4 Fiscal Policy

4.1 Fiscal Trends and Policy Review1

Fiscal deficit at 7.7 percent of GDP in FY23, was in revenue balance was, however, on account of
slightly lower than 7.9 percent in FY22, but higher interest payments that kept the growth in
substantially higher than the budget target of 4.9 current expenditures higher than the growth in
percent and revised estimate of 7.0 percent total revenues (Table 4.1).
(Figure 4.1a). Importantly, the envisaged fiscal
consolidation could not be achieved as there Total expenditures grew by 21.5 percent in FY23
was a primary deficit of 0.8 percent of GDP, as compared to 29.0 percent in the previous
against the budgeted surplus of 0.2 percent of year.3 The slower growth in expenditures was
GDP (Figure 4.1b). It, nevertheless, shows largely because of a sluggish growth in non-
improvement compared to a primary deficit of interest expenditures amid lower grants and
3.1 percent recorded in FY22. Moreover, subsidies, as well as deceleration in the growth
revenue deficit increased to 5.8 percent of GDP of overall development spending and net
in FY23, from 5.2 percent in FY22 (Figure 4.1c). lending. Within the current expenditures,
however, a sharp increase in interest payments
The improvement in fiscal indicators, fiscal and more than offset the impact of reduction in
primary deficits, compared to FY22, is attributed grants and subsidies. Interest payments on both
to marked deceleration in growth of non-interest the domestic and external debt soared in the
expenditures. Additionally, provinces posted a backdrop of rising debt stock and interest rates.
combined surplus of 0.2 percent of GDP in FY23,
though lower than 0.5 percent achieved in the Despite deceleration in growth of expenditures,
previous year, which helped contain primary as it remained higher than the growth in revenues,
well as overall fiscal deficit. 2 The deterioration which also recorded some acceleration. The

Fiscal Balance Figure 4.1a Primary Balance Figure 4.1b Revenue Balance Figure 4.1c
percent of GDP percent of GDP percent of GDP
1.1
0.1
-2.0 -2.0 -1.1
-1.6

-0.8
-5.8 -5.7
-1.9 -4.1
-4.2
-7.9 -7.7 -5.2
-3.2 -3.1 -5.8
H1

H2

H1

H2
Jul-Jun

Jul-Jun
Jul-Jun

Jul-Jun
H1

H2

H1

H2

H1

H2

H1

H2
Jul-Jun

Jul-Jun

FY22 FY23 FY22 FY23 FY22 FY23

Sources: Ministry of Finance, and SBP calculations

1 Fiscal balance is total revenue minus total expenditure; primary balance is fiscal balance adjusted for interest payments; revenue
balance is total revenues minus total current expenditures.
2 The provincial surplus at Rs 154.6 billion in FY23 was considerably lower than the budgeted Rs 750 billion for the year and Rs 351

billion in FY22.
3 In absolute terms, total expenditures stood at Rs 16.2 trillion in FY23, against the budget target of Rs 9.6 trillion and actual

expenditure of Rs 13.3 trillion in FY22.

Fiscal Policy

State Bank of Pakistan Annual Report 2022-2023

Consolidated Fiscal Indicators Table 4.1

billion Rupees; percent
Growth in percent
Values
H1 H2 Jul-Jun
FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23
1. Total revenue (a+b) 8,035 9,634 18.0 18.8 14.8 21.0 16.4 19.9
(a) Tax revenue 6,755 7,819 29.9 16.9 26.5 14.7 28.1 15.7
Federal 6,143 7,169 32.1 17.4 26.2 16.1 28.9 16.7
Provincial 612 650 10.3 11.7 29.9 1.6 20.5 6.1
(b) Non-Tax 1,280 1,815 -14.6 26.4 -29.9 64.5 -21.5 41.8
Federal 1,152 1,649 -17.8 28.5 -28.1 65.5 -22.2 43.1
Provincial 128 166 43.1 4.5 -41.1 56.8 -14.6 29.3
2. Total expenditure (a+b+c) 13,295 16,155 18.7 19.8 37.0 22.7 29.0 21.5
(a) Current expenditure 11,521 14,583 16.0 29.6 35.4 24.5 26.8 26.6
Mark-up payments 3,182 5,831 -1.5 77.1 35.7 88.4 15.7 83.2
Defence 1,412 1,586 7.0 22.7 7.4 6.2 7.2 12.3
Non-markup 8,339 8,752 26.2 8.2 35.3 2.9 31.6 5.0
(b) Development expenditure & net lending 1,657 1,953 24.8 11.4 26.6 21.2 26.0 17.8
(c) Statistical discrepancy 116 -381 - - - - - -
3.Overall budget balance -5,260 -6,521 - - - - - -
percent of GDP -7.9 -7.7 - - - - - -
4.Primary balance -2,077 -690 - - - - - -
percent of GDP -3.1 -0.8 - - - - - -
5. Revenue balance -3,486 -4,950 - - - - - -
percent of GDP -5.2 -5.8 - - - - - -
6. Financing (a+b) 5,260 6,521 54.6 24.0
(a) External (Net) 1,178 -680 -11.9 -157.7
(b) Domestic (Net) 4,081 7,201 97.6 76.4
Non-Bank 981 3,673 399.8 274.5
Bank 3,101 3,529 65.9 13.8
Source: Ministry of Finance

acceleration in revenue growth was led by non- amidst narrow tax base with increased reliance
tax revenue on account of higher petroleum on indirect and withholding taxes. This
development levy (PDL) collection in spite of combined with substantial subsidies and grants,
decline in petroleum sales. Transfer of the SBP which resulted in persistently high fiscal deficit
profits, a major component of the non-tax and mounting debt servicing, are posing
revenues, decreased due to changes in transfer challenges for maintaining debt sustainability.
mechanism of SBP profits after amendments in The steady increase in interest expense is not
the SBP Act. On the other hand, growth in tax sustainable as it may limit fiscal space for
revenue decelerated considerably. Contraction development, and other essential spending for
in dutiable imports, slowdown in economic social protection.
activity, and floods negatively impacted tax
collection, while higher inflation, rising interest The situation warrants efforts to address these
rates, and revenue mobilization measures taken long-standing structural problems in order to
in the Finance Act 2022 and Finance reduce fiscal deficit and generate primary
(Supplementary) Act 2023 propelled tax surplus to lessen the pace of debt accumulation.
collection. Besides broadening of tax base, paring losses of
inefficient Public Sector Enterprises (PSEs),
With slower growth in tax collections, the FBR particularly related to power sector, is much
tax-to-GDP ratio fell to 8.5 percent in FY23

