Due to increased tax collection and import relaxation

Revenue from taxes on external trade increased by 29.0 percent to Rs. 302.5 billion in the first eight months of 2024 from the same period in 2023, emanating from increase in imports due to the gradual relaxation of import restrictions, Pre-Election Budgetary Position Report 2024 issued by the Ministry of Finance earlier this week said.

The increases in revenue collection from Special Commodity Levies (SCL) by 110.1 percent to Rs. 67.2 billion with the increase in SCL rates on essential commodities such as sugar and potatoes and the increase in revenue receipts from Customs Import Duty (CID) and CESS. Revenue collection from the Ports and Airports Development Levy (PAL) slightly increased by 3.4 percent despite the phasing out of PAL on selected items.

Revenue collected from income taxes increased by 16.3 percent to Rs. 624.7 billion in the first eight months of 2024, achieving 57.8 percent of the annual estimate of Rs. 1,080.0 billion. The increase in revenue from income tax was mainly due to the increase in revenue collection from Advance Personal Income Tax (APIT) and Withholding Tax (WHT) in the first eight months of 2024 from the same period of 2023. Revenue from taxes on goods and services increased by 59.8 percent to Rs. 1,421.3 billion in the first eight months of 2024. This was mainly due to the increase in revenue collected from Value Added Tax (VAT) by 87.2 percent to Rs. 842.5 billion, surpassing the total VAT revenue realized in 2023 by Rs. 148.0 billion stemming from the increase in VAT rates, reduction in the registration threshold, and removal of the vast majority of exemptions. This increase was also driven by increased revenue from the Excise Duty on petroleum products, Excise Duty on liquor, and Social Security Contribution Levy (SSCL).

The revenue from non-tax increased by 31.7 percent to Rs. 209.3 billion in the first eight months of 2024 from Rs. 158.8 billion in the same period of 2023. This has mainly been driven by the increase in revenue from fines, fees and charges, and interest income.

The total government expenditure increased slightly by 5.4 percent to Rs. 3,476.9 billion in the first eight months of 2024. Recurrent expenditure, which accounted for around 87.5 percent of total expenditure in the first eight months of 2024, slightly increased by 3.4 percent to Rs. 3,041.6 billion from Rs. 2,941.7 billion in the same period of 2023. This was mainly driven by the increase of salaries and wages by 6.7 percent to Rs. 659.5 billion in the first eight months of 2024 from Rs. 618.1 billion in the same period of 2023 due to an increase in cost-of-living allowance and the increase of interest payments by 2.2 percent to Rs. 1,559.7 billion in the first eight months of 2024 from Rs. 1,525.7 billion in the same period of 2023 owing to the increase in interest payment on domestic debt, foreign debt and domestic loans. Expenditure on subsidies and transfers increased slightly by 1.5 percent to Rs. 623.8 billion in the first eight months of 2023. Meanwhile, the capital and net lending significantly increased by 22.4 percent to Rs. 435.3 billion in the first eight months of 2024 from Rs. 355.6 billion in the same period of 2023.

Government Revenue including grants increased by 40.5 percent or Rs. 739.3 billion in the first eight months of 2024 from Rs. 1,826.6 billion in the same period of 2023 owing to the increase in tax revenue by 41.4 percent to Rs. 2,348.5 billion in the first eight months of 2024 from Rs. 1,661.2 billion in the same period of 2023. Revenue from taxes on goods and services, which account for 60.5 percent of total tax revenue, increased by 59.8 percent, or Rs. 531.9 billion, to Rs. 1,421.3 billion in the first eight months of 2024 from Rs. 889.5 billion in the same period of 2023. This increase was largely driven by the notable increase in revenue from Value Added Tax (VAT), which increased by 87.2 percent to Rs. 842.5 billion in the first eight months of 2024 from Rs. 450.0 billion in the same period of 2023. Thus, revenue collected from VAT in the first eight months of 2024 outperformed and surpassed Rs. 694.5 billion of revenue collected from VAT for the entire year of 2023. However, positive momentum in revenue generation must be sustained and enhanced over the medium term with a focus on tax compliance, eliminating tax leakages, digitalization, and minimizing corruption vulnerabilities through strengthened tax administration.

Expenditure on salaries and wages for public servants in the first eight months of 2024 including the salaries of employees attached to security forces, police, and Provincial Councils increased by 6.7 percent to Rs. 659.5 billion in 2024 from Rs. 618.1 billion in the same period of 2023. The increase in salaries was mainly attributable to the rise in the cost-of-living allowance by Rs. 5,000 per month effective from January 2024, and the increase of the same allowance by another Rs. 5,000 per month effective from April 2024, as per Public Administration Circular No. 03/2024 and Management Services Circular No. 01/2024. Total pension payments increased by 9.7 percent to Rs. 254.0 billion in the first eight months of 2024 from Rs. 231.6 billion in the same period of 2023.

Interest Payments

Expenditure on interest payments on foreign and domestic debt amounted to Rs. 1,559.7 billion in the first eight months of 2024, which marks an increase of 2.2 percent compared to Rs. 1,525.7 billion recorded in the same period of 2023. Interest payments for foreign debt increased by 34.9 percent to Rs. 100.0 billion in the first eight months of 2024 from Rs. 74.1 billion recorded in the same period of 2023 partly due to the commencing of repayment of some bilateral loans. Moreover, the interest payments on domestic loans slightly increased by 0.6 percent to Rs. 1,459.7 billion in the first eight months of 2024 from Rs. 1,451.6 billion in the same period of 2023.

Welfare and Subsidy Payments

The estimates of Rs. 1,055.7 billion for 2024 have been earmarked for the welfare programmes of social welfare, social security, education, health and nutrition and development assistance which is 15.4 percent of the government’s primary expenditure and 3.5 percent of the GDP. The estimate of Rs. 1,055.7 billion for 2024 represents a 15.3 percent increase compared to the actual expenditure of 2023 amounting to Rs. 915.4 billion. In the first eight months of 2024, the government’s welfare expenditure amounted to Rs. 562.4 billion including Rs. 112.7 billion for the “Aswesuma” programme, Rs. 9.5 billion for school nutrition food programme, Rs. 4.1 billion for the “Poshana Malla” programme, Rs. 4.4 billion for school textbooks and uniforms and Rs. 24.2 billion for fertilizer subsidy. Total welfare expenditure in the first eight months of 2024 increased by 3.3 percent to Rs. 562.4 billion from Rs. 544.3 billion in the same period of 2023. The increase was mainly driven by the increase of 83.9 percent of expenditure on health and nutrition, and the increase in development assistance by growth of 12.4 percent.