The Peoples Party led government at the centre made history while presenting fifth budget in the National Assembly. As usual, the government projected it business, people and investment friendly budget. While the opposition termed it fudging of figures and a futile exercise. On the contrary, most of the business houses and chambers of commerce in the country labeled it a balanced and pro business budget.
Comments
Critical analysis of the table-I indicates that budget deficit and growth rate are unrealistically projected. The government has set the target for the fiscal deficit at 4.7 percent or Rs.1.1 trillion. Keeping in view the internal and external factors both may not be achieved in the stipulated fiscal year. Although FBR achieved landmark target but the new target for the 2012-13 seems to be at higher side.
The federal government is hoping against all hopes to net Rs.2.504 trillion as tax revenues which would amount to a tax-to- GDP ratio of more than 10 per- cent and another Rs.730 billion in non-tax revenues. Meanwhile, the government is planning to hit the ever-dependable banking sector for loans worth Rs.484 billion with another Rs.487 billion expected from the non-banking sector.
Following are given salient features of the federal budget as:
| Salient features of Budget |
| Different Heads/Targets/Estimations/Allocations/Discounts | Total Amount |
|---|---|
| Total budget volume | Rs 2,960 billion |
| Gross Revenue Receipts (estimated) for Year 2012-13 | Rs 3,234 billion |
| FBR Tax Collection Target | Rs 2,381 billion |
| NFC Award: Funds to be transferred to Provinces | Rs 1,459 billion |
| Export Development Fund | Rs 10 billion |
| Estimations | |
| Budget Deficit | Rs 1,185 billion |
| Growth Rate: 3.7 % as compared to 3.4 % during last two years Provincial Surplus | Rs 80 billion |
| Inflation reduced to 11%, next year it will be cut down to single digit | |
| Industrial Growth Rate: 3.4% this year against 3.1% last year | |
| Worker Remittances during last two years | $ 13 billion |
| Export Registered increase 28% | $ 25 billion |
Government has also promised to manage within/under double digits which practically not possible and if so must be gigantic effort on the part of the government. Industrial growth is projected at 3.4 percent which could be achieved by resolving the ongoing vicious circular debts (Rs.400 billion) and alternative resources in the country.
In addition to this, exports are expected to further increase in the next year apparently seems to be wishful thinking. The ghost of energy crisis has further produced elements of doom and gloom in the commerce civility. Furthermore, the government has nothing to do with the continued increase in worker remittances.
Having said the government is trying to raise revenues in different ways. The Gas Development Surcharge (GDS) in five sectors has a been increased, due to which the price of CNG is expected to increase by Rs.15 per kg from July 1, 2012. Ultimately common people will be at receiving end in the days to come. The gas development sur- charge on gas to fertilizer sector will expect to increase by up to Rs.103 per MMBTU, on gas to the industrial sector Rs.87 per MMBTU, on gas supply to KESC and Wapda power plants Rs.73 per MMBTU and to IPP Rs.30 per MMBTU.
| Major Budgetary Allocation Table-II | |
| Total (Rs) | |
| General Public Service | 1.876 trillion |
| Defence | 545.38 billion |
| Health | 7.84 billion |
| Education | 47.8 billion |
| Comments Health and education have been grossly neglected by all the gov- ernments and it is seemed that same is replicated in the federal budget 2012-13 too. Allocation to national defence budget is just- ified because of prevailing serious security threats to us. |
| Social Nets Table-III |
| BISP 25% increase up by Rs.10 billion Rs. 70 billion |
| Benazir Tractor Scheme Rs. 2 billion |
| BISP Cardholders: 10% additional discount at Utility Stores |
| New Utility Stores: 2000, 35,000 families to get relief |
| Education Support Initiatives |
| Youth’s internships & technical training: 100,000 |
| Bachelor, master degree holders (Public & Private sector) 40,000 internships |
| Graduates to be imparted skilled training |
| Pay tuition fees to Balochistan, Fata, Gilgit-Baltistan students:20,000 |
| 20% raise in salaries, pensions of govt employees |
| Women Empowerment |
| Parliament passes laws: 24 during last four years |
| ` Different Taxes Table-IV | |
| Increase/Exemptions | Total % |
| Tax Revenue registers increase | 46 |
| Tax Collection increases | Rs.1327 billion to Rs.1950 billion |
| Income Tax Exemption enhanced up to | Rs. 400,000 |
| Tax on Business Turnover reduced from | 1 to 0.5 |
| Withholding Tax | |
| Ceiling for cash withdrawal from banks enhanced | Rs.25,000 to Rs. 50,000 |
| Federal Excise Duty | |
| Abolished from: 10 items | |
| Reduced on Cement from: | |
| Rs750 to 500 per metric tonne | |
| Sale Tax Rate | |
| Reduced from | 17 to 16 |
Comments
The government has skillfully increased the allocations of BISP for the sake of winning hearts and minds of the common people in the next elections. On the other side of the picture, the ratios of poverty and unemployment are rampant that BISP sugar coated social nets would not bring desired dividends in the next years. Poor infrastructure and management and financial discipline of utility stores in the country have already produced havocs and further establishment is just like a crocodile tears. Educational financial support to poor sections of the society and particularly lesser developed parts of the country i.e. Balochistan, Fata and Gilgit-Baltistan is highly appreciated but deeds should speak louder than words. Among lollipops and can- dies promised to the common people are a 20 percent raise in salaries and pensions of federal employees, which are expected to have an impact of less than Rs.30 billion per annum.