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Total Revenue Collection Table 4.2

collections in billion Rupees; growth in percent; contributions in percentage points
Collection Growth Contribution
Jul-Jun H1 H2 Jul-Jun Jul-Jun
FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23
Total revenue (1+2) 8,035 9,634 18.0 18.8 14.8 21.0 16.4 19.9 - -
1.Tax revenue 6,755 7,819 29.9 16.9 26.5 14.7 28.1 15.7 21.5 13.2
Federal 6,143 7,169 32.1 17.4 26.2 16.1 28.9 16.7 20.0 12.8
Provincial 612 650 10.3 11.7 29.9 1.6 20.5 6.1 1.5 0.5
2.Non-tax revenue 1,280 1,815 -14.6 26.4 -29.9 64.5 -21.5 41.8 -5.1 6.7
Federal 1,152 1,649 -17.8 28.5 -28.1 65.5 -22.2 43.1 -4.8 6.2
Provincial 128 166 43.1 4.5 -41.1 56.8 -14.6 29.3 -0.3 0.5
Sources: Ministry of Finance, and SBP calculations

needed to achieve fiscal discipline and reducing compression; a considerable moderation in

debt stock to sustainable levels of 60 percent of domestic demand; contraction in LSM output;
GDP.4 This would, in turn, help create fiscal devastating floods; zero GST on POL products
space for enhancing productivity by investing in and crude; and ad-hoc exemptions on duties, for
infrastructure, health, education, training, and instance taxes on imports and supply of relief
research and development. goods—mainly medicines, food items, and
ambulances— in the wake of floods.
4.2 Revenue
The additional tax measures – increase in super
Total revenue grew by 19.9 percent in FY23 tax, GST, and FED, however, helped the FBR to
compared to 16.4 percent in FY22 (Table 4.2). get close to the target for FY23. The breakdown
The acceleration in revenue growth was mainly shows that collection of direct taxes surpassed
due to increase in non-tax revenue (NTR) in the target, almost compensating for the shortfall
FY23, which was, in turn, propelled by higher in indirect taxes. More specifically, withholding
PDL collections. On the other hand, growth in taxes and voluntary payments contributed
tax revenue decelerated in FY23 due to majorly to the growth in direct taxes. On the
contraction in imports and low economic other hand, indirect tax collection grew only
activity, despite a sharp rise in market prices. marginally due to import curtailment, especially
Growth in provincial revenues was slower, Contribution to Growth in Overall Taxes Figure 4.2
impacted by various tax relief measures Direct taxes Indirect taxes Overall growth
percentage points
announced by provinces.5 35
29.6
30
FBR Tax Revenue
25
FBR tax revenue grew by 16.6 percent in FY23,
20 17.9 16.6
almost half the previous year’s growth of 29.6
percent (Table 4.3). As a result, FBR tax to GDP 0.5
15
ratio fell to 8.5 percent in FY23, from 9.2 percent
10
in FY22. This was despite additional revenue 16.1
measures announced in the Finance 5 11.7
(Supplementary) Act in February 2023. A
0
confluence of factors contributed to this slower FY22 FY23
growth in FBR taxes, including import Sources: Federal Board of Revenue, and SBP calculations

4 As per Fiscal Responsibility and Debt Limitation Act 2005

5 See “Provincial Fiscal Operations” section for more details on provincial revenue.

77
Fiscal Policy

State Bank of Pakistan Annual Report 2022-2023

of dutiable imports, which dented the import- increase in tax rates in the Finance Act 2022 and
related collections of sales tax, FED, and Finance (Supplementary) Act 2023. For
customs duties. example, increase in income tax rates on salaries,
increase in super tax from four percent to ten
There are four main factors that contributed to percent on high-earning persons; increase in
growth in FBR taxes in FY23. First, high inflation GST from 17 to 18 percent; increase in GST on
that helped indirect taxes to record increase locally manufactured cars and luxury imports to
despite fall in sales. Second, increase in interest 25 percent. Fourth, administrative efforts by
income on investment in government securities, FBR to improve tax compliance and ease of
saving certificates, saving deposits, banks’ doing business (Box 4.1).
profits, and income taxes paid thereof. Third,

Box 4.1: FBR’s Administrative Measures

The measures taken by the FBR during FY22 and FY23 are summarized as follows:
a) ADR (Alternative Dispute Resolution), an out-of-court dispute-solving mechanism that facilitates ease of doing
business, was revised through the Finance Act 2022, to make it more efficient and effective. One of the key changes
was that disputes involving question of both fact and law could now be brought up for resolution; earlier, it was just
the question of fact.
b) SWAPS (Synchronized Withholding Administration and Payment System), an automated system of collection
and deduction of withholding taxes, was rolled out through the Finance Act 2022, which is initiated to streamline
WHT collection, deduction, and payment to FBR, by the withholding agents.
c) Discontinuance of gas and electricity connections of sales tax agents, as well as Tier-1 retailers, who do not
register for sales tax purpose, or notified tier-1 retailers registered but not integrated with the FBR’s computerized
system. This compliance-enhancing measure was implemented through the Finance Act 2022.
d) Introduction of National Sales Tax Return (NSTR) in January 2022 to facilitate ease of doing business by
simplifying and consolidating the sales tax returns filing. NSTR aims to streamline the older process, where sales tax
agents had to file separate sales tax returns every month to each of the different sales tax collecting authorities.

Direct taxes led growth in FBR taxes Collection of withholding tax on bank interest
and securities more than doubled in FY23
Direct taxes grew by 43.2 percent in FY23, compared to the previous year. As mentioned
driving almost the entire growth in overall taxes above, this was mainly because of rising interest
(Figure 4.2 & Table 4.3). Domestic rates and increased investment in government
collections constituted a little over 90 percent of securities and other saving instruments.
total direct tax collections, which, in turn, Moreover, withdrawal of tax benefit on
mainly comprised of withholding taxes (61.3 investment in federal government
percent) and voluntary payments (29.6 percent) securities also supported higher collection.
in FY23 (Table 4.4). Earlier, profit on debt of all persons (other than
banking companies) was taxed at a reduced rate
Withholding taxes of 15 percent. As per the Finance Act 2022, this
rate applies only to those persons whose profit
Withholding taxes grew by 30.8 percent in FY23 does not exceed Rs 5 million.7
compared to 24.0 percent increase in the
previous year. The growth was also broad- Collection of withholding tax on contracts
based, with major contribution from taxes on maintained the previous year’s momentum
bank interest and securities, contracts, and
salaries (Table 4.4).6

6 It may be noted here that the tax rate for persons not on Active Taxpayer List (ATL) is usually double the rate for those on ATL.
7 The scope of the reduced rate benefit was curtailed in the Finance Act 2022.

