Rs805bn budget presented amidst uproar: Rs179bn deficit to be met by borrowings
Main highlights of the budget, as mentioned by our esteemed finance minister are reduction of duty on big, grand vehicles, paper, board, increase in tax on oilseeds… This will no doubt provide relief to the comman man. :rolleyes: A good thing in the budget was the 15% increase in the salaries of Govt. officers, which is definitely a step in the right direction!!! Another positive sign was the fact that no new taxes were included, but some analysts fear they might be added later on in mini-budgets, as practiced in the past
ISLAMABAD, June 7: Federal Finance Minister Shaukat Aziz on Saturday presented in the National Assembly amidst a persistent opposition uproar the first budget (2003-04) of the military-led elected government, envisaging a total expenditure of Rs805.2 billion which is proposed to be financed with receipts amounting to Rs626.2 billion.
This leaves a gap of about Rs179 billion to be filled by internal and external borrowing, keeping the overall budgetary deficit within the IMF-fixed target of four per cent of GDP.
Describing the budget as investment inducing and employment generating, the finance minister said he was proposing no new taxes for the next year but offering a number of innovative measures including relief for government employees and pensioners.
The defence budget has been projected at Rs160.3 billion, the public sector development programme at Rs160 billion, poverty related social sector spending at Rs185 billion, and debt servicing at Rs256 billion.
The main features of the budget 2003-04 are an incentive package for the housing sector, pension and salary increases of 15 per cent, withdrawal of 20 income tax exemptions, relief to the business and industrial sector, free economic zone status to Gwadar port and a national savings scheme for the widows.
The budget deficit of Rs179 billion during the next year would be met through Rs89.4 billion external and Rs87.6 billion domestic financing. Domestic financing will comprise Rs59.7 billion non-bank financing and Rs27.9 billion bank borrowing, against Rs33 billion borrowing during the current fiscal year. A total of Rs10 billion are expected from the privatization proceeds next year.
Net revenue estimates for 2003-04 have been estimated at Rs510 billion, around 6.7 per cent higher than the Rs481.4 billion budget estimates of the current year, while current expenditure is estimated at Rs645.2 billion, showing a decline of 4.2 per cent over the Rs673.3 billion revised estimates for the current year.
As such, the share of current expenditure in the total budgetary outlay for 2003-04 is 80.1 per cent as compared to 83.6 per cent in the revised estimates for 2002-03. The expenditure on running of the civil government, including superannuation allowance and pension, is estimated at Rs100.6 billion, indicating an increase of 8.6 per cent in revised estimates 2002-03.
The provincial share in federal receipts is estimated at Rs214.8 billion next year which is 11.4 per cent higher than the revised estimates of the current year. Net capital receipts in the budget 2003-04 have been estimated at Rs36.7 billion against Rs104.9 billion in the revised estimates of 2002-03
The defence budget of Rs160.3 for next year is almost flat at the current year’s revised estimates of Rs160.1 billion but up by 9.6 per cent over the Rs146 billion budgeted for 2002-03.
Of the Rs513 billion tax revenue, indirect taxes have been estimated at Rs349 billion, direct taxes at Rs161 billion and natural gas and petroleum surcharge/levies at Rs61.1 billion. Non-tax revenue for next year has been projected at Rs157.2 billion against Rs175.8 billion revised estimates of current fiscal.
As a percentage of GDP, current expenditure will be 14.6 per cent next year against 16.8 per cent during the current year. Of this, debt servicing will be 5.8 per cent next year against 6.4 per cent of the revised estimate this year, defence will cost 3.6 per cent as against four per cent this year, running of the civil government will remain static at 1.4 per cent, development expenditure will be 3.6 per cent against 3.3 per cent this year while the total expenditure including provincial will be 18.2 per cent of GDP against 10 per cent during the current fiscal year.
The minister said the government would provide Rs53 billion as subsidy to both Wapda and KESC in 2003-04 against Rs76.5 billion during 2002-03. He said electricity rates were likely to decrease in the next two to three years because there will be a reduction in payments to IPPs, furnace oil replacement with gas, the Ghazi Barotha project coming on line and electricity production through coal from Thar.
