Pakistan on Wednesday hiked defence spending by close to seven percent to Rs 296 billion for the fiscal starting next month. The estimated allocation for 2008-09 budget compares to Rs 277 billion actual expenditure for the ongoing financial year ending on June 30. An amount of Rs 275 billion was originally earmarked for defence for the fiscal 2007-08.

The government has introduced an 'investment tax scheme' for legalisation of movable and immovable assets on payment of 2 percent of its value; new taxation system for builders and developers; 10 percent withholding tax on electricity bills exceeding Rs 20,000 per month; progressive tax rates on rental income and basic limit of exemption from income tax for salaried person has been increased from Rs 150,000 to Rs 180,000.

The budget for fiscal year 2008-09 envisages an allocation for Public Sector Development Programme (PSDP) which is higher than that proposed in the Annual Development Plan as prepared by the Planning Commission. This dichotomy is unprecedented and is surprising given the severe resource constraints that the country is operating within.