78
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Snapshot of FBR Tax Collection – Growth and Contribution Table 4.3

values in billion Rupees; growth/net achievement in percent; contribution in percentage points
Contribution in Overall Achievement
Values Growth
Growth (Percent of Target)
FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23
1. Direct Taxes 2,285 3,272 32.0 43.2 11.7 16.1 114.8
Import 288 290 31.8 0.8 1.5 0.0 - -
Domestic 1,997 2,982 32.0 49.3 10.2 16.0 - -
2. Indirect Taxes 3,864 3,897 28.2 0.9 17.9 0.5 99.8 89.6
Sales Tax 2,532 2,592 27.4 2.4 11.5 1.0 98.3 92.3
Import 1,741 1,618 56.0 -7.0 13.2 -2.0 - -
Domestic 792 974 -9.3 23.0 -1.7 3.0 - -
FED 321 370 15.7 15.3 0.9 0.8 95.2 80.9
Import 23 14 16.2 -38.5 0.1 -0.1 - -
Domestic 298 356 15.7 19.4 0.9 0.9 - -
Customs 1,011 935 35.0 -7.5 5.5 -1.2 105.3 86.2
Grand Total (1+2) 6,148 7,169 29.6 16.6 29.6 16.6 - 99.6
Note: Tax revenue numbers of FBR and Ministry of Finance may not tally
Sources: Federal Board of Revenue, and SBP calculations

despite slowdown in economic activity.8 Two collection from salaries. Across the seven slabs
major developments helped in steadying the (previously 12), there was an increase in tax
growth in collection from contracts. One, under liability of salaried individuals with taxable
the Finance Act 2022, the scope of taxable income exceeding Rs 3.6 million (top three
services was expanded to include Real Estate slabs), or closer to the upper limit of the middle
Investment Trust (REIT) management services slab (that is, Rs 2.4 million to 3.5 million), when
and services offered by National Clearing compared to their tax liabilities under last year
Company of Pakistan Limited (NCCPL). Two, slabs. Moreover, salaries of the federal
sale of goods or services under section 153, government employees were also increased in
including rice, edible oils, transport services, air FY23.11
cargo services, courier services, freight
forwarding services, and others, led to higher WHT collections from electricity bills almost
WHT collection amid higher prices.9 For maintained the pace observed in the previous
instance, transport services witnessed 54.6 year, despite a fall in electricity generation, and
percent inflation in FY23, compared to 15.1 hence its supply, during FY23. The improved
percent last year. Similarly, charges of inland collection mainly owes to increase in electricity
courier services spiked by 13.4 percent in FY23, charges that offset the impact of lower electricity
almost double the increase in previous year. 10 generation in FY23.12 Imposition of fixed
income tax on retailers and some service
Withholding tax on salaries was up by 40.7 providers in their electricity bills in the Finance
percent in FY23, compared to 29.3 percent Act 2022 provided further boost.
increase in FY22. Upward revision in
progressive rates for income tax slabs in the The growth in WHT on imports decelerated,
Finance Act 2022 provided the major impetus to despite increase in rate from 2.0 percent to 3.5

8 ‘Contracts’ refers to sale of goods or services, and execution of contracts, as per section 153 of the Income Tax Ordinance 2001.
9 Source: Pakistan Bureau of Statistics
10 Source: Pakistan Bureau of Statistics
11 BPS-2022 replaced BPS-2017 pay structure, and the pay brackets were revised upwards. In addition, an ad-hoc relief was given

equal to 15 percent of the basic pay, up from 10 percent. Source: Ministry of Finance;
ww.finance.gov.pk/circulars/circular_01072022.pdf
12 Electricity generation was down 9.5 percent in FY23. Source: NEPRA

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State Bank of Pakistan Annual Report 2022-2023

Direct Tax Collection Table 4.4

values in billion Rupees; growth in percent; contribution in percentage points
Contribution to Total Direct
Values Growth
Taxes (net)
FY22 FY23 FY22 FY23 FY22 FY23
Collection on demand 101.1 161.7 26.2 59.9 1.2 2.7
Voluntary payment 676.4 1,093.6 44.6 61.7 12.0 18.3
Advance tax 597.9 974.6 44.5 63.0 10.6 16.5
Withholding taxes 1,534.3 2,007.0 24.0 30.8 17.2 20.7
Bank interest & securities 155.0 314.9 14.8 103.2 1.2 7.0
Contracts 341.4 424.5 25.5 24.3 4.0 3.6
Salaries 196.2 276.1 29.3 40.7 2.6 3.5
Electric bills 71.4 98.6 39.2 38.0 1.2 1.2
Telephone/mobile phones 67.9 86.9 7.4 28.1 0.3 0.8
Export 65.0 77.3 54.0 19.0 1.3 0.5
Imports 281.6 289.8 28.9 2.9 3.6 0.4
Dividends 83.3 87.1 30.6 4.5 1.1 0.2
Net direct tax* 2,284.9 3,272.4 32.0 43.2 32.0 43.2
* Net Direct Tax is adjusted for Direct Tax refunds. Components are recorded on gross basis
Sources: Federal Board of Revenue, and SBP calculations

percent, largely due to lower import values. 10.0 percent super tax was imposed
Moreover, withholding tax on sale, purchase or retrospectively for FY22 (Table 4.5).
transfer of immoveable property was also ii. Upward revision in tax on income generated
enhanced from 1.0 percent to 2.0 percent. from investment in government securities; this
Additionally, Finance Act 2022 also removed a tax is determined based on banks’ advances-to-
holding period condition, under which taxpayer deposit ratio (ADR) (Figure 4.3).15
did not have to pay the tax if holding period iii. Increase in minimum tax on banks’ income
exceeded four years.13 from 35.0 percent to 39.0 percent in FY23.