Job Creation: The minister said that 30 per cent higher allocation for development projects and facilitations to the SME sector and provision of micro-credit would further provide job opportunities. He said both public and private investment would create more jobs.
Overseas Pakistanis: The minister said expatriates who sent remittances to the tune of Rs4 billion during the current fiscal would be given more incentives. To that end, the foreign exchange remittance card scheme was being streamlined and duty allowance for the “silver card” was being increased from $800 to $1,000 and for the"gold card" from $1,500 to $2,000. In addition, in baggage allowance, duty free imports of DVD, CD players, tape recorders, sewing machine and gas burners are being included.
Housing: The minister said there was a shortage of about 5.4 million houses in Pakistan and the need was rising every year which required provision of financing. Since this sector holds strong backward and forward linkages with other industries, the government was making arrangements with the State Bank of Pakistan to enable people to get loans to own houses.
To that end, a programme would be launched so that government employees are provided guarantees to obtain loans for housing from the House Building Finance Corporations. The government has also decided to provide 25 per cent reduction in excise duty on cement, elimination of excise duty on wires and cables, increase in limit of tax exemption on mark-up, improvement in lending rate and increase in maximum limit of loan.
Pay and Pension: The minister announced a 15 per cent increase in salaries and pensions of government servants on the recommendations of the pay and pension committee. To provide relief to the widows, a special savings scheme on the lines of pensioners is being initiated with higher rates of profit.
Gwadar port: Since Gwadar has been declared a special economic zone, all imports into the SEZ will be free of customs duty, sales tax and all other levies collected by the customs department. A seven-year tax holiday will also be available so far as income tax is concerned.
Income Tax: To encourage the housing sector, the tax credit limit of Rs100,000 or 25 per cent of income (whichever is less) for housing purposes from selected sources has been enhanced to Rs500,000 or 40 per cent, whichever is less. The facility has also been extended to loans from any bank or non-bank financial institution.
The rate of withholding tax on property income is 7.5 per cent if the annual amount of rent is Rs100,000 or more. This limit has also been enhanced to Rs200,000 and the rate of withholding tax is reduced to five per cent.
It is proposed that any amount paid or payable to a scheduled bank or DFI or a Modaraba or leasing company by a person in connection with the lease of an asset which is income of the lessor will be allowed as an expense.
The finance minister proposed to withdraw 20 further income tax exemptions from the income tax law. With the promulgation of income tax ordinance 2001, he said, it had been ensured that all classes of taxpayers will be entitled to avail self-assessment scheme without any conditions for declaration of income, G.P rate or increased payment of tax. To further improve the facility detailed guidelines are being issued for maximum ease of the taxpayers to ensure voluntary compliance.
To bring transparency and uniformity in the provision of exemption for non-profit philanthropic activity, it has been decided that Pakistan Centre for Philanthropy be assigned the initial responsibility for setting up a rating system for such organizations.
It is also proposed to repeal the wealth tax 1963 to end a lingering apprehension among taxpayers.
For investment in Defence Savings Certificates, where profit is payable on maturity or encashment of such certificates, it is proposed to tax such profit in the tax year to which it relates or accrued. The recipient of profit can give option for taxation as per new provision of law.
To encourage investment in industry, it is proposed to provide initial depreciation to plant and machinery imported second hand and used in Pakistan.
The withholding tax rate on brokerage and commission is 5 per cent which the said rate in respect of indenting commission agents is 10 per cent. This has been reduced to 5 per cent to bring them at par with other commission agents. The exemption on capital gains of public companies listed on the stock exchange will continue till 2005.
Business losses sustained by a concern during the tax holiday period are not adjustable against income of the post- exemption period. It is proposed that such businesses may also be allowed to carry forward their losses.
For the minimization of presumptive tax regime and the globalization of taxation, it is proposed that the tax withheld on import of fixed or capital assets imported by an industrial undertaking for its own use may also be made adjustable.
