Budget for FY-2010-11 to be presented today

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Rs3.3 trillion federal budget unveiled

By Shahbaz Rana
June 06, 2010


ISLAMABAD: Finance Minister Dr Abdul Hafeez Shaikh presented the federal budget for fiscal year 2011 on Saturday with a total outlay of Rs3.3 trillion, showing a gap of Rs685 billion, to be financed by foreign and local bank borrowing.

Announcing a tight-fisted budget, dictated by circumstances, the finance minister proposed massive cuts in subsidies, a freeze in current expenditure and an annual development plan focused solely on completing on-going projects.

Total revenues are estimated at Rs2.58 trillion, with the budget deficit amounting to 4 per cent of Gross Domestic Product (GDP), 25 per cent less than the desired level. This is in line with the International Monetary Fund’s conditionality of restricting the deficit to a reasonable level.

The total outlay of the budget for the forthcoming financial year is almost 11 per cent more than the budget of the current fiscal year.

The government has proposed to take new tax measures of Rs 133.3 billion to achieve an ambitious tax target of Rs 1.677 trillion.

The major chunk of the new taxes would be collected by increasing the sales tax rate by one per cent and levying more taxes on cigarettes, increasing the withholding tax rate on commercial imports to 5 per cent, levying capital gains tax on stock market transactions and increasing tax on compressed natural gas.

Shaikh, who took oath as finance minister a few hours before the budget speech, said the federal budgetary outlay would be Rs2.3 trillion, which was 13 per cent higher than the current year’s budget.

After factoring in provincial allocations, the ERRA development budget and other development expenditure, the total federal expenditure would amount to Rs2.76 trillion. The Centre’s gross revenue receipts would be Rs2.4 trillion.

The Centre will spend Rs1.3 trillion on public services and a major chunk of it would go towards debt servicing and foreign loans repayments.

The federal budget deficit would be around 5 per cent of the total size of the economy and the provinces are tasked with generating a cash surplus of Rs167 billion, to keep the overall budget deficit at 4 per cent of the total size of the economy.

In order to bridge the gap between income and expenditure, the government will borrow Rs185.8 billion or over one-fourth of its financing needs from external sources. Domestic borrowing would amount to Rs499.2 billion and two-third of it would be obtained from non-banking sources like the National Saving Schemes. Bank borrowing is expected to amount to Rs166.5 billion.

Dr Hafeez Shaikh said that the Federal Board of Revenue’s tax target would be Rs1,667 billion, which is 9.4 per cent of the total size of the economy. “Economies with less than 10 per cent tax-to-GDP ratio are always in trouble. We want to enhance this through tax reforms,” said Dr Shaikh.

He, however, could not give a firm date for the implementation of the Value-Added-Tax. Failure to implement the VAT from July 1 has resulted in the government turning to its Plan B, which heavily counts on indirect tax measures.

New taxes

The government will increase the sales tax rate by one per cent and this would be applicable from the standard 16 per cent to the highest slab of 25 per cent.

The standard rate would now by 17 per cent, the tax on telephone call, cards would be now 20.5 per cent against the earlier 19.5 per cent and the tax on sale volume of the CNG would be 26 per cent.

At present prices, this measure will generate more than Rs33 billion. The new tax measures on the income side would generate an additional revenue of Rs42 billion.

The government has also proposed to increase the income tax rate for small companies and associations of persons to 25 per cent from 20 per cent. The move would yield an additional Rs 3.5 billion. With this move, the existing progressive rates would be abolished.

The government will increase the tax rate by one per cent to 5 per cent on all types of the commercial imports. The measure is expected to generate additional revenue of Rs12 billion. However, the tax on import of raw material would remain at 3 per cent.

The government has also withdrawn the capital gains tax exemption on the sales of the shares at the stock market from July 1 2010. This measure will generate Rs5 billion.

The government has levied income tax on goods transport vehicles at the rate of Rs1 per kg and the amount would be calculated taking into account the axle limit. The move is expected to generate Rs2.5 billion.