Voluntary Payments ADR-linked Tax on Investment in Figure 4.3

Government Securities
Previous rate FY22 and onwards
Voluntary payments grew by 61.7 percent in percent
60
FY23, as compared to 44.6 percent last year. The
FY23
major factors resulting in higher voluntary
payments include: 45

i. Imposition of cascading super tax on high- 30

earning persons under the new section 4C,
replacing 4B, of the Income Tax Ordinance.14
15
Under the section 4C, super tax on banking
companies, whose income exceeded Rs 300
million in FY23, was raised from 4.0 percent to 0
10.0 percent. In case of non-banking companies, ADR=<40 40<ADR=<50 ADR>50
Source: Finance Act 2022

13 For purchasers not on the ATL, the tax was increased by 250 percent.
14 Until FY22, super tax had been applied under section 4B, ‘Super tax for rehabilitation of temporary displaced persons’. In FY23, a
new section, 4C (‘Super tax on high-earning persons’), replaced it; it was purported to target the wealthier sections of the country, as
per Finance Act 2022.
15 It may be noted here that these ADR-linked taxes have been abolished in FY24 budget. Source: FBR SRO 226(I)/2023, dated

February 27, 2023

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 Fiscal Policy
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It is important to note here that banks’ profits Super Tax on High Earning Persons for FY23 Table 4.5
Rate for
increased considerably in CY22 in a high interest No. Income under section 4C
FY23
rate environment, which augmented the impact Where income does not exceed Rs.150
1 0%
of aforementioned tax revisions on voluntary million
payments. In CY22, banks’ overall profit-before- Where income exceeds Rs 150 million but
2 1%
does not exceed Rs 200 million
tax grew by 55.8 percent, which is about six Where income exceeds Rs 200 million but
3 2%
times the average growth of previous five years does not exceed Rs 250 million
(CY17-CY21).16 Scheduled banks’ net Where income exceeds Rs 250 million but
4 3%
does not exceed Rs 300 million
investment in government papers, which rose 5 Where income exceeds Rs 300 million 4%
from 50.6 percent of total credit in December Where income exceeds Rs 300 million and
6 10%
2021 to 54.6 percent in December 2022 and 58.4 the business is banking
Where income exceeds Rs 300 million and
percent in June 2023, remained the main source persons are engaged in the business of
of bank profitability.17 airlines, automobiles, beverages, cement,
10% for the
7 chemicals, cigarette & tobacco, fertilizer,
FY22*
iron & steel, LNG terminal, oil marketing,
Growth in indirect taxes remained flat, oil refining, petroleum & gas exploration &
dragged by contraction in import-related taxes production, pharma, sugar & textiles
Note: S. No. 1 to 5 pertain to income from any business--
Indirect tax collection increased by only 0.9 banking or otherwise. S.No. 6 and 7 pertain to banking & a
group of specific businesses, respectively, provided their
percent in FY23, compared to 28.2 percent income levels are exceeding Rs 300 million apiece.
growth in the previous year. This sharp *This tax applies retrospectively for the FY22
deceleration was led by decline in import- Source: Finance Act 2022
related taxes (sales tax, FED, and customs duty).
While PKR depreciation partially offset the
impact of contraction in imports in dollar terms,
Domestic GST Collection Figure 4.4 it was mainly the decline in dutiable imports –
growth in percent 28.9 automobile, cell phones, and other luxury items
30 – that led to lower import-related taxes.18
GST raised to 18 percent 23
Moreover, there was an increase in GST on
20 16.8 imports of non-essential luxury items to 25
percent during H2-FY23.19 Together, these
10 factors limited the fallout of the reduction in
imports on tax collection in FY23.20
0
-8.9 -9.3
Nevertheless, decline in import-related taxes
-9.7
was offset by higher collections of domestic
-10
FY22 FY23 FY22 FY23 FY22 FY23
sales tax and FED. These were supported by
higher inflation translating into higher GST and
H1 H2 Jul-Jun
FED;21 increase in GST from 17 percent to 18
Source: Federal Board of Revenue

16 Data source: State Bank of Pakistan

17 These ratios are calculated using end-June stocks.
18 Import-related taxes are assessed based on values of import in PKR. Hence, exchange rate movements, among other factors, play

pivotal role in tax collection on imports. Import values in PKR fell by only 5.2 percent as depreciation partially offset the decline in
imports in USD.
19 New tax rate applied over 800 tariff lines, including cars (CBU); home appliances (CBU); aerated water and juices; confectionery;

sanitary and bathroom wares; carpets; chandeliers; chocolates; doors and window frames; leather jackets and apparels; articles of
jewelry; and others. Source: FBR SRO No. 297(I)/2023, dated Mar 08, 2023;
www.download1.fbr.gov.pk/SROs/2023382232741774SRO-297-OF-2023.pdf
20 Import-related taxes (sales tax, FED, and customs) fell by 6.7 percent in FY23, as compared 45.7 percent increase in FY22. Source:

Federal Board of Revenue

21 For more details, see Inflation section in Chapter 3.

81
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State Bank of Pakistan Annual Report 2022-2023

percent in the Finance (Supplementary) Act 2023 notable increase of 41.9 percent in FY23
(Figure 4.4); and increase in GST on locally compared to the previous year. This is
manufactured cars to 25 percent.22 explained by GST on other POL products,
The revenue measures announced in the Finance including furnace oil, HOBC, JP-8, and JP-1.
Act 2022 were already expected to boost GST Additionally, there was a positive revenue
and FED collections in FY23. The major revenue impact of the international crude prices trending
measures included: (i) expansion in the higher in Jul-Jan FY23 than same period last
categories of Tier-1 retailers by adding jewelers year, as well as sharp exchange rate
(except those with shop size less than 300 square depreciation, both of which lifted the base prices
feet); (ii) discontinuation of gas and electricity of the POL products.
utilities for retailers not registered with FBR’s
real-time sales reporting system aimed at Non-Tax Revenue
enhancing compliance of retailers, as well as
other sales tax agents, with digitalization After recording declines in the preceding two
protocols of FBR; additionally, a penalty system years, NTR increased by 41.8 percent in FY23
was also enforced for the non-compliant Tier-1 (Table 4.6). Almost the entire growth came on
retailers;23 and (iii) increase in FED on cigarettes the back of sharp increase in collection form
and air travel in club, business and first class in petroleum development levy (PDL), which
the Finance Act 2022 and Finance reached Rs 579.9 billion in FY23. In FY22, the
(Supplementary) Act 2023. levy was kept either zero or much below the
budget target (Figure 4.5), as the government
In the light of these developments, domestic attempted to provide relief to masses in the face
sales tax and FED rose despite subdued of rising international oil prices. However,
economic activity and zero GST on POL starting from July 2022, the levies on petrol and
products (MS and diesel) and crude.24 Domestic hi-speed diesel were re-imposed, and gradually
GST collection from POL products still posted a increased to the budgeted target of Rs 50 per
liter apiece. This provided boost to PDL
Trend of PDL Figure 4.5 Trend of Transfer of SBP's Surplus Profits Figure 4.6
HSD Petrol PDL target rate
billion Rupees
60 Rupees per liter 371

50 SBP Amendment Act 2022

Remaining
268 271 Quarterly quarterly
40 profit from
profits not
30 transferred Q4-FY22
153 after changes
20 PDL re-imposed in Act
125
105 109
94
10

0 0 0 0 0
Jan-22

Jan-23
Nov-21

May-22

Nov-22

May-23
Sep-21

Sep-22
Jul-21

Jul-22

Jul-23
Mar-22

Mar-23

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Sources: Pakistan State Oil, and Oil and Gas Regulatory FY21 FY22 FY23
Authority Source: Ministry of Finance

22 Source: FBR SRO No. 297(I)/2023, dated Mar 08, 2023; www.download1.fbr.gov.pk/SROs/2023382232741774SRO-297-OF-
2023.pdf
23 Penalty of a half million rupees for first default; Rs 1.0 million for second default after 15 days of order for first default; Rs 2.0

million for third default after 15 days of order for second default; Rs 3.0 million for fourth default after 15 days of order for third
default; regardless of these penalties, premises of retailers might be sealed as well.
24 GST on these products was removed in March 2022 through FBR SRO 321(I)/2022, with effect from February 2022.

