Presenting budgetary proposals in the National Assembly on Friday evening, Finance Minister Ishaq Dar described it a historic day for agriculture sector as the budget envisages extensive relief and incentives for farmers.
The government has set an ambitious growth target at 5.7pc in the next fiscal year. This is a deficit budget with a Rs 1.2 trillion gap in income and expenditure, said the minister.
“The growth rate is 4.7pc which is highest in the last eight years,” Dar said, adding that cotton crop destruction hampered the GDP growth.
He said gross revenue receipts of the federal government for next financial year are estimated at 4915 billion rupees compared to revised figures of 4332 billion for outgoing year, showing an increase of thirteen point five percent.
He said we have set an ambitious target for the tax collection which is a prerequisite to increase development spendings.
Talking about the budgeted tax revenue, the finance minister said, “We will reach our target and we want to push the tax-to-GDP ratio to over seven percent.”
The Federal Board of Revenue has been provided a target of Rs 3.6 trillion tax target for the next fiscal year. He said tax collection of Rs 3.1 trillion was recorded during the current fiscal year.
The tax revenue recovery registered 60pc hike in last three years.
The share of provincial governments out of these taxes will be 2136 billion rupees compared to 1852 billion for outgoing year, showing an increase of about fifteen point three percent. He said the net resources left with the federal government will be 2781 billion compared to revised estimates of 2481 billion rupees for outgoing year.
The current expenditure is estimated at 3400 billion rupees for next year against revised estimate of 3282 billion rupees for current financial year.
GDP growth rate
Dar, while outlining the economy’s performance in the past two years said, “In the past two years progress went over 4pc and reached 4.7pc – the highest in 8 years.”
He announced that the government had targeted growth of 5.7pc for fiscal 2016-17, while sharing government’s ambitious target of 7pc growth rate for the fiscal year 2017-18.
Defence budget up by 11pc
Dar announced that Rs 860 billion have been allocated for defence expenses, showing 11pc increase in the defence budget comparing last year.
In 2015-16, the defence expenditure was raised up to 11.3pc at Rs 780 billion. The finance minister said the nation has rendered matchless sacrifices in the war on terrorism. He said that the armed forces were engaged in flushing out terrorists through the Operation Zarb-e-Azb.
Revival of Agriculture sector
Dar pointed out that the agriculture sector suffered due to floods and depressed prices.
Agriculture is the backbone of Pakistan’s economy as it provides direct employment to 44% of the labor force and contributes 21% in the GDP, said the minister.
“Agriculture also provides 70% of the raw material for textile industry. National food security is also dependent on agriculture. Therefore, enhancing agriculture sector performance is central to increasing GDP, enhancing industrial productivity and income of rural population.”
Due to higher inventories, declining commodity prices and unfavourable weather conditions, agriculture sector has suffered very badly. All of this has resulted in significant erosion of farm incomes. To enhance agriculture productivity, Ishaq Dar said Prime Minister Nawaz Sharif announced a historic package in September 2015 for Rs.341 for less expensive fertilizer, seeds, loans and availability of water. Key features of the package included:
1) Direct cash support to the tune of Rs.40 billion
2) Subsidy of Rs.20 billion on urea – which reduced the prices of DAP by Rs.500 per bag
3) Subsidy on import of urea to keep the prices low
4) Concessional electricity tariff for agriculture Tubewells
Minimum wage fixed at Rs 14,000
Minimum wage has been increased to Rs 14,000, indicating a Rs 1,000 increase from the previous year.
Last year, the amount was hiked up from Rs 12,000 to Rs 13,000.
Economic growth in the past two years has remained above 4% in the past two years, and during FY2015-16 has been provisionally recorded at 4.71% which is highest in the previous eight years. This performance could have been better if cotton crop had not witnessed loss of 28% due to which national economic growth was reduced by 0.5%. 2)
The minister noted that: “In order to further enhance the export competitiveness of this sector the following measures are proposed in Budget FY2016-17:
The existing scheme on Drawback of Local Taxes (DLTL) will continue in the FY2016-17
2) Technology Up-gradation Fund: Technology Up-gradation Fund (TUF) Scheme for the textile sector has been formulated which will be implemented from July 1st, 2016.
3) Duty Free Import of Machinery: “The benefit of SRO 809, through which textile machinery can be imported duty free, will continue for FY2016-17 and scope would be widened to include more garment specific machinery. This incentive, along with LTFF and TUF, would encourage new investment in textile sector to increase exports.”
