Amidst ear-splitting rumpus as the Pakistan Muslim League-Nawaz (PML-N) members raised full-throated anti-government slogans throughout the national assembly proceedings, Finance Minister Dr Abdul Hafeez Sheikh on Friday presented Rs2.7 trillion federal budget for the fiscal 2011-12 envisaging Rs850 billion deficit and also proposing abolition of all special excise duties, reduction in General Sales Tax (GST) from 17 per cent to 16 per cent to stabilize the war-torn and recession-hit economy.
Though the government announced relief for the government employees and pensioners, at the same time it burdened the common man by substantially withdrawing subsidies. The government had allocated Rs126.6 billion in the 2010-11 fiscal year for subsidies and later on increased this amount to Rs395.8 billion. In the proposed budget for the fiscal 2011-12, Rs166.4 billion have been allocated for subsidies meaning that the subsidies of Rs229.4 billion to various sectors would not be available now and as per the commitment with the International Monetary Fund (IMF), the amount of Rs166.4 billion would not be revised.
“All special excise duties are proposed to be abolished and 15 items out of the list of 46 federal excises are proposed to be removed from the excise law; 392 regulatory duties out of 397 are proposed to be abolished, limiting these to luxury vehicles, cigarettes, arms and ammunitions, betel nuts and sanitary ware/tiles,” the finance minister said.
He said the federal excise duty (FED) on cement would be phased out in three – a reduction of Rs200 per MT was proposed in the first year and equal reduction of the balance of Rs500 per MT in the next two budgets. He said the FED on beverages was also being phased out.
“It is being reduced to 6 per cent this year and would be completely abolished next year,” he said adding that the revenue loss on account of these measures would be compensated by removal of selected exemptions and zero-ratings under GST. The compensation would also come through revision of federal excise structure on cigarettes, revision in rate of tax in lieu of value added tax on commercial importers from 2 per cent to 3 per cent, improving tax compliance through effective monitoring and risk-based audits.
Announcing 15 per cent increase in the salaries of all government employees and the personnel of armed forces with effect from July 1, 2011, the finance minister said the employees, who retired on or after July 1, 2002, would be allowed an increase of 15 per cent and those who retired on or before June 30, 2002, would be allowed an increase of 20 per cent in pension.
“Existing conveyance allowance would be increased by 25 per cent to all employees in BPS 1-15 and their equivalent in the armed forces, all civil servants and personal of the armed forces would be given conveyance allowance at the prescribed rates irrespective of their place of duty, all ad-hoc relief allowances granted up to July 1, 2009, would be merged in the Basic Pay Scales-2008 to introduce the new pay scales,” he explained.
He said the government had also decided to raise the tax-free limit from Rs300, 000 to Rs350, 000. However, incomes above Rs300, 000 would continue to be subjected to filing of returns to institute a culture of compliance; no wealth statement would be required on incomes up to Rs1 million; at present the threshold was Rs500,000.
Giving details of seven fiscal measures for banking sector/capital market growth measures, he said in order to increase the money base for private credit and to provide an incentive to individuals and non-residents, the tax rate on interest income from government securities would be 10 per cent with no tax return requirement, the rate of withholding tax on cash withdrawal would be brought down from 0.3 per cent to 0.2 per cent, tax credit to a company for enlistment would be increased to 15 per cent, limit for adjustment of minimum tax on turnover would be increased from 3 years to 5 years.
The finance minister said the government decided not to increase customs duty on any product. “In fact, for 31categories, customs duty is being simplified and reduced, customs duty on 22 essential raw materials for the pharmaceutical industry used for producing anti-biotic, anti-allergic, anti-diabetic and TB medicines is being reduced substantially,” he said, adding that there would be no extension in the duration of the one-off taxes levied due to floods: 15 per cent surcharge on income tax and 1.5 per cent increase in special excise duty and regulatory duty on 392 out of 397 items would be abolished.
To promote savings, he said the government had proposed tax credits for investment in shares through IPOs and involuntary pension funds would be allowed at 15 per cent from 5 per cent, Capping of Rs500,000 was being deleted to encourage investments in voluntary pension scheme. “To facilitate exports, supply against international tenders is proposed to be treated as deemed exports since winning of international tenders by local bidders is important to promote entry into international procurement markets,” he said.
He said the government was contemplating different schemes to incentivise the taxpayer to become fully compliant; prizes on sales tax receipts would be offered during the year to customers who retain these receipts. “In this way, we propose to create a partnership with our citizens and make them responsible for ensuring that taxes paid by them are not pilfered by withholding agents,” he said, adding that several initiatives had been taken in this budget to promote investment including increase in the money base for private credit, special incentives for equity based projects, BMR, expansion of existing production capacity and capital market growth measures.
He said as the country suffered from the menace of smuggling and under-invoicing and the Afghan Transit Trade facility was being abused by some of our importers creating distortions in the market, Afghan-Pakistan Transit Trade Agreement (APTTA) 2010. “Under the agreement, equipment support such as weigh bridges, container scanners and tracking posts will be installed to monitor movement of containers, transport of afghan transit goods has been restricted to vehicles of customs bonded carriers hired by NLC for effective monitoring and inventory control, a mechanism for exchange of data through Electronic Data Interfacing (EDI) is being established at Torkhum and Chamman and a national valuation database has been established which provides online access for verification of wrong declaration of value.
The finance minister said one of the most significant allocations had been made in the infrastructure for power generation to overcome serious supply and demand gaps in the sector. “An allocation of Rs32.5 billion is planned for power generation, transmission, distribution and conservation. Apart from this there will be an investment of Rs83 billion, which WAPDA and PEPCO will make through their own resources. These investments will go a long way in addressing the problem of the load-shedding in the country,” he explained.
He said in the power sector many important projects were included in the plan: Diamir Bhasha Dam (Rs18 billion), Neelum Jhelum Hydro Project of 1000 MW (Rs10.8 billion), Guddu Combined Cycle 22 Power Project of 747 MW (Rs14.6 billion) and Chicho ki Malian Thermal Power Project 525 MW (Rs13.9 billion). “In addition, nuclear power projects such as C-3, C-4 for a capacity of 600 MW are also being implemented and Rs15.5 billion are allocated. These projects will help meet the growing energy needs of the country.”
He said in the Transport and Communication Sector a sum of Rs50 billion has been allocated. Of this, Rs36 billion has been allocated for NHA and Rs.15 billion for Railways. “Health and Education are now provincial projects. However, some responsibilities have been voluntarily accepted by the Government in view of their critical need for the economy. For instance in the health sector Rs15 billion have been allocated to finance vertical programs such as Expanded Programs for Immunization, Lady Health Workers, Primary Health Care and National Maternal Neonatal and Child Health program.”
In the education sector, he said, the HEC will remain the financial responsibility of the federal Government and during the year Rs40 billion have been allocated for its development programs.
