Election budget aims to woo voters

The Pakistan People’s Party (PPP)-led coalition government on Friday achieved a rare milestone as Finance Minister Dr Abdul Hafeez Shaikh presented its fifth Rs 2.96 trillion subsidy-ridden election-year deficit federal budget for the fiscal 2012-13, having a 20 percent ad hoc relief in pay and pensions of government servants and incentives for the construction and pharmaceutical industries, while promising to bring down inflation to a single digit.
The finance minister – who faced a hostile opposition as Chaudhry Nisar Ali Khan-led legislators of Pakistan Muslim League-Nawaz (PML-N) created the worst rumpus witnessed in the National Assembly since 2008 – made a relatively short budget speech and did not give the details of the government’s economic vision for the next fiscal – half of which, even if the PPP government succeeds to complete its tenure, would not be its responsibility with general elections early next year and a caretaker government to be in place three months before that.
Compared to 2011-12’s 5.5 percent, the next year’s consolidated fiscal deficit has been estimated at 4.7 percent of the GDP, which does not include Rs 391 billion debt consolidation that equals 1.9 percent of the GDP.
The government will provide Rs 208.5 billion as subsidies to various sectors.
Vulnerable groups: The finance minister announced an increase of Rs 20 billion in the allocation for the Benazir Income Support Programme (BISP) from Rs 50 billion in the current year to Rs 70 billion for the next fiscal, besides allocating Rs 10 billion for export development fund. He said targeted subsidy would be given to low income group on essential food items. BISP card holders will be entitled to a 10 percent discount at Utility Stores. Similarly, the finance minister said, the prices at the utility stores will be 17 percent less than in market. To provide immediate relief to the common man, 2,000 more utility stores would be opened across the country, he said. To create job opportunities for the educated youth, the government plans to provide 80,000 internships to the master’s and bachelor’s degree holders at a cost of Rs 9.5 billion.
For the socio-economic growth of Balochistan and Gilgit-Baltistan, the government will pay the tuition fees of the students from these areas studying in top universities of the country. This will cost the government Rs 500 million per annum.
Income Tax Measures: The finance minister announced to enhance the income tax exemption limit to Rs 400,000, reduce tax on business turnover from 1 percent to 0.5 percent, enhance withholding tax ceiling for cash withdrawal from banks from Rs 25,000 to Rs 50,000, abolish federal excise duty on 10 items, reduce federal excise duty on cement from Rs 750 to Rs 500 per metric ton.
He said 18 raw materials, nine components being used for text books and stationery would be exempted from customs duty, besides reducing customs duty from 10 percent to five percent on 88 raw materials of pharmaceutical industry.
The finance minister also announced to reduce the tax slabs to five only and said a taxpayer with an income of Rs 35,000 per month previously paying Rs 1,500 would now only pay Rs 1,000 as tax.
Under the present scheme of taxation, he said, if an employee obtained a loan from the employer at a concessional rate, it was taxed at 13 percent.
“In order to facilitate such employees, it is proposed that such loans up to Rs 500,000 will be exempted from income tax and loans above this limit would be taxed at the maximum rate of 10 percent,” he said. As a relief measure to pensioners, the finance minister said amount received from approved income payment plans or annuity plans invested from any balance of voluntary pension schemes upon retirement would be exempted from tax if invested for a period of 10 years.
He said the government wanted to phase out the presumptive tax regime (PTR) in three years and decided to reduce the rates of tax from five percent to three percent for commercial importers, from 1 percent to 0.5 percent for exporters and from 3.5 percent to 2.5 percent for suppliers to give them the incentive to opt out of the PTR.
To encourage the capital markets, exemption on profit and gains of a venture capital company and fund has been extended up to the year 2024. To promote investment in securities and insurance, the finance minister said the limit of investment as a proportion of taxable income was being increased from 15 percent to 20 percent and from Rs 500,000 to Rs 1 million, which ever was lower.
The required retention period of shares would be reduced from three years to two years.
Sales Tax: The finance minister said the government had decided to bring all GST rates above 16 percent down to 16 percent to avoid multiplicity and decrease the burden on the consumers. He said the current sales tax of the steel sector, fixed in 2008, was at the rate of Rs 6 per unit of electricity consumed and it would now be increased to Rs 8 per unit to harmonize it with the current market prices. He said smuggling of goods caused injury to the local industry, and discouraged legal imports.
“High rates of duties and taxes on these goods provide incentive for under-invoicing. It is being proposed that sales tax on black tea be reduced from 16 percent to five percent to encourage legal import of tea,” he added.
Federal Tax: To bring prices down and give incentives to the private sector, the finance minister said the government intended to phase out Federal Excise Duty (FED) in the next two years. To ensure this, the FED was abolished on 15 items last year and the rates were brought down on many more.
“The government intends to further eliminate FED on additional 10 items including base lube oil, lubricating oils, filter rods, and skin care products,” Shaikh said.
He said in order to boost construction activity and generate jobs, last year the FED on cement was reduced from Rs 750 PMT to Rs 500 PMT.
This year it was being further reduced from Rs 500 PMT to Rs 400 PMT, he said.