4) Withdrawal of Customs Duty on Manmade Fibers: “Concessionary customs duty on the man-made fibers that are not manufactured locally will continue.”
5) Plant Breeders Right Act: Finance minister said one of the top priorities of the government is to ensure provision of quality seeds to growers. For this purpose, it is important to honor scientists with intellectual property rights of varieties they develop. “The draft law is ready which will be implemented after approval of the Parliament.”
Per Capita Income
Per capita income which stood at $1334 in FY2012-13 is projected to increase to $1561 in FY2015-16, showing a growth of 17% in dollar terms, while it increased by 24% in terms of rupee;
According to minister: “Inflation, which had averaged around 12% during the period FY2008-13 before our government, was recorded at 7.4% in FY2012-13. In the period Jul-May FY2016, the average inflation was recorded at 2.82%, the lowest in a decade. This also means that the revival in growth has not been accompanied by rise in prices;
FBR Revenues had recorded an increase of merely 3.38% in FY2012-13 when collections stood at Rs.1,946 billion. For the current FY2015-16 the target of RS.3,104 billion has been fixed and considering the collections to date, Inshallah this target will Budget Speech 2016-17 3 be achieved. This way tax revenues will be increased by 60% which will be a historic increase. The tax to GDP ratio for FBR taxes that was 8.5% in FY2012-13 has been increased to 10.5% in FY2015-16.”
In FY2016-17 the government will target a deficit of 3.8% compared to 4.3% in FY2015-16.
Improvement in fiscal discipline: The minister said “We are furthering advantages derived from reduction of fiscal deficit. In 2016-17 the fiscal deficit will be reduced from 4.3% to 3.8% of GDP.
Through amendment in Fiscal Responsibility and Debt Limitation Act 2005 the government said it is about to undertake two deep-rooted reforms in our fiscal management system. First, we are putting a statutory limit on the deficit of the federal government.
Starting 2017-18, in three years the federal deficit would be brought down to 4% of GDP and thereafter to 3.5%. Second, the debt to GDP ratio would be brought down to 60% of GDP in the next two years and then over a 15 years period it would be brought down to 50%;
Track rehabilitation project between Khanpur and Lodhran is progressing. This year we aim to start work on doubling / improvement of existing track from Port Qasim to Bin Qasim Station. This is an important CPEC project.
Pakistan Railways faces shortage of locomotives and for this reason, the government has allocated Rs.14 billion for the procurement / manufacture of new locomotive engines. In addition, rehabilitation of rolling stock will also continue.
3) Repair work on around 800 coaches and 2000 wagons will be completed by this year.
China-Pak Economic Corridor (CPEC)
CPEC is a historic scheme that will start a new age between Pakistan and China and will enable both of the countries to extended connectivity with various other countries of the world, said Dar.
Under this scheme, $46 billion investment will be made under various schemes that include building of roads and rail networks and telecommunications, development of Gwadar Port and major projects for additional power and improvement in power transmission sub-sector.
This will result in economic improvement of economies of the four provinces and special areas of Pakistan.
Dar said energy has been our focus from the start. Implementation as the plan formulated by the Cabinet committee formed by Prime Minister Nawaz Sharif’s will result in 10,000 MW of additional electricity to be added in the national grid by March 2018.
Beyond March 2018, Dasu, Diamer-Bhasha, Karachi Civil Nuclear Energy and many other projects will also be completed besides coal-based projects under China Pakistan Economic Corridor (CPEC).
Development of Gawadar
“Keeping in view the significant role Gawadar has to play for strengthening the economy of Pakistan in the coming days, the government takes the development of this area very seriously.”
Accordingly, we are allocating significant resources for a host of development projects aimed at uplift of this area, Dar said.
Exemption to print and electronic media
The rate of withholding tax for providing or rendering services by print and electronic media is 1%, whereas for others it ranges from 8-10% and for low margin sectors it is up to 2%.
It is proposed that in view of the peculiar nature of the business of print and electronic media withholding tax for providing or rendering services by print and electronic media be enhanced from 1% to 1.5% and the withheld tax may be treated as the final tax in respect of the income from these receipts.
Concessionary rate of customs duty on import of newsprint by newspapers and exemption from sales tax on newsprint shall remain intact.