In addition to cash transfers, the government has also proposed to levy 0.3 per cent withholding tax on withdrawal of amount on account of demand drafts, online transfers and telegraphic transfers. The tax would be adjustable for registered persons. The measure is expected to generate Rs10 billion.

To shift the burden to higher income groups, the government has proposed to increase income tax rate to 20 per cent from 18.5 per cent for the highest salaried class slab that now starts on an income of Rs4.55 million per annum. Earlier 20 per cent income tax was imposed where the income exceeded Rs8.5 million. Now the Rs4.55 million income slab would be treated as the highest income class.

The government has also slapped a 5 per cent federal excise duty on domestic air tickets, which is expected to generate Rs3 billion in additional revenue.

Indulgences tax

In a bid to combine public health concerns with the need to raise revenues, the government has also proposed to levy Rs1 per filter rod of cigarettes. The measure would generate Rs 3 billion and is applicable from Sunday.

The tax authorities have also proposed certain measures at the federal excise duty stage that would generate Rs26 billion. On three different categories of cigarettes, the tax rates have been revised upward.

The government also levied 10 per cent federal excise duty on locally manufactured and imported air conditioners and deep freezers. The move would generate Rs3.4 billion.

On natural gas, the federal excise duty rate was also doubled, as the new rate would be Rs10 per MMBTU against Rs5.09 MMBTU, which would generate Rs5.8 billion. The government has given an incentive to the beverage industry, which would cost Rs3.8 billion to the national exchequer.

Published in the Express Tribune, June 6th, 2010.


Rs3.3 trillion federal budget unveiled – The Express Tribune

 

[sparklingway]

Will the 50% increase in the salaries of govt officials will also apply to the salaries of policemen and army officials????

Federal Employees only as it was the Federal Budget. Military got doubled their salaries two quarters back. It's for the rest of federal employees.

Overall a realistic budget especially since we have a difficult security situation and fiscal situation as Hafeez Sheikh dubbed it, "it's a war economy".

Dawn praised the budget with minor criticisms, just like any other objective and sane reviewer. The News went crazy, as is their norm.

 

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Pakistan Sets ‘Tough’ Deficit Goal to Tame Inflation (Update1)
June 07, 2010, 2:32 AM EDT

(Updates with stocks, currency rise in seventh paragraph, comment from World Bank report in 11th.)

By Farhan Sharif and Khurrum Anis

June 7 (Bloomberg) -- Pakistan imposed taxes on shares and electronic appliances and reduced ministers’ salaries to help cut the budget deficit to a six-year low and slow inflation.

“The fiscal deficit target is very conservative, disciplined and tough,” Finance Minister Abdul Hafeez Shaikh said at a news conference in Islamabad yesterday after unveiling plans on June 5 to narrow the fiscal gap to 4 percent of gross domestic product in the year starting July 1. “We have to do this because government borrowings fuel inflation.”

Consumer prices are running at over 13 percent in South Asia’s biggest economy after India, hurting livelihoods in a nation where the World Bank says a quarter of the people live on less than $1 a day. A lower budget shortfall may also enable Pakistan seek more funds from the International Monetary Fund as donor countries delay aid, Shaikh said May 12. The nation got $11.3 billion from the IMF since 2008 as war costs rose.

Pakistan says it spent $43 billion since 2001 in the fight against Taliban militants. The government is narrowing its budget deficit from as much as 5.6 percent of GDP this year even as it needs cash to build power plants, dams and schools. Its deficit target for next year is the lowest since June 2005, according to government data.
“The target for the fiscal deficit is ambitious,” said Sayem Ali, an economist at Standard Chartered Pakistan Ltd. in Karachi. “There are not enough avenues in the budget for revenue generation. The government is likely to enter into another IMF program.”