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Non-Tax Revenue (NTR) Collection - Consolidated Table 4.6

percent
Contribution to
Growth
Total NTR
H1 H2 Jul-Jun Jul-Jun
FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23
(a) Federal -17.8 28.5 -28.1 65.5 -22.2 43.1 -20.1 38.8
Petroleum levy -74.6 154.0 -61.5 599.0 -70.0 354.7 -18.2 35.3
Mark-up (PSEs & others) -25.9 138.2 71.2 21.5 15.2 64.8 0.7 4.4
Royalties on oil\gas 11.2 45.0 44.8 22.9 28.1 32.4 1.2 2.3
Dividend 118.8 57.2 -47.2 64.8 -2.2 60.2 -0.1 2.0
Windfall levy against crude oil 590.9 188.3 302.5 39.4 373.1 92.6 0.7 1.0
Passport fee 49.2 57.9 84.8 61.1 65.7 59.6 0.5 1.0
Profits of PTA 108.9 -16.2 215.7 -19.4 164.8 -18.2 3.9 -1.5
Surplus profit of State Bank of Pakistan 2.0 -2.3 -66.3 -100.0 -27.2 -21.6 -10.9 -8.0
(b) Provincial 43.1 4.5 -41.1 56.8 -14.6 29.3 -1.3 2.9
Non-tax Revenue (a+b) -14.6 26.4 -29.9 64.5 -21.5 41.8 -21.5 41.8
Sources: Ministry of Finance, and SBP calculations

collection, particularly in the second half, even the government within 30 days of making the
compensating for falling POL sales.25 As a annual financial statements public by the SBP.27
result, the government overshot the revised It may be noted here that there was a transfer of
target of Rs 542 billion.26 Rs 371 billion in Q2-FY23 in arrears from Q4-
FY22.28 On the other hand, provincial non-tax
On the other hand, SBP profit transfers were revenue also grew by 29.3 percent in FY23,
significantly lower in FY23 due to change in compared to decline of 14.6 percent in FY22,
transfer mechanism in light of the amendments mainly on account of charges collected from
to the SBP Act (Figure 4.6). As per the new transfer of property, and administration charges
rules, the surplus profits are to be transferred to and fees.

Cumulative Federal Current Expenditures Figure 4.7 4.3 Federal Expenditures

Domestic markup Defence
Subsidies Grants
Foreign markup Pension Federal expenditures grew by 21.2 percent in
Civil government FY23, slightly lower from 26.3 percent growth in
6000 billion Rupees FY22. Slower growth in expenditures, despite a
surge in mark-up payments, was due to decline
in non-interest current expenditures, primarily
4000 on account of reduction in subsidies and grants.
In contrast, other current expenditures including
defence, pension and running of civil
2000
government increased. In particular, the
defence affairs and services witnessed a higher
0
growth in FY23 relative to FY22 (Figure 4.7).
FY22 FY23 Importantly, development expenditures
Source: Ministry of Finance

25
Sales of petrol and diesel fell by 16.8 percent and 28.5 percent, respectively, in FY23 from the year ago. Sources: Ministry of
Finance and Oil Companies Advisory Council
26 The government was initially falling short of the budget target of Rs 855 billion during FY23, which could be ascribed to

gradual—instead of one-off—increase in PDL to budget target of Rs 50 per liter, as well as lower POL sales.
27 Source: SBP Act 2022 (Amended); https://www.sbp.org.pk/about/act/SBP-Act.pdf
28 The changes in Act will see transfer of first full year surplus profits of SBP in first half of FY24.

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State of Federal Expenditures Table 4.7
billion Rupees, growth in percent
As percent As percent
Absolute Growth of Total Expenditures of GDP
FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23
Total expenditures (a+b) 9,350.1 11,332.4 26.3 21.2 100 100 14.0 13.4
(a) Current expenditure 8,451.6 10,867.2 33.1 28.6 92.3 92.4 12.6 12.8
Mark-up payments 3,182.4 5,831.1 15.7 83.2 34.8 49.6 4.8 6.9
Domestic 2,828.6 5,071.2 12.1 79.3 30.9 43.1 4.2 6.0
Foreign 353.9 759.9 56.6 114.7 3.9 6.5 0.5 0.9
Defence affairs and services 1,411.6 1,585.5 7.2 12.3 15.4 13.5 2.1 1.9
Pension 541.9 666.3 23.1 23.0 5.9 5.7 0.81 0.8
Running of civil government 546.7 634.0 8.1 16.0 6.0 5.4 0.8 0.7
Subsidies 1,529.6 1,080.3 259.9 -29.4 16.7 9.2 2.3 1.3
Grants to provinces and others 1,239.3 1,070.0 36.0 -13.7 13.5 9.1 1.9 1.3
Grants to provinces 97.5 82.0 16.2 -15.9 1.1 0.7 0.1 0.1
Grants to others 1,141.8 988.0 37.9 -13.5 12.5 8.4 1.7 1.2
(b) Development expenditure and net lending 701.1 890.4 -11.1 27.0 7.7 7.6 1.0 1.1
Total development expenditure 558.1 743.0 -19.6 33.1 6.1 6.3 0.8 0.9
PSDP 558.1 743.0 -16.4 33.1 6.1 6.3 0.8 0.9
Development grants to provinces 157.7 91.0 -30.3 -42.3 1.7 0.8 0.2 0.1
Net lending 143 147.3 51.4 3.0 1.6 1.3 0.2 0.2
Provinces 102.6 87.5 485.2 -14.8 1.1 0.7 0.2 0.1
Others 40.4 59.9 -47.5 48.2 0.4 0.5 0.1 0.07
Source: Ministry of Finance, and SBP calculations

