Federal Budget season around the corner

Society Pakistan & World Affairs
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Next budget to focus on investment and poverty

ISLAMABAD (February 28 2004): The Finance Ministry has kicked off the federal budget 2004-05 exercise, hoping to cut the number of taxes and tax rates, broadening the skewed tax base , said Finance Minster Shaukat Aziz on Friday.

Speaking at a press briefing he declared that the next budget would be growth- and investment-oriented for which the process of consultation with stakeholders has been initiated.

All ministries, chambers of commerce, trade bodies, civil society organisations and other sectors were formally asked to send their proposals through press. Consultations would be held in provincial and federal capitals.

The budget would focus on poverty reduction, per capita income and investment, Shaukat said.

He said ‘Economic Survey 2004-05’ would be released before the budget, with expected over 5.3 percent GDP growth as indicators show that most of the targets are within grasp.

He said that only wheat crop figures were to come whereas cotton was likely to cross 10 million bales, lower than production target. Sugarcane crop was bumper, nearing 3.8-4.0 million tons higher than last year’s production by 3.6,percent.

Rice is also showing value-addition production. Wheat has started coming form Sindh, while Punjab production is yet to be ascertained.

In industrial sector, large-scale manufacturing has registered 14.7 percent growth in six months, tax collection is around 15 percent and exports 13.5 percent higher than last year.

There is 23 percent increase in machinery import. Simultaneously, the private sector credit offtake is around Rs 215 billion against Rs 74 billion of last year.

Foreign direct investment (FDI) would jump to $ 520 million from $ 340 million as $180 million for Habib Bank would be deposited next month.

In the budget, new procedures for sales tax refunds process development and easy clearance from custom would be introduced.

http://www.brecorder.com/story.php?id=110448&currPageNo=1&query=&search=&term=&supDate=v

Present your budget ideas in this thread. If i were the FM, I’d lower the taxes and focus instead on widening the base, reduce power tariffs to decrease cost of doing business in Pak, and scrap the idea of importing second hand cars. The govt. should instead reduce duty on new cars. The tax on petrol should be reduced. From what I understand it is around Rs.17/litre, including a one rupee war surcharge levied in 1971. The govt. should look into this.

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Incentives for next budget spelt out: Growth, investment main targets - Shaukat

ISLAMABAD, Feb 27: Finance Minister Shaukat Aziz outlined on Friday broad tax incentives and refund measures to be incorporated in the next year’s budget (2004-05), and said the budget would focus on growth and investment.

Speaking at a news conference here on Friday, the minister also issued a warning to foreign embassies and diplomatic missions in Pakistan to stop misusing their privilege of duty-free import of vehicles by selling them in the local market.

Mr Aziz said the government had not yet decided whether to go for a ‘structured swap’ or a ‘plain vanila swap’ to convert its eurobond interest from a fixed to a floating rate.

He said that last year the government had taken various measures for prevention of smuggling and checking the misuse of diplomatic channels, and impounded 23 expensive vehicles which had been brought through diplomatic channels but were sold to local people.

The minister did not name the foreign missions involved in this business but said this was a message for diplomats that they should not misuse the privileges they got under diplomatic principles.

He said the new budget would be growth- and investment-oriented and would offer facilities to exporters in the shape of swift sales tax refunds and customs clearance.

The minister said the government planned to introduce a risk-rating system for customs clearance and sales tax refunds for manufacturers-cum-exporters. The system would be introduced at the beginning of the next fiscal year. “We would set parameters of risk rating after due consultations with all the stakeholders and line ministries,” he added.

Mr Aziz said a pilot project for swift customs clearance for commercial imports would be launched at the Karachi International Container Terminal (KICT) where the companies with a better tax payment profile and having a less risk rating would be facilitated.

Similarly, a new concept of simplified and fully automated system would be put in place through the new sales tax refund rules that would be based on risk assessment under which tax payers having a good record would be facilitated. Such taxpayers would get refunds on a fast track basis with number of steps involved in the process would be eliminated.

The minister said under these rules refund claims would be allocated to different channels i.e. Green, Yellow, and Red. There will be no pre-sanction scrutiny of claims in the Green channel except for a simple verification of documents.

In the Yellow channel, a pre-sanction desk audit would be conducted, while in the Red channel a proper audit and verification of payment would be conducted.

The system of part payments would also be eliminated for the prized manufacturers-cum-exporters who would get full payment under refunds, the minister said and invited proposals for the forthcoming budget from general people and business chambers.