Aid Delay

Delays in aid worth $5.3 billion, pledged in April 2009 by the so-called Friends of Democratic Pakistan including the U.S., forced the government to boost borrowings by 14.5 percent to 365.9 billion rupees ($4.3 billion) in the 10 months to April from a year earlier, the central bank says, stoking inflation.

Pakistan’s rupee gained 0.3 percent to 85:16 against the U.S. dollar at 9:21 a.m. in Karachi, after losing 1.4 percent against this year, according to Bloomberg data. The benchmark Karachi Stock Exchange 100 index advanced 1.1 percent to 9,746.01 at 10:55 a.m. local time.

Shaikh said the total budget outlay for the new fiscal year is 3.26 trillion rupees, about 11 percent higher than the previous year.

“The focus of this budget is on austerity because the global situation is still volatile and the security situation is still not controlled,” Shaikh said. “We must protect the economic recovery of the last two years.”

Lower Deficit

Pakistan is aiming to trim its budget deficit as Europe’s sovereign debt crisis, which led to a 750 billion-euro ($913 billion) rescue fund for the region’s weakest members including Greece, threatens global recovery.

South Asian economies including India Pakistan need to raise borrowing costs to contain inflation and cut their budget deficits to endure “future shocks” to global growth, the World Bank said in a report today. State Bank of Pakistan last month kept its key interest rate unchanged, maintaining one of the world’s highest benchmark rates.

The nation’s $168 billion economy may expand 4.5 percent in the next financial year, the fastest pace since 2008, after growing 4.1 percent this year, according to the Planning Commission.

Cement Stocks

Sales at Pakistan’s biggest cement makers including Lucky Cement Ltd. and D.G. Khan Cement Ltd. may get a fillip as Shaikh unveiled plans to accelerate growth by stepping up spending on roads and dams by 38 percent next fiscal, Karachi-based KASB Securities Ltd. said in a report yesterday.

D.G. Khan rose 4.3 percent to 23.95 rupees and Lucky climbed 2.9 percent to 65.51 rupees on the Karachi Stock exchange at 11:21 a.m. local time.

To increase revenue, Shaikh imposed a 10 percent capital gains tax on shares held for less than six months, and 7.5 percent for between 6 months and one year. There will be no tax for stocks sold after a year, he said.

Shaikh also announced a 10 percent federal excise duty on appliances including air conditioners and deep freezers and raised levies on natural gas and cigarettes.

A proposal to introduce a new value-added tax has been delayed until Oct. 1 because the finance ministry is still working on the modalities of its implementation, Shaikh said. As a result, the general sales tax will be 17 percent for the first three months of the new financial year, instead of levies varying from 16 to 25 percent, that offer scope for corruption and tax evasion, he said.

Flat Rate

On Oct. 1, the value-added tax will be imposed at a flat rate of 15 percent, replacing the general sales tax.

Pakistan Telecommunications Co., the nation’s biggest fixed-line provider, may gain because of the changes in the value-added tax rate, according to a June 6 report by Al-Falah Securities Ltd. in Karachi. Pakistan Telecom rose 1.8 percent to 20.22 rupees at 11:22 a.m. local time on the Karachi Stock Exchange.

Shaikh, who took an oath as finance minister on June 5 after being appointed to head the ministry in March, also said cabinet ministers will take a 10 percent pay cut. He pledged to reduce subsidies on state-owned enterprises including Pakistan International Airlines Corp. and Pakistan Steels Mills Corp.

--With assistance from Shamim Adam in Singapore. Editors: Naween A. Mangi, Cherian Thomas

To contact the reporters on this story: Farhan Sharif in Karachi at fsharif2@bloomberg.net; Khurrum Anis in Karachi at Kkhan14@bloomberg.net.

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net.

Pakistan Sets ‘Tough’ Deficit Goal to Tame Inflation (Update1) - BusinessWeek

 

[alibaz]

Does anyone know about new tax slabs for salaried ppl.

 

[sparklingway]

Does anyone know about new tax slabs for salaried ppl.

I'm attaching a link to four relevant pages of the Finance Bill, 2010.

