Federal Budget 2016-17

Finance Minister Ishaq Dar unveiled the government’s budget for 2016-17 terming it pro-business, pro-investment and pro-people. All the opposition parties however labeled it anti-development and most of the business chambers and entities also considered it anti-growth. The government set an ambitious growth target at 5.7 percent in the next fiscal year and according to the federal minister “this is a deficit budget with a Rs.1.2 trillion gap in income and expenditure”. The growth rate is 4.7 percent which is highest in the last eight years.

Salient Features
(a) The total outlay of the budget 2016-17 is Rs.4,894.9 billion
(b) It is 10 percent higher than the previous budget of 2015-16
(c) The resource availability during 2016-17 has been estimated at Rs.4,442.0 billion against Rs.4,168.3 billion in the budget of 2015-16
(d) The net revenue receipt for 2016-17 has been estimated at Rs.2,779.7 billion indicating an increase of 12.8 percent over the budget estimates of 2015-16
(e) The provisional share in federal taxes is estimated at Rs.2,135.9 billion, during 2016-17, which is 15.5 percent higher than the budget estimates for 2015-16.
(f) The net capital receipts for 2016-17 have been estimated as Rs.453.6 billion against the budget estimates of Rs.606.3 billion in 2015-16, i.e. a decline of 25.2 percent
(g) The external receipts in 2016-17 are estimated at Rs.819.6 billion.
(h) It shows an increase of 9.1 percent over the budget estimates for 2015-16.
(i) The overall expenditure during 2016-17 has been estimated at Rs.4,894.9 billion out of which the current expenditure is Rs.3844.0 billion and development expenditure is Rs.1,050.9 billion.
(j) The share of current and development expenditure in total budgetary outlay for 2016-17 is 78.5 percent and 21.5 percent respectively.
(k) The expenditure on general public service is estimated at Rs.2,707.2 billion which is 70.4 percent of the current expenditure.
(l) The development expenditure outside PSDP has been estimated at Rs.156.6 billion in the current budget.

Announcing the budget the Finance Minister indicated a 7 percent increase over the outgoing year and said that the government has protected national economy from global fluctuations and also underlined that poverty rate had declined to 28.4 percent.

GDP growth rate
According to the budget, the country’s GDP went over 4 percent, reaching 4.7 percent, the highest in 8 years.

The government had targeted growth of 5.7 percent for fiscal 2016-17, while sharing government’s ambitious target of 7pc growth rate for the fiscal year 2017-18. The exports go down by 11pc in the ongoing year to US $18.2 billion. The country suffered 0.5pc loss in the GDP growth due to loss of the cotton crop.

Development Allocations
The finance minister announced a 20 percent increase in the PSDP allocation with Rs1.675tr set aside for FY16-17, of which the Federal PSDP makes up Rs800bn. These funds, would be utilised for various ongoing and new development schemes.

Fiscal deficit
Fiscal deficit has been proposed to be restricted at 4.3 percent for the next fiscal year of the GDP. He added that this figure will be further reduced to 3.5 percent of the GDP. Oil import bill goes down by 40pc due to lower oil prices.

Budget Deficit
Budget deficit was contained at 8.2pc in FY2012-13 down from a projected 8.8pc. The deficit has been further reduced to 5.3 percent in FY 2014-15. The government is on track so far to reduce it to 4.3 percent for the FY 2016 ending in June 2016.

Imports & Exports
Exports stood at 18.2 billion dollars with 11 percent decrease between july-2015-2016 as compared to 20.5 billion dollars in the same period in 2012-13, mainly due to Decline in global commodities prices. Imports stood at 32.7 billion dollars between July-April 2015-16 as compared to 33 billion dollars in the same period in 2012-13. Moreover, A 40 percent increase was recorded in imports of machinery which shows an increase in investment.

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 percent in dollar terms, while it increased by 24 percent in terms of rupee.

Tax revenue
It is hoped that the government will reach its tax collection and wants to push the tax-to-GDP ratio to over seven percent The Federal Board of Revenue (FBR) has been provided a target of Rs.3.6 trillion tax target for the next fiscal year while tax collection of Rs.3.1 trillion was recorded during the current fiscal year. Moreover, tax revenue recovery registered 60 percent increase in last three years. The budget proposed zero duty on exports of textile, sports goods, surgical equipment and leather goods.

Defence Budget
The Finance Minister announced that Rs.860 billion have been allocated for defence expenses, showing a 10.2pc increase in the defence budget as compared to 2015. In 2015-16, the defence expenditure was raised up to 11.3 percent at Rs.780 billion. The finance minister said the nation has rendered matchless sacrifices in the war on terrorism and that the armed forces were engaged in flushing out terrorists through the Operation Zarb-e-Azb.

Agriculture sector
Agriculture is the backbone of Pakistan’s economy as it provides direct employment to 44 percent of the labor force and contributes 21 percent in the GDP.