increased in FY23, against a decline observed in remained the major contributor to still elevated
the previous fiscal year (Table 4.7). growth in current expenditures, accounting for
54 percent of the federal current expenditures
Federal Current Expenditures during FY23 (Figure 4.8). Meanwhile, defence,
pensions and running of civil government also
Growth in federal current expenditure witnessed higher spending during FY23.
decelerated slightly to 28.6 percent in FY23 from
33.1 percent in FY22. The deceleration was Steep rise in interest expenses
primarily due to lower subsidies and grants.
Substantial increase in interest payments, The mark-up payments surged by 83.2 percent
in FY23, compared to 15.7 percent increase in the
Quarterly Current Federal Spending Figure 4.8
Interest expenditure Non-interest expenditure Interest Payments as Percent of Major Fiscal Table 4.8
billion Rupees Accounts
5,000 Average
FY22 FY23
FY17-FY21
4,000 Fiscal balance 71.6 60.5 89.4
Total tax revenues 46.6 47.1 74.6
3,000 Total expenditure 23.7 23.9 49.6
Current expenditures 28.4 27.6 53.7
2,000 Defence 180.9 225.4 367.8
Pension 527.2 587.3 875.1
1,000 Running of civil govt. 424.4 582.1 919.7
Subsidies 927.2 208.1 539.8
0 Grants 377.3 278.7 545.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Development expenditures 154.2 192.0 654.9
FY22 FY23 Source: Ministry of Finance
Source: Ministry of Finance

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 Fiscal Policy
Fiscal Policy

Interest Payments Figure 4.9a Quarter-wise Interest Payments Figure 4.9b

Interest payments
Foreign interest payments as percent of GDP
Interest payments as percent of GDP-rhs
Domestic interest payments as percent of GDP
billion Rupees percent of GDP
8000 9 percent
3

6000
7 2

4000

5 1
2000

0
0 3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY21 FY22 FY23
Source: Ministry of Finance Source: Ministry of Finance

previous year. In absolute terms, interest and the resumption of markup payments to
payments rose to Rs 5.8 trillion (Figure 4.9a); bilateral creditors after expiration of Debt
about 70 percent of tax revenues and 93 percent Service Suspension Initiative (DSSI).30
of the fiscal deficit in FY23 (Table 4.8). Unlike in
FY22, when interest payments remained Subsidies and grants, despite steep fall, remain
relatively muted until March 2022 and then rose substantial
in last the quarter, these rose steadily
throughout FY23 (Figure 4.9b). Though interest Total subsidies decreased to Rs 1.1 trillion (1.3
payments on both the domestic and foreign debt percent of GDP) in FY23 from Rs 1.5 trillion (2.3
rose sharply, mark-up on domestic debt percent of GDP) in the previous year (Figure
constituted around 87 percent of the total 4.10).31 Almost 67 percent of the subsidies in
expense. FY23 were meant for power sector, mainly

The actual markup payments exceeded the Federal Subsidies and Grants: Figure 4.10
budgeted target of Rs 3.9 trillion for FY23 by Actual vs Targets
48.7 percent.29 Increased borrowing, mostly via FY22-Actual FY23-Budgeted FY23-Actual
short-term T-bills and floating rate PIBs, 1600 billion Rupees
resulted in higher mark-up payments on 1,529.6
domestic debt in FY23. In addition, higher debt 1200
servicing reinforced financing requirement to 1,239.3
pay off high priced loans. Moreover, the rising 1,080.3 1,174.5
share of floating rate instruments in the 800
1,070.0
outstanding debt further increased the buildup
664.0
of interest payments. 400

External debt servicing posted a significant

increase of 114.7 percent during FY23. This 0
Subsidies Grants
mainly reflects the impact of PKR depreciation Source: Ministry of Finance

29 This was against the target of Rs 3.1 trillion budgeted in FY22.

30 For details, see Chapter 5 - Domestic and External Debt
31 The target for overall subsidies was set at Rs 664 billion, out of which Rs 463 billion were allocated for power sector, including for

settlement of circular debt. Against this, power sector received Rs 870 billion during FY23. This large deviation from the target was
mainly due to higher accumulation of circular debt and payments made under fiscal package.

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State Bank of Pakistan Annual Report 2022-2023

Disbursement of Federal Subsidies Figure 4.11 Similar to subsidies, total grants were recorded
FY22 FY23
billion Rupees at Rs 1,070.0 billion in FY23, lower by 13.7
Fertilizer 41 percent from Rs 1,239.3 billion in FY22 (Figure
15
4.12). Benazir Income Support Program (BISP)
Gas-dom. consumers Petroleum &
27 remained a major recipient of federal grants,
169 gas sector
Industrial sector 43 followed by contingent liabilities, other grants
Exchange losses-PSO and grants to HEC.
36
Wapda/Pepco 18
20 In FY23, the BISP received Rs 408 billion against
Tariff differ.-tubewell 5
9 Power
the budgeted amount of Rs 360 billion. Through
Tariff differ.-AJK sector BISP, emergency cash assistance of Rs 70 billion
131
66 was disbursed to 2.72 million families affected
K-Electric 267 due to floods during 2022.34 Under this cash
345
IPPs 93 assistance program, the government provided
403 emergency assistance of Rs 25,000 per family.35
Inter disco tariff differ. 213
Moreover, the BISP program also covered the
0 200 400 600
Source: Ministry of Finance ongoing schemes carried under Unconditional
Cash Transfer (UCT) and Conditional Cash
including tariff differential payments related to Transfer (CCT) programs.
AJK, agriculture tube wells, receivables to
DISCOs, K-Electric and WAPDA/PEPCO Under the Benazir Kafalat, which is a major
(Figure 4.11).32 UCT program,36 the government provided cash
assistance of Rs 7,000 per family to around 7.7
After power, a substantial amount of subsidies million families in first half of FY23, which was
was provided on petroleum products; which
comprised subsidies to industrial sector, Disbursement of Federal Grants Figure 4.12
domestic consumers and payment to PSO on billion Rupees
account of exchange losses. The industrial NDRMF 40
sector remained the major recipient of
T.T. charges-remit. 35
petroleum and gas subsidies, which include
subsidized LNG and electricity and extension of Railways 47.5
industrial support package (ISP).33
Gilgit Baltistan 47

Moreover, the government also provided AJK 59.5

subsidy of Rs 44 billion in flood affected areas,
HEC 68.726
specifically on fertilizer (Rs 15 billion), mark up
on Mera Pakistan Mera Ghar Scheme (Rs 10 Contingent liability 92
billion), markup subsidies & risk sharing
BISP 408
scheme for farmers (Rs 3 billion) and markup
subsidy for Rabi crops (Rs 8 billion). Source: Ministry of Finance

32 Figure 4.11 is based on data of Jul-Mar period.

33 To generate demand for ample available electricity and boost industrial activity, the government had announced ISP scheme in
November 2020. Under the scheme, peak and off-peak tariff structure for industrial consumers was abolished initially for the
period from November 2020 till end April 2020. However, due to higher energy demand, the package was first extended till June
2022 and then till October 2023. (Source: NEPRA (2021), State of Industry Report)
34 Initially the government announced package of Rs 28 billion which was increased to Rs 70 billion. (Source: MoF press release,

August 30, 2022 (PR No. 106)

35 Source: Benazir Income Support Program. www.bisp.gov.pk/
36 Initiated in 2008, the objective of “Benazir Kafaalat Program” is to cushion against negative effects of slow economic growth, food

crisis and inflation on the poor, particularly women, through provision of cash assistance to eligible families.