The first Table concerns people whose salary is less than 50% of taxable income (meaning businessmen of some sort).

The second table is for what is defined as the "salaried class" i.e. whose salary is >50% of their taxable income. This is perhaps what you wanted to ask.

Google Docs

 

[fawwaxs]

This is political budget for political parties. I think this budget will trigger the down fall of the government.

 

[fawwaxs]

There’s tax on everything… wonder if there is relief for anyone?

 

[fawwaxs]

New budget highlights Pakistan's "survival mode"

ISLAMABAD: Wedged in by IMF demands for fiscal austerity, Pakistan's civilian government has presented a budget that may fail to please both voters hit by tax hikes and investors wary about its optimistic economic forecasts.

Saturday's budget underscores how hard it will be for the government to appease frustrated Pakistanis hit by food inflation, unemployment and tax hikes seen as helping fuel an insurgency and discrediting civilian authorities.

The government's predictions for a lower budget deficit of 4 per cent of GDP may also be simply too ambitious, putting off hard decisions on spending and revenues for later, as well as almost guaranteeing a continued unpopular IMF bailout.

“To be honest, I think this government is surviving not so much because of its popularity but more so by default, “ said Rashid Rehman, editor of the Daily Times newspaper.

“The government's hands are tied and one must not forget, given the fact that we're in the IMF programme, that there is little fiscal space for the government to manoeuvre. It's in survival mode.”

On the brink of default, Pakistan turned to the IMF in November 2008 for a $10.66 billion loan package to help put its economy back on track. It received the fifth tranche of $1.13 billion last month.

The budget raised taxes on sectors such as capital gains, increased a sales tax and slashed some subsidies on energy and food, while trying to provide some social relief for the roughly third of the 170 million population that lives in poverty.

“The government now has very few levers to provide relief,” said Asad Sayeed, director at Collective for Social Science Research.

BETWEEN A HARD ROCK AND A STONE

Key to meeting IMF conditions is cutting the deficit, targeted at 5.1 per cent this year and seen as posing a serious inflation risk and hurting the economy just as it tentatively recovers from its lowest growth rate in decades.

“The tax collection target is grossly over-ambitious,” said Ashfaque Hasan Khan, dean of Islamabad's NUST Business School.

Pakistan's tax-to-GDP ratio which is around 9.5 per cent, is one of the lowest in the world.

“A country like Pakistan, where fiscal indiscipline is all around, then it should be in an IMF programme to learn discipline,” he said, adding the government would have to go back to the IMF for more money this year.

But continued IMF assistance could become politically unpopular if it is associated with austerity and may fuel further resentment in Pakistan against perceived Western meddling.

“People here sometimes portray the IMF as if its holding a baseball bat and making the country do whatever it wants,” Finance Minister Abdul Hafeez Shaikh told reporters.

Meanwhile, the government raised defence spending by 17 per cent, a sign of the military's influence in politics.

Commentators questioned why an increase was needed, given the army's battle against militants in the northwest was mostly funded by the United States.

The country's main stock exchange was unfazed by the budget as analysts said all the measures had been priced in and there were no surprises and the uncertainty was over.

The KSE-index rose 1.6 per cent on Monday, even as most other Asian markets fell.

The government has targeted 1.778 billion rupees in tax revenue, which is almost 21 per cent higher than the current fiscal year's target, one that is likely to be unmet as well.

Pakistan collected 1.026 billion rupees in the first ten months of the 2009/10 fiscal year.

Pakistan is also aiming to generate more than 51 billion rupees, which would be 0.3 per cent of GDP, from an auction of 3G spectrum licences that analysts said was unlikely to materialise.

The inflation target of 9.5 per cent for fiscal year 2010/11 was unlikely to be met if there were slippages in the fiscal target, analysts said.

“Considering we will probably not meet the tax collection target for the current fiscal year, we will definitely see fiscal slippages in the next fiscal year,” said Asif Qureshi, director at Invisor Securities Ltd.