Mini Budget FY22

Sector Related Impact

© The Pakistan Credit Rating Agency Limited. January 2022

Overview | Mini Budget
Foreword
• The sixth review of Extended Fund Facility (EFF) is to be presented to the IMF on Jan 12, 2022. This has called for fulfillment of certain pre-
conditions for the renewal of the facility. The Government has, therefore, come up with Amendments in the Finance Bill – “Mini-Budget” that is
aimed at fetching the remaining tranche of USD1bln against the total scheme of USD6bln. The Mini-Budget was introduced to the National
Assembly on December 30, 2021, and was presented in the Senate on 4th Jan, 2022.

• The Bill is aimed at a two-fold agenda; first, to increase the tax base of the Government in order to manage the fiscal balance and second, to
discourage imports in order to restrict the rising import bill and control the country’s widening current account deficit.

Overall Impact

• Under the bill, amendments have been proposed in Income Tax, Sales Tax and federal excise laws. However, the key highlight of the Bill is
withdrawal of GST exemptions on some major items to the tune of PKR~343bln.

• As it appears, the bill is designed to restrict imports and its triggering inflation. However, it also directs removal of tax exemptions on some basic
food items such as rice and sugarcane, which will push up headline inflation in the country. Several imported edibles are also expected to get
costlier. PACRA R&P views Sectors with high dependency on imports such as Automobiles, Mobile Phones (to the extent of imports) and Food &
Agriculture to bear negative impact, while Sectors that substitute local manufacturing with imports, such as refining, are expected to benefit from
the bill. Sectors, such as pharmaceutical, where refunds/claims are available against sales tax imposed on raw materials, are expected to remain
neutral with some changes in the cash flow cycles only. A major impact is expected on the Auto Sector which performed relatively better in the
outgoing year. The sector may witness a dip in the demand, especially in an environment of tightened consumer financing terms and rising
financing rates.
Overview | Mini Budget
Macro-Indicator Snapshot

As at 31-
Particulars FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 6MFY22
Dec -21
Average Inflation Rate (CPI) 11.90% 11.00% 7.40% 8.60% 4.50% 2.90% 4.20% 3.90% 7.30% 10.70% 8.90% 9.80% 12.30
Average KIBOR 13.45% 12.33% 9.84% 9.88% 8.85% 6.49% 6.11% 6.39% 10.43% 11.95% 7.43% 8.69% 11.31%
Monetary Policy Rate (MPR) 13.70% 12.41% 9.91% 9.75% 8.75% 6.04% 5.75% 5.95% 9.69% 11.75% 7.00% 7.62% 9.38%
PKRV 13.00% 11.91% 9.63% 9.75% 8.67% 6.34% 5.95% 6.26% 10.20% 11.79% 7.28% 8.57% 11.11%
Average Exchange Rate 86.31 89.24 96.83 102.84 101.47 104.37 104.78 110.11 136.45 158.40 160.46 169.32 177.50

(USD mln) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 5MFY22

Current Account Balance 214 -4,658 -2,496 -3,130 -2,815 -4,961 -12,270 -19,195 -13,434 -2,970 -1,852 -7,089

Exports 25,369 24,718 24,802 25,078 24,090 21,972 22,003 24,768 24,257 22,536 25,630 12,330

Imports 35,796 40,370 40,157 41,668 41,357 41,118 48,001 55,671 51,869 43,645 53,785 29,901

Trade Balance -10,427 -15,652 -15,355 -16,590 -17,267 -19,146 -25,998 -30,903 -27,612 -21,109 -28,155 -17,571

Foreign Exchange Reserve 18,244 15,289 11,020 14,141 18,699 23,099 21,403 16,384 14,482 18,886 24,398 22,329
Overview
Overview of of
Sector Impact
Sector Impact
Clusters Impact

Agriculture & Allied Negative

Food & Allied Negative

Auto & Allied Negative

Distributors Negative

Telecommunication Negative

Media Positive

Pharma & Chemicals Neutral

Infrastructure Neutral

Engineering & Technology Negative

Energy Negative

Textile & Allied Negative

Agriculture & Allied
Sector Lead: Fatima Mahmood Impact: Negative

Sector Category Change Impact Comment

Sales tax on Old: 5%

Agriculture This would increase the cost of
Seeds, plants, tools and Negative
cultivation/production.
chemicals of the
agriculture sector. New: 17%

Old: The impact of induced tax would be reflected in

Sales Tax Negative
Rice higher prices. Thus, affecting the commodity’s
New: 17% demand.
Agriculture & Allied
Sector Lead: Momina Rehman Impact: Negative

Sector Category Change Impact Comment

The current Minimum Support Price for Sugarcane

Old: 0%
stands at PKR225/40kg in Punjab and PKR250/40kg
Sales Tax on Sugarcane Negative in Sindh. The imposition of sales tax will increase
these prices to PKR~263/40kg and PKR~293/40kg
respectively, ultimately increasing the cost of sugar
New: 17% production.
Sugar

Sales Tax on Sugar Old: 0%

(Supplied as an industrial
The imposition of 17% tax will increase the raw
raw material to
Neutral material cost for pharmaceutical, beverage and
pharmaceutical, beverage
confectionary industries.
and confectionary New: 17%
Industries)
Food & Allied
Sector Lead: Fatima Mahmood Impact: Negative
Sector Category Change Impact Comment

Sales Tax Old: 17% The exemption would result in price reduction, and
Positive
(on Poultry meat) New: Exempted may upturn the demand for poultry meat.