86
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Fiscal Policy

later increased to Rs 8,750 with an inflation government had announced 15 percent ad-hoc
adjustment of 25 percent with effect from relief allowance for all federal employees and
January 01, 2023. The coverage of UCT Kafalat employees of autonomous/ semi-autonomous
program was also extended to 9 million families bodies and corporations. In addition,
based on the live National Socioeconomic government also made upward revisions in
Registry (NSER) database. The major CCT salary scale of BPS-1 to BPS-21 civil servants.38
program, i.e. ‘Benazir Taleemi Wazaif’ scheme, Moreover, a special allowance was granted to
disbursed Rs 23.4 billion during FY23 to the civil employees in grades BPS 1 to BPS 16.39
children of BISP beneficiaries.37 Other than Similarly to increase in salary, pension was also
BISP, the government also carried out non- increased by 15 percent to Rs 666.3 billion in
budgeted Pakistan Poverty Alleviation Fund FY23, which also resulted in higher current
(PPAF) program. One of the major schemes expenditures.40
under the program was Interest-Free Loan (IFL)
Program, which provides funding to the Federal Development Expenditures
microenterprises of poor and marginalized
households. The federal development expenditures increased
sharply by 33.1 percent in FY23, against a
Increase in salaries and pensions decline of 16.4 percent in FY22, mainly reflecting
higher disbursements under federal PSDP. In
Expenditures on both pension and running of terms of GDP, the PSDP saw a slight increase to
the civil government recorded a significant 0.9 in FY23 percent from 0.8 percent last year.
increase during FY23. The major impetus came
from relief measures for serving and retired Federal development spending has consistently
employees announced in FY22. In July 2022, the fell short of the budgeted amount during the last
few years, owing to growing fiscal imbalances
Federal PSDP: Actual vs. Budgeted Figure 4.13 and rising subsidies, grants and interest
Budgeted Actual payments.41 In contrast to FY22,
percent of GDP when the targeted PSDP was higher than the
3.0
2.8
previous two years, the government envisaged a
2.4
2.5 lower target for FY23 (Figure 4.13).
2.1 2.1
2.0
1.7
1.6 1.7 During the first half of FY23, the federal PSDP
1.5 1.3 1.3
1.4 releases were lower than the previous year, in
1.2
line with the strategy of releasing 10 percent of
1.0 0.8 0.9 0.9 the allocation in Q1, 20 percent in Q2, 30 percent
in Q3, and 40 percent in Q4. Further, the
0.5
ongoing PSDP projects also faced some
0.0 operational bottlenecks including difficulties in
FY17 FY18 FY19 FY20 FY21 FY22 FY23 opening of Letter of Credits (LCs) for import of
Source: Ministry of Finance

37 According to BISP, Benazir Taleemi Wazaif Scheme was initially introduced in five districts in November 2012; the coverage was
expanded gradually, and in 2020 all districts of the country were covered. Under this scheme, the children of BISP families are
provided with quarterly stipend (varies with sex, age and education level) with the condition of enrolment in school with 70 percent
attendance. As of June 2023, 12.0 million children have been enrolled in the scheme and Rs 63.3 billion has been disbursed.
38 Office Memorandum F. No. 1(2) lmp/2022-283, dated July 01, 2022, Regulations Wing, Finance Division
39 Office Memorandum F. No. 9(7) R-1/2014-62/2023, dated Feb 14, 2023, Regulations Wing, Finance Division
40 Office Memorandum No. F.4 (1) Reg.6/2022-486, dated July 01, 2022, Regulations Wing, Finance Division
41 The PFM reforms comprises: (i) budget management; (ii) development projects, maintenance and use of public assets; (iii) control

of public finance consolidated fund and public account; (iv) treasury management; (v) special purpose funds; (vi) accounting and
reporting; (vii) public entities; (viii) non tax-revenue; and (ix) ease and authority to make rules

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State Bank of Pakistan Annual Report 2022-2023

PSDP Targets vs. Disbursements Table 4.9

billion Rupees
Expenditure
Ministry/Division PSDP Allocation Percent of Percent of
Jul-May Jul-Jun
Allocation Allocation
Provinces and Special Areas (Previously under
128.8 61.0 47.4 100.5 78.0
FD/KA&GB)
National Highway Authority 99.2 62.1 62.6 114.8 115.7
Water Resources Division 102.6 80.6 78.6 115.5 112.6
Cabinet Division 116.1 64 55.1 93.4 80.5
Higher Education Commission 44.7 30.5 68.2 43.0 96.2
NTDC/PEPCO 50.1 89.5 178.5 116.7 232.7
Planning, Development & Special Initiatives
5.4 2.8 52.1 4.4 82.4
Division
Railways Division 26.1 25.3 96.9 25.3 97.0
Housing & Works Division 22.9 11.2 48.8 22.2 96.9
Sources: PSDP 2022-23, Ministry / Division-wise Summary (July - May and Jul-Jun, 2023), Planning Commission Ministry of Planning,
Development and Special Initiatives

machinery.42 envisaged in the Budget 2022-23 included: i)

ongoing development project in merged districts
The pace of releases further decelerated when of Khyber Pakhtunkhwa; ii) construction of
the government reallocated funds from roads and infrastructure specially motorway
development projects to flood relief activities sections; iii) major dams, including Diamer
amid a limited fiscal space and external support Bhasha and Mohmand dams; and iv) power
to deal with catastrophic floods. Thus, projects, such as installation of coal fired power
disbursement under federal PSDP remained at project in Jamshoro and enhancement in
Rs 499.8 billion during FY23 against the transmission capacity of NTDC system etc. The
budgeted Rs 727 billion.43 comparison of ministry-wise allocation and
actual position of expenditures suggests that
Around 164 projects were completed during most of the federal ministries and other
FY23. The major development projects institutions received less than the targeted
allocation till May 2023, the actual disbursement
Provincial Surplus Figure 4.14
bounced sharply in June 2023 (Table 4.9).
Punjab Sindh KP Balochistan
billion Rupees
400
4.4 Provincial Fiscal Operations
300
The provincial fiscal accounts exhibited
deterioration in FY23. In consolidated terms, the
200
overall provincial surplus contracted sharply
from Rs 351.0 billion (0.5 percent of GDP)
100
during FY22 to Rs 154.6 billion (0.2 percent of
GDP) in FY23 year. The surplus could only
0 reach 20.6 percent of the Rs 750 billion target
envisaged for FY23.44
-100
FY17 FY18 FY19 FY20 FY21 FY22 FY23
Source: Ministry of Finance

42 For details, see Chapter 6

43 Planning Commission of Pakistan
44 FY23 budget envisaged an increase of 31.6 percent to Rs 750.0 billion, compared to Rs 570.0 billion last year.