The minister said the government expected over 5.3 per cent GDP growth by the end of the current fiscal based on high revenue collection, improved large-scale manufacturing and better agriculture sector performance.

“We expect high inflow of foreign direct investment during the current fiscal year as compared to the last fiscal and all indicators show that there will be higher investments that would result in a better per-capita income and reduced levels of poverty at the turn of the ongoing fiscal,” he added.

http://www.dawn.com/2004/02/28/top8.htm

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I'm all for the idea of second hand cars, they aren't abolishing tarriffs just allowing a certain level of competition.

Some suggestions which I am sure will not be implemented :)

1) Abolish the concurrent list and transfer the departments to the provinces, if the government abolishes many of the duplicated federal departments they could save something like 20 billion rupees per year.

2) Provincial debt relief, the provinces are all heavily in debt because the federal government used to default on protected funding, if the provicnes are given a debt write off or rescheduling of payments that would free more money for key sectors like education and health.

3) Restructuring the Army to cut costs could save around 3-4% of the federal budget without affecting military capacity.

4) Don't reduce electricity, fuel or gas tariffs, reduce the number of taxes on top of them.

5) The federal government should ONLY be collecting 4 Taxes, Income, Sales, Customs and taxes on the stock market all the rest should be devolved to the provinces and districts

6) Pakistan needs to focus on expansion of it's rail services and port facilities and cutting costs, despite it's low labour costs Pakistani freight facilities cost way too much this has led to the country to lose out in the Afghanistan reconstruction programme. Also since so many Pakistanis are employed in the Middle East PIA should be undercutting Middle Eastern Airlines not costing more!

7)Slash interest rates again, Housing loans could boost the economy significantly but on average of loans at 10% interest/markup it is still not feasible for the average person.

8) Reduce taxes on the Tourist sector, slash the number of goverment inspections on industries, consider a sales tax amnesty. Quadruple funding to the Housing building Finance Corporation

9) Increased funding to the provinces and Districts for better pay to Doctors, teachers, Police officers and Judges

10) Pension Reforms, Something needs to be desperately done about this, Pakistan doesn't know how many pensioners it even has or how many government servants. There is a lot of wastage and the number of pensioners will increase.

And that's a wrap.

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We need to continue to increase development spending significantly, as it has been year on year since the first Shaukat Aziz budget nearly four years ago. Development spending has doubled from just over 2% of GDP a few years ago to some 4% today, but with more debts cleared in the coming years there is no reason why this cannot be increased many times more?

Development spending

The allocation for public sector development programmes has been steadily increased over the last four years but the pace of fund utilisation also needs to be accelerated. In the first six months of the current financial year, the government’s development spending stood at Rs 56.8 billion. Seen in the context of the whole year’s development outlay of Rs 160 billion, this comes to 35.5 percent and appears to be on the low side. As the procedure to draw development funds is said to have also been made much easier, their utilisation should be showing sustained improvement. Although the utilisation of development funds will gather speed in the second half of the current financial year, the whole issue needs review at this stage in order to find out as to why larger amount of funds could not have been used during July-December period.

In the year 2000-2001, the government’s development spending was around Rs 90 billion or about 2.1 percent of gross domestic product. It was not a sufficiently big allocation to support and finance the much needed infrastructure projects and social sector development. It was increased to Rs 126 billion next year, which came to 3.5 percent of the GDP, and hence a substantial increase, indeed. Last year, the total public sector development outlay was Rs 134 billion. This year it is estimated at Rs 160 billion. The huge increase in the government’s development spending has come about mainly due to two reasons. Fiscal resources created due to debt relief had been earmarked for development projects. Also strict control was exercised on current expenditure. The complexion of the budget expenditure has thus undergone an encouraging change making it all the more necessary that larger development outlays were fully utilised within the given time frame.

This year’s development programme lays particular emphasis on infrastructure and social sectors. In either case, the urgency to start the projects and complete the on-going ones is evident. Infrastructure facilities are essential to accelerate investment and promote growth, which is necessary to create employment and reduce poverty. Social sector development has also to remain high on the government’s development agenda. It is, therefore, of vital importance that development funds are not allowed to lapse at the end of the year because that could also cause delay in project implementation. This should be strictly avoided. The size of this year’s development programme will be further expanded. Presently, development spending is just around four percent of the GDP, which should be significantly increased. Larger allocations for development should be matched with their timely utilisation and scheduled completion of development projects.