Old: 5% Increased sales tax on poultry machinery will have

Sales Tax (on poultry
Neutral minimum impact on the margins, since the sector
machinery) New: 17% has already available capacity.
Poultry
Sales Tax (on frozen/ Old: 8%
The charged sales tax would result in price hike,
preserved) poultry meat Neutral
New: 17% and may impact the demand for frozen meat.
(Non Branded)

Sales Tax (on products of Old: Exempted

The proposed tax rate may impact the demand of
poultry meat) Negative
New: 17% poultry products.
(Non Branded)
Sales Tax (Ingredients) – Old: 10% Increased Sales Tax on poultry ingredients will
excluding soya bean Negative negatively impact the margins. Custom duty of 3%
meal. New: 17% on soya bean
Poultry Feed Old: Exempted Will increase cost of production and adversely
Sales Tax (Preparations of
affect margins.
Kind used in animal feed) Negative
New: 17% The tax is imposed on feed supplements, Additives,
PCT Code: 2309
Compounded animal feed.
Food & Allied
Sector Lead: Momina Rehman Impact: Negative

Sector Category Change Impact Comment

Sales Tax (Flavored milk, Old: 10%

Negative
Yogurt, Cheese, Butter,
Cream, Desi Ghee, Whey) New: 17%

Sales Tax (Milk and cream, Old: 10% With the imposition of standard 17% tax rate on
concentrated or containing Negative food products, the food inflation is expected to go
Food Products
added sugar or other up.
New: 17%
sweetening matter)

Sales Tax (Prepared Food, Old: 8%

Food stuff & Sweetmeat Negative
supplied by restaurants, New: 17%
bakeries, caterers etc.)
Sales Tax on import of Old: 5%
Sunflower and canola Increased tax will increase the cost of production
Edible Oil Negative
hybrid seeds meant for and negatively impact sector margins
New: 17%
sowing
Auto & Allied
Sector Lead: Momina Rehman Impact: Negative
Sector Category Change Impact Comment
FED on imported motor cars, SUVs and
other motor vehicles
Old: 5%
For 1001cc to 1799cc
New: 10%
Positive Import substitution leading to higher demand
Old: 25% for locally manufactured/assembled cars.
For 1800cc to 3000cc
New: 30%
Old: 30%
For 3001cc and above
New: 40%
Passenger Cars
FED on locally manufactured/
assembled motor cars, SUVs and other
motor vehicles
Old:2.5% Increase in FED is expected to increase
For 1001cc to 1799cc
New: 5% automobile prices, adversely affecting
Negative
the overall demand.
Old: 5%
For 1800cc to 3000cc
New: 10%
Old: 30%
For 3001cc and above
New: 40%
Auto & Allied
Sector Lead: Momina Rehman Impact: Negative

Sector Category Change Impact Comment

Advance tax on registration
of motor vehicles

Old: PKR 50,000

Up to 1000cc
New: PKR 100,000
Passenger Cars
Negative
Old: PKR 100,000
From 1001cc to 2000cc
New: PKR 200,000
Old: PKR 200,000
For 2001cc and above
New: PKR 400,000
Increase in Vehicle Registration Tax
will further pick-up cost of purchasing
new vehicles in an environment where
input costs are already rising and
OEMs are already increasing prices.
However, this increase will only impact non-
tax filers.

Old: 12% The impact of this increased sales tax will be

Batteries Negative
Sales tax on batteries passed on to consumers, resulting in
New: 17% increased final cost.
Distributors
Sector Lead: Fatima Mahmood Impact: Negative

Sector Category Change Impact Comment

Sales Tax on import of Old: Exempted

The proposed tax rate would adversely impact
mobile phone
Negative the cost of production of local mobile
manufacturing plants and
manufacturing industry.
Machineries. New: 17%

Sales tax on Import of Old: 5-10%

Mobile Phones and Allied Products Positive
Mobile Phones CBUs New: 17% The increase in sales tax can on imported
Old: For import value of phones would encourage the growth of local
USD 201-350 assembling sector. However, this can impact
Sales Tax on Import of
Tax: PKR~1,740 the demand of the sector due rise in price of
Mobile phones exceeding Negative
phones that will be imported anyway.
value USD 200 onwards New: 17%
> PKR~6,001
Communication
Sector Lead: Fatima Mahmood Impact: Neutral