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Fiscal Policy

Provincial Fiscal Operations Table 4.10

billion Rupees; percent
Values Growth
FY22 FY23 FY22 FY23
A. Total revenue (a+b+c) 4,687.5 5,299.4 25.7 13.1
a. Provincial share in federal revenue 3,589.0 4,223.5 30.9 17.7
b. Fed loans and transfers 357.8 260.5 9.3 -27.2
c. Provincial own revenue 740.7 815.4 12.5 10.1
Taxes 612.4 649.6 20.5 6.1
Non-taxes 128.3 165.9 -14.6 29.3
B. Total expenditures (a+b+c) 4,336.5 5,144.8 27.0 18.6
a. Current 3,200.8 3,859.6 12.5 20.6
b. Development 1,216.6 1,241.0 57.9 2.0
c. Statistical discrepancy -80.9 44.2 17.1 -154.6
Overall balance (A-B) 351.0 154.6 33.3 -56.0
Source: Ministry of Finance

Province-wise analysis reveals that Punjab lower provincial share in federal revenues, and
contributed the most in overall contraction in decline in provincial own revenue.
provincial surplus, whereas Balochistan posted
a deficit during FY23. On the contrary, Sindh Provincial own revenue collection grew by 10.1
and KP generated higher surplus during FY23 percent in FY23, against 12.5 percent increase in
compared to last year (Figure 4.14). The FY22. The deceleration in provincial own
reduction in provincial surplus mainly came revenue came from tax revenues, which
from slower growth in revenues, coupled with recorded a growth of 6.1 percent to Rs 649.6
higher current expenditures (Table 4.10 and billion in FY23 compared to Rs 612.4 billion last
Figure 4.15). year. Among different sources of taxes, sales tax
on services contributed the most, followed by
Provincial Revenues other taxes and stamp duties. Within provinces,
around 46 percent of the taxes were collected by
Growth in provincial revenues decelerated to Punjab, 44 percent by Sindh and 6.4 percent and
13.1 percent in FY23 from 25.7 percent in in the 4.0 percent by KP and Balochistan respectively
previous year. The deceleration is explained by (Figure 4.16).

Provincial Revenues and Expenditures Figure 4.15 Major Sources of Provincial Own Figure 4.16
Total revenue Total expenditure Revenues
Hydroelectricity profits Motor vehicles tax
60 growth in percent Stamp duties Federal loans & transfers
Sales tax on services
50
375 billion Rupees

40 250

30 125

0
20
-125
10
FY22

FY23

FY22

FY23

FY22

FY23

FY22

FY23

0
FY21 FY22 FY23 Punjab Sindh KP Balochistan
Source: Ministry of Finance Source: Ministry of Finance

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State Bank of Pakistan Annual Report 2022-2023

Segregation of Provincial Expenditures Figure 4.17 Priorities in Development Spending in Figure 4.18
Current expenditure Development expenditure FY23 (percent share in provincial
development expenditure)
billion Rupees
2,000 Punjab Sindh KP Balochistan

1,600 65 Economic affairs

Social
1,200 52 protection

800 39 Housing &

General
community Education
400 public
26 amenities affairs
services
Health
0
FY22 FY23 FY22 FY23 FY22 FY23 FY22 FY23 13

Punjab Sindh KP Balochistan 0

Source: Ministry of Finance Source: Ministry of Finance

The moderation in growth of provincial own tax grants and loans were diverted to finance the
collection during FY23 may be attributed to food related activities in Sindh.
different tax relief measures announced in
respective budgets of provinces. For instance, Provincial Expenditures
extension of the reduced sales tax rate on
services for more than 30 sectors and The growth in provincial expenditures also
registration and token tax exemption on electric decelerated to 18.6 percent during FY23, from
vehicles in Punjab. Moreover, no new taxes 27.0 percent in FY22. The deceleration was due
were announced by Sindh in its FY23 budget, to slower growth in development expenditures,
whereas special moratorium was placed on while current expenditures grew sharply
collection of cotton fee, professional tax and (Figure 4.17).
entertainment duty. Sindh also exempted
export-oriented sector from Sindh Infrastructure The current expenditures rose by 20.6 percent in
Development Cess, reduced rate of levy for FY23, compared to 12.5 percent in FY22, majorly
services provided by cable TV operators, and driven by increased expenditures on executive
lowered the Sindh Sales Tax from 13 percent to 8 & legislative organizations, financial and fiscal
percent for commission charges. KP also affairs including salaries and pension
provided relief on various taxes and fee in FY23, expenditures of respective provinces. The
which include 20 percent exemption in excise increase in salaries and pension was due to
duty on first time registration of motor vehicles, special ad-hoc relief and disparity allowance to
and zero tax on land with full exemption from employees announced by different provinces in
capital value tax (CVT) and registration fee. their FY23 budgets. Public order and safety
affairs, was other major head that recorded 13.3
Provincial non-tax revenues registered a growth percent increase in FY23. The increase was
of 29.3 percent in FY23, against a decline of 14.6 mainly driven by a 15.5 percent more allocation
percent in the previous year. The growth to police department compared to previous
mainly came on account of other non-tax year.
sources, including receipts of forests
department. In contrast, the major non-tax Provincial development spending increased by
sources, transfer of hydroelectricity profits to only 2.0 percent in FY23, compared to 58.0
KP, which remained lower at Rs 4.9 billion in percent increase recorded in FY22. Khyber
FY23 compared to Rs 21.0 billion during last Pakhtunkhwa witnessed a major decline,
year. This was because most of the federal whereas Punjab and Sindh also contained the

90
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pace of development spending. Within the transport sector specifically in Punjab, KP and
development spending, major thrust came from Balochistan. In Sindh, the provincial resources
economic affairs, as funds were diverted to were diverted to social protection and
finance the ongoing projects in construction and agriculture and allied sectors (Figure 4.18).

91