It is feared that government will have to borrow Rs971 billion from banks and non-banking sector; 20pc raise in salaries, pensions of government employees. It would add fuel a dangerous inflationary spiral in the country.
Comments
The government has raised the 000.00 limit from last year’s Rs.350,000 per annum to Rs.400,000 for the upcoming fiscal (relief to approximately 1.46 million taxpayers while incurring revenue losses of Rs8.167 billion). Similarly, the exemption limit for business individuals and Association of Persons (AOPS) has been enhanced to Rs.400,000 which are heartening and welcomed. A recent comparative study of the FBR shows that the tax incidence will be substantially decreased for the salaried class: in the case of an annual income of Rs600,000 the rate of income tax has been decreased to Rs 10,000 per annum from the earlier figure of Rs. 27,000.
Having said that increasing the threshold of exemption of income tax on the salaries class from Rs. 350,000 to Rs. 400,000 would not compensate for inflation, reduction of consolidated incomes and continuous rise in prices of consumable items due to rupee-dollar parity.
In order simplify the tax collection mechanism the number of tax slabs has been reduced from 17 to just five. This measure will provide relief worth Rs.8 billion and is expected to benefit all existing income tax payers by reducing the effective income tax rate.
For the registered businesses, the rate of minimum tax on turnover has been reduced from one percent to 0.5 percent which is again a welcome move. To encourage the capital markets, the exemption on the profit and gains of a venture capital company and fund is being extended up to the year 2014. The All Pakistan Textile Mills Association (APTMA) has welcomed the reduction in turnover tax from 1 to 0.5 per-cent, which is expected to save the textile sector around Rs13.5 billion.
In order to promote investment in securities and insurance sectors, the limit of investment as a proportion of taxable income is being increased from 15 percent to 20 percent and from Rs 500,000 to Rs.1 million, whichever is lower. Much debated and controversial GST rates have been brought down to 16 percent from 17 percent.
Comments
The government has purposely not mentioned the important elements of external side of the macro- economy. The declining ratios of foreign direct investments and FPIs have been dried for the last five years. Ongoing hot exchange of words between government of Pakistan and USA, recent legislation of US Congress (Aid to Pakistan) and the last not the least still unresolved issue of NATO sup- ply routes has further produced serious dints in our foreign reserves. Sustainability in current account is still a serious economic issue which needs to be tackled in the days to come.
| Customs Duty Table-V | |
| Exemptions | Reductions % |
| 18 raw materials, 9 components being used for text books, stationary | 10 to 5 on 88 raw materials of Pharmaceutical Industry |
| Comments Many concisions and incentives have been given to different items. Text books and stationary custom duties have been reduced which is good for the business and common people alike. |
| External Economy and Financial Management Table-VI | |
| External Payments | Total/Reduction |
| IMF Loans | $1.2 billion |
| Current Expenditure | 10% |
| Total volume of grants reaches | 70 % of Divisible Pool |
| Major Subsidies | |
| Table-VII | |
| Different Major Sectors | Total |
| Electricity during last five years | Rs. 1,250 billion |
| Wapda, electric companies | Rs. 115 billion |
| Fertilizer | Rs. 50 billion |
| Petroleum Products | Rs. 70 billion |
Comments
In the federal budget 2012-13 some Rs 209 billion have been set aside as subsidies for various sec- tors of economy as compared to last year’s initial allocation Rs.166.448, which swelled Rs.515.292 billion by the end of the fiscal year. But subsidies to white elephant public cooperation are sucking the blood of common people and even burden on our nation- al exchequer too.
Comments
Although substantial development has been made in the field of regional energy cooperation i.e. IP Iran and Pakistan gas pipeline and TAPI Turkmenistan, Afghanistan, Pakistan and India gas pipeline but no progress has been achieved at domestic fronts. Alarming loadshedding hue and cry of the common people. throughout the country portray dis- mal picture of our society and business. The government should and must explore all possible alternative energy resources to put the business at right track and people at bay from the daily itching otherwise loadshedding tsunami will perished them in the shores of uncertainties.