Sector Category Change Impact Comment

Income Tax on Internet Old : 10% The increased income tax on internet may
and Telephone users Negative reduce the internet usage by end users.
New: 15%
Telecommunication
Old: 10% The charged rates by telecom service provider
Withholding Tax on
Neutral is not much significant to impact the overall
Telecom Services New: 15% performance of the sector.
Communication
Sector Lead: Momina Rehman Impact: Positive

Sector Category Change Impact Comment

Foreign produced TV drama
serial or play Positive
PKR 1mln per episode
Foreign produced TV play
Advance Tax imposed on TV plays and (single episode) This would promote locally produced
Media Positive
advertisements drama serials.
PKR 3mln

Advertisement starring foreign

actor Positive
PKR 0.5mln per second
Pharma and Chemicals
Sector Lead: Usman Sarwar Impact: Neutral

Sector Category Change Impact Comment

Sales Tax on API for Old: Exempted In case of pharma, the Bill provides for ‘zero
Pharma rating’ of medicines which effectively means
New:17%
that the industry, insofar it is documented,
Pharmaceutical Neutral
Sales Tax at the import Old: Exempted should be able to get refund for sales tax paid
stage on raw materials of on raw materials and machinery, without
medicines. New: 17% affecting the price of medicines.
Infrastructure
Sector Lead: Ali Abdul Rehman Impact: Negative

Sector Category Change Impact Comment

Old: 14%
Sales Tax
The increased sales tax, may reduce the
Steel (Import of remelt able Negative
demand for remelt able scrap.
scrap) New: 17%
Infrastructure
Sector Lead: Usman Sarwar Impact: Positive

Sector Category Change Impact Comment

Old: 15%
Income tax on This exemption is expected to provide support for
Real Estate dividends received by Positive growth of REIT schemes and attract PPP-based
REIT schemes infrastructure projects into the realm of REITs.
New: 0%
Engineering & Technology
Sector Lead: Insia Raza Impact: Negative

Sector Category Change Impact Comment

Sales tax (Set-top

Old: 5%
boxes for gaining The tax increase would make the access to the
access to internet, TV Negative internet costlier, hence negatively affecting the already
broadcaster under-developed IT sector in the country.
transmitter etc.) New: 17%
Technology

Sales tax (Personal Old: 0%

computers and Laptop Negative Increased tax and hence, increased cost is expected to
computers, notebooks) New: 5% hamper the demand for these products.
Textile & Allied | Spinning
Sector Lead: Insia Raza Impact: Negative

Sector Category Change Impact Comment

Old: Exempted
Sales Tax The induced sales tax would adversely Impact the
Spinning Negative
(Raw Cotton) margins, due to increased cost of production.
New: 17%
Energy
Sector Lead: Ali Abdul Rehman Impact: Negative
Sector Category Change Impact Comment
• Sales Tax on Machinery,
equipment, vehicles
and spares meant for
initial installation, BMR
or expansion of projects Old: 0%
for power generation
through oil, gas, coal,
wind, hydel, nuclear, The tax imposition will significantly impact the power
wave and renewable sector, negatively affecting the gross margins and
Power | Generation,
energy including under power consumers.
Transmission & Negative
construction projects Power Generation Companies might seek a hike in
Distribution
• Sales tax on Machinery Power Tariff on account of higher capex. This will add
and equipment, to inflation in the country.
construction machinery,
equipment and New : 17%
specialized vehicles
meant for power
transmission and grid
stations including under
construction projects.
Energy
Sector Lead: Ali Abdul Rehman Impact: Negative

Sector Category Change Impact Comment

Sales Tax on Old: 1%

Gold and Silver in
Inflationary in nature as precious metals have
Metals unworked condition and Negative
several applications.
articles of precious
metals New: 17%
Energy
Sector Lead: Usman Sarwar Impact: Neutral

Sector Category Change Impact Comment

Old: 3%
Sales Tax on Crude Oil Imports Decreased tax is expected to result in lower
Refineries Positive
cost of production.
New: 0%

Sales Tax on Coal mining Old: 0%

Coal Mining and machinery, equipment, spares, Increased sales tax on machinery will
Negative
Trading including vehicles for site use increase the production cost.
imported for Thar Coal Field. New: 17%
Technology
Sector Lead: Ali Abdul Rehman Impact: Negative

Sector Category Change Impact Comment

Old: Exempted
Sales tax on gas The charged sales tax would increase the price
Machinery processing plants Negative for gas processing plants, and adversely
(LNG, CNG etc) impact the demand for new plants.
New: 17%
Bibliography

• Finance Supplementary Bill (2021) Mini Budget

• Arif Habib Limited, IGI & Taurus Securities

Research Saniya Tauseef – Asst. Manager saniya.tauseef@pacra.com

Team Momina Rehman – Associate Research Analyst momina.rehman@pacra.com
Fatima Mahmood – Associate Research Analyst fatima.Mahmood@pacra.com

Contact Number: +92 42 35869504

DISCLAIMER
PACRA R&P has used due care in preparation of this document. Our information has been obtained from sources we consider to be
reliable but its accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced,
in whole or in part, provided the source is duly acknowledged. The presentation should not be relied upon as professional advice.