2)these taxes are the responsibility of the provincial governments; (3) provincial governments were more interested in increasing their share of the NFC awards, and threatened the center with insufficient cash surpluses that are required for the Extended Fund Facility; (4) the National Economic Council meeting was postponed four times, hinting that the ruling coalition could break; (5) the Establishment stepped in and wanted a strategic allocation to fortify Pakistan’s security; and (6) the provinces agreed to reduce their development budgets, but not to tax their constituents.
The FY27 budget follows the IMF’s austerity roadmap, but without the necessary reforms. The FBR revenue target is now a quantitative performance criterion, which means a revenue shortfall next year will require additional intra-year tax collections. Institutional reforms have been put on the back burner, while new revenues will come from removing tax exemptions, stricter enforcement, settling tax cases in the government’s favour, fuel levies, and further squeezing captive payers. In other words, this is a status quo budget that will please few.