Rejecting the proposal that the federal government collect the agricultural tax, the federal cabinet approved on Friday the Rs 2.7 trillion federal budget for the fiscal year 2011-2012, with a Rs 730 billion allocation for the Public Sector Development Programme (PSDP), including provincial allocations.
A source told Pakistan Today that after a hectic debate on the proposal tabled by Finance Minister Dr Abdul Hafeez Shaikh that the federal government should collect the agricultural tax following the precedence of former premier Zulfikar Ali Bhutto’s government in 1977, the cabinet members – most of whom come from a feudal background – trashed the proposal on the pretext that it was the domain of the provinces and after abolishing the concurrent list, the agricultural tax collection should be left to the provinces.
“A helpless Shaikh failed to convince the cabinet members on his plea that the federal government should collect the agriculture tax. He only got support from the Muttahida Qaumi Movement (MQM) ministers, who supported the idea to tax the agriculture sector as principally all income generating sectors must be taxed. Prime Minister Yousaf Raza Gilani also said that despite being an agriculturist himself, in his view the agriculture sector should be taxed. However, the decision to tax the sector by the federation was deferred,” added the source.
The source said the cabinet finally resolved that the agriculture tax could not be levied by the federal government and the provinces should impose it through legislation. The prime minister said the matter would be taken up with the provincial governments in the Council of Common Interest (CCI).
Another source said the cabinet also debated a raise in the salaries of government employees as the finance minister was of the opinion that there was no need to raise their salaries; rather the ad-hoc relief given to them in 2008 and 2009 should be merged with their basic salaries.
“However, Minister for Religious Affairs Khurshid Shah rejected his notion and said that it was time to raise the salaries of the employees as the government was nearing elections. Minister of State for Labour and Manpower Shaikh Waqas Akram supported his argument and said even the current year could prove to be an election year and the government should raise the salaries of the employees,” said the source.
The source added that State Minister for Finance and Economic Affairs Hina Rabbani Khar, who also has a feudal background, strongly opposed the proposal by Khurshid Shah, saying that government employees numbered only in the thousands, while the focus should be on facilitating the poor to whom the government was already providing subsidy through the Benazir Income Support Programme (BISP).
“She said further that the employees had already been provided a 50 percent raise in their salaries last year. However, other ministers including Riaz Pirzada, Farooq Sattar, Babar Ghouri and Manzoor Wattoo supported an increase in salaries. The finance minister gave in and said the government could give a 10 percent raise in the salaries. However, the prime minister intervened and said a 15 percent raise would be just and the cabinet approved his proposal,” said the source. “The cabinet also approved the merger of previous ad-hoc relief with the basic pay of the employees,” added the source. The source said that prime minister also took notice of the strike by the Karachi Electric Supply Company employees and sought a report after MQM ministers raised the issue.
Earlier, in his opening remarks, the prime minister said the economy was devastated by unprecedented floods, which had caused damages to the tune of Rs 800 billion according to independent estimates.
“We saw prolonged power outages which resulted in income losses for households, businesses and industry, impeding GDP (Gross Domestic Product) growth. Deteriorating security situation imposed further costs on the economy in the shape of increased security spending and resettlement of internally displaced persons. Rising inflation due to 45 percent rise in Global Commodities Prices Index and consequent financing costs of fiscal deficit compounded both core inflation and Consumer Price Index (CPI),” he added.