Agriculture also provides 70 percent 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 which fertiliser price will go down to Rs.1,400 per bag from Rs.1,850. While the price of DAP fertiliser will be reduced from Rs.2,800 to Rs.2,500 from July 1. Agriculture tube wells’ electricity price was cut by Rs.3.5 per unit.

Moreover, direct cash support to the tune of Rs.40 billion
(a) Subsidy of Rs.20 billion on urea – which reduced the prices of DAP by Rs.500 per bag
(b) Subsidy on import of urea to keep the prices low
(c) Concessional electricity tariff for agriculture Tube wells

Minimum wage fixed at Rs.14,000
According to budget the minimum wage has been increased to Rs.14,000, indicating a Rs.1,000 increase from the previous year. During 2015 the amount was hiked up from Rs.12,000 to Rs.13,000.

Salaries
A total of Rs.57bn has been allocated for public sector salaries and pensions in the FY16-17 budget. There will be a 10pc ad-hoc increase in salaries for all federal government employees. A monthly conveyance allowance of Rs.1,000 has been set aside for disabled employees.

Pensions
Rs.245 billion rupees have been earmarked for the pensioners in the fiscal year 2016-17. The minister mentioned that pensioners older than 85 years will see a 25pc increase in compensation.

Inflation
According to the budget inflation, had averaged around 12 percent during the period FY2008-13. It was recorded at 7.4 percent in FY2012-13. In the period Jul-May FY2016, the average inflation was recorded at 2.82 percent, the lowest in a decade.

Concession of customs duty
Concession of customs duty for dairy, livestock and poultry sectors as well as fish farming announced in the budget speech. The existing seven percent sale tax on pesticides is proposed to be abolished.

Concessions for industrial development include enhancing tax credit on employment generation and tax credit for making sales to registered persons; balancing modernization and replacement of plant and machinery; establishing new industry and expansion of existing plant or new project.

The Finance Minister also announced a series of measures for the provision of telecommunication and internet facilities in the far-flung areas of the country.

Imposition of Super Tax
The finance minister also said the super tax will be imposed on an income over Rs.500 million.

Capital Gain Tax relief
Capital Gain Tax relief period has been extended from four to five years.
 
Annual Development Program
In Budget 2016-17, Rs.800 rupees have been allocated for the Annual Development Programme.

Electricity 
According to budget 2016-17 more than 10,000 MW of additional electricity would be added to the national grid by March 2018.

Energy
Pakistan is passing through a sever energy deficit which has multiplier effects because of which the finance minister announced an allocation of Rs.61bn for the 969MW Neelum-Jhelum Hydropower Project, Rs.16.5bn for Tarbela dam and Rs60bn for other power related projects.

Mixed Reaction
Reaction was mixed to the Budget 2016-17 and all the major opposition parties including Pakistan People’s Party (PPP), Pakistan Tehreek-e-Insaf (PTI) and Jamaat-e-Islami denounced the budget as anti-people. They deplored the imposition of more indirect taxes on the people in the form of withholding taxes. According to them a special package for farmers, announcement was a repeat of the Kisan Package which was previously announced but was never implemented and any relief announced in the package was linked with sharing of provinces. Support Price Mechanism which was the major demand of farmers was not accepted by the government.

The business community and agriculture sector in Khyber Pakhtunkhwa termed the federal budget disappointing. They argued that the government did not put in measures to stabilise the economy of Khyber Pakhtunkhwa even though it was badly affected by years of militancy. They said Khyber Pakhtunkhwa’s trade and agriculture sectors both being vital for the economy of the militancy-hit Khyber Pakhtunkhwa – have been overlooked in the financial plan of the federal government.

On the other hand, no proposal of Pakistan Stock Exchange was given any consideration by the Federal Board of Revenue (FBR) and mentioned in the budget 2016017. The stock brokers were also disappointed at the role of the Securities and Exchange Commission of Pakistan (SECP) in not being able to impress upon the FBR, the negative impact of tax proposals, especially on the Capital Gains Tax (CGT) front. The extension of holding period from 4 to 5 years for securities will be a major road block in the divestment of shares of PSX.

The double increase of advance tax in lieu of commission from 0.01 percent to 0.02 percent would increase the cost of business at the capital market and turn away investors resulting in drastic fall of turnover and revenues for the government. Stock brokers said if curbs continued at the stock market, investors would prefer to invest in commodities and real estate, as they were mostly undocumented and lucrative.

The stock brokers demanded withdrawal of 100 percent increase of advance tax on commission, removal of tax on bonus shares, withdrawal of CVT as promised at the time of levying CGT, reverting to original status of CGT to attract more investment from organised, documented and transparent sector of the economy. They also demanded zero rate of tax on REITs (Real Estate Investment Trusts), to encourage employment and economic activity, which actually removes distortion in pricing of real and declared value of real estates.