| Energy Economics Management | |
| Table VIII | |
| Different Initiatives | Details |
| Electricity | Government injected 3500MW of electricity to National Grid |
| IP & TAPI Gas Pipelines | Pakistan to get 2 billion cubic feet of gas from Pak-Iran gas pipeline |
| LNG | 500 million cubic feet will be made available for consumers |
| Social Development | |
| Table IX | |
| Different Sectors/Provinces | Allocations/Details |
| Social Sector | Rs. 44 billions |
| Fata, Gilgit-Baltistan, AJK | Rs. 37 billion |
| Higher Education | Rs. 16 billion |
| Transport and Communication | Rs. 84 billion |
| Public Development Plan | |
| Table X | |
| Allocation/Plans/Projects | Total |
| Annual Development Plan | Rs. 873 billion |
| Federal Government share | Rs. 300 billion |
| 200 projects completed under (PSDP) | Rs. 300 billion |
| Ongoing 96 projects | Rs. 360 billion |
| Balochistan’s Package | |
| Table XI | |
| Share | Details |
| Increases up to | 9.09% in Divisible Pool |
| royalty on gas sale accepted by government from | 1954 to 1991 |
| Jobs Creation | 11,500 jobs for Baloch youth |
Comments
Social development has not been remained among the top priorities of all the successive government in the country and same per is repeated again. Meager allocation to social development speaks itself. Allocation to federally administrative units is right step in right direction which should be above in blame game.
Comments
Apparently huge funds have been allocated to public development field but pervious history of the governance speaks otherwise. Malpractice, lack of transparencyve and weak financial discipline has already sunk billions of rupees.
Comments
The federal government has been making sensible moves to win the sympathies of the politically alienated, socially disintegrated and economically frustrated people of Balochistan. In this connection, it has allocated huge funds and initiated meaningful measures. All the diversified but connected socio-economic and political measures to bring it to near the centre are most welcomed.
Comments
Having political governments in the above mentioned places, the federal government has sanctioned lot of development funds. These will be utilized on the wellbeing of these areas and highly recommended.
Mixed Reactions
(a) Chamber of Commerce
Opposition parties projected the federal budget as political gimmick. Although there is sharp division in the different stakeholders of the business, investment and production but majority of them appreciated the overall incentives and concessions given in the federal budget of 2012013. Federation of Pakistan Chambers of Commerce and Industry (FPCCI) lambasted the Finance Minister for not taking measures to curbing smuggling and to promote investment environment in the country. No economic plan for sustainable growth has been given in the current budget.
(b) Banking Industry
Bankers said that the recommendations made in the budget 2012-13 would have mixed consequences for the banking sector of Pakistan. It is feared that increasing the tax rate on dividends earned by banks from capital market investment by 10 percent to 25 percent will hamper the inflow of foreign investment, banking experts said. Foreign investors who have made investments in the sector could pull out capital if the proposed decision gets enacted in the upcoming financial year. It would not only depress the profitability of the banking sec-tor but would also discourage the listing of new banking companies at the capital market.
Moreover, bank dividends are proposed to be taxed at 25 percent for the year 2013 and at 35 percent for the year 2014 and beyond. Nevertheless, bankers hailed the hike in the limit of withholding tax exemptions on withdrawal of cash by banks from Rs25,000 to Rs50,000, saying that this proposal is expected to promote the documentation culture and cash economy, and the deposit base of the sector as well.
(c) Automobile and Telecom Sectors
It is estimated that the overall impact of the federal budget 2012-13 on the auto and telecom sector is neutral, even though steps such as reduction in custom duty and sales tax are likely to benefit the two sec-tors respectively. The federal budget 2012-13 is a neutral budget for the telecom sector too; except that a uniform general sales tax (GST) has been introduced and the sales tax on telecom services is reduced from 19.5 percent to 16 percent.
| Administrative Units Financial Support | |
| Table XII | |
| Allocations/Units/Blocked | Details |
| Gilgit-Baltistan | Block Development Allocation enhanced up to Rs. 16 billion. |
| Gilgit-Baltistan | Rs. 10 billion allocated for mega projects |
| Fata | Rs. 17 billion allocated in PSDP |
| Azad Kashmir | Rs. 12 billion for development projects, Rs. 16.5 billion allocated for current expenditure besides a loan of Rs. 8.5 billion. |
Concluding Remarks
The federal budget 2012-13 has neither pinpointed real challenges to macro-economy nor did it recommend intelligent remedies. Controlling inflation, narrowing down fiscal deficit and the last but not the least current account management would be difficult to handle in the days to come. So we are inching towards a difficult time. Printing of more currency notes would not be viable long term option and result into the widening of the deficit and fueling inflation. It is staggering that despite a looming balance of payment crisis and comparative low revenue base collections, the government did not dare to tax the agriculture sector.
Economic performance of the last four years show absence of any concrete step and result-oriented policy measures to fix the emerging socio-economic ills even in this budget hardly offer any glimmer of hope to business and investment.
The analysis of the macro-economy and the estimations for the current federal budget 2012013 are more or less day dreaming and castles built in the air. It is strongly suggested not to ride on a horse of unrealistic assumptions and wild wishes, the government should not project an extraordinary rosy picture of the national economy. Economics should be dealt separately and immaculately.