Extension in super tax
In the budget for the financial year 2015-16 a tax on the income of the affluent and rich individuals, association of persons and companies earning income above Rs. 500 million in tax year 2015 at a rate of 4% of income for banking companies and 3% of income for all others was levied. Since the circumstances that necessitated this measure are still continuing, it is proposed to extend this measure by one year for Tax Year 2016.
Withholding tax on foreign produced TV plays and advertisements
Through Finance Act 2013, a withholding tax was imposed on airing of foreign produced TV plays and serials only on landing rights channels. In order to encourage locally produced plays and to enable the local production houses to compete with the foreign productions, this withholding tax is now proposed to be collected from all TV channels airing such foreign produced content.
It is also proposed that any person making payment for a foreign produced advertisement shall collect withholding tax at the rate of 20% of the payment.
Withdrawal of federal excise duty on certain services
Federal Excise Duty at 16% is leviable on services such as Advertisement on CCTV / Cable TV, Shipping Agents, Banking Companies, Insurance Companies, Cooperative Financing Societies, Modarbas, Musharikas, Franchise Services, Stevedores, Stock Brokers, Forex Dealers etc.
Provinces are demanding withdrawal of FED on such services as the provinces are already charging sales tax on these services. SBP has also endorsed the proposal in respect of banking services. It is proposed to withdraw FED on these services where Provincial Sales Tax is payable.
Enhancement of rates of Federal excise duty on cigarettes
In order to enhance revenue from this non-essential sector, and to keep pace with inflation and discourage cigarettes smoking amongst the public the rates of FED on cigarettes are proposed to be increased in two stages with first stage ending on 30th November 2016.
The increase in tax rate will be about 23 paisa per cigarette for lower tier cigarettes and about 55 paisa per cigarette for higher tier cigarettes.
Poverty and unemployment
“One major outcome of our economic policies has been the reduction in poverty and unemployment, both in the rural and urban areas,” said the finance minister.
“The recently published poverty report compiled with the support of World Bank, based on the Pakistan Social and Living Standard Measurement (PLSM), based on cost of basic needs, indicates that poverty has been reduced from around 64.2% in 2001-02 to 29.5% in 2014.”
Based on food energy intake the poverty during this period has reduced from 34.6% to 9.31%. Similarly, unemployment has also been reduced from 6.2% in 2012-13 to 5.9% in 2014-15, the minister highlighted.
“The ongoing Broadband projects in Southern Telecom Region are expected to provide coverage to over 56,000 new subscribers in un-served/underserved areas in FY 2016-17.”
Dar said: Furthermore, 125 Educational Broadband Centers (EBC’s) and 55 Community Broadband Centers (CBC’s) are to be established under these projects with subsidy of 482.5 million.”
Optic Fiber Cable Program
Under this scheme in FY2016- 17 Rs.63.4 million have been allocated for on-going projects in Balochistan and Rs.1.9 billion for three new projects in Khyber Pakhtunkhwa, Balochistan, Sindh and Punjab.
Other than the above, the minister said, work on; establishment of computer labs under Pakistan Bait ul Maal women empowerment centres, Prime Minister’s Information and Communication Technology scholarship, Prime Minister’s scholarship program for talented students of Balochistan and Prime Minister’s National ICT internship program, is underway. For the current year 2016-17 around Rs.1 billion will be spent on these schemes, he said.
A allocation of Rs.21.5 billion has been made for 122 projects of the Higher Education Commission, which will support development plans of different universities all over the country. It may be noted that on the current side also a hefty allocation of Rs.58 billion is made for HEC. Thus a combined outlay of Rs.79.5 billion will be made for higher education. The combined allocation represents about 11% increase.
Health sector service delivery has been fully devolved to the provincial governments. As per the decision taken by the Council of Common Interests in 2010, the Federal Government continued to support the provincial Governments till this year for the national health and population welfare programs. This year the Federal Govt will allocate Rs.22.4 billion for the vertical health programs. Implementation of Prime Minister’s National Health Insurance Program will continue.
Pakistan Stock Exchange
Karachi Stock Exchange (KSE) Index stood at 19,916 on 11 May 2013, has now surged to above 36,000, said Dar.
In the same period, market capitalization has increased from Rs.5.2 trillion to Rs.7.391 trillion and from $51.3 billion to $70.5 billion. The merger of Lahore, Karachi and Islamabad stock exchanges, that was pending for the past 15 years, was completed on 11th January 2016. It is expected that in the near future Pakistan’s stock exchange will be part of MSCI Emerging Markets Index.