The federal government of Pakistan Muslim League (Nawaz) on Friday unveiled a Rs 4,753 billion deficit budget for the next fiscal year (2017-18), envisaging a huge spending in election year as well as an increase in pay and pension of military and civil government employees.
Government decides to continue agri subsidies and offer new loans for farmers. Setting ambitious tax collection goals, it also announces a 40pc rise in development spending ahead of 2018 elections
Amidst slogans of "go Nawaz go" from combined opposition, Finance Minister Ishaq Dar said the next fiscal year's budget is with 4.1 per cent of the GDP or Rs 1,479 billion deficit with tax relief for poultry sector, merger of previous ad hoc allowances with 10 percent increase in salary and pension of government employees, and a 20 per cent increase for military personnel. Dar said that the merger and increase of salary would have an impact of Rs 125 billion on the country's exchequer.
He said that federal PSDP for the next year is budgeted at Rs 1,001 billion, 40 per cent higher than the revised estimates of Rs 715 billion for the current financial year. Additionally, provinces would also spend over Rs 1.1 trillion. An allocation of Rs 121 billion has been allocated for Benazir Income Support Programme (BISP) to disburse cash grant to 5.5 million families and 1.3 million primary schoolchildren.
The minister said that an increase in development expenditure will also lead to increase in investment by the private sector with major focus on infrastructure and energy. Infrastructure has been allocated 67 per cent of the total development outlay, with the highest priority has been accorded to transport and communication sector with an allocation of Rs 411 billion including Rs 320 billion for national highways, Rs 43 billion for railways and Rs 44 billion for other projects, including aviation schemes.
The government is proposing Rs 401 billion for power sector development including an investment of Rs 317 billion to be undertaken by WAPDA for the next year. A new programme called 'Energy For All' is being introduced with an initial outlay of Rs 12.5 billion. Some of the key projects in which the government will invest are as follows: (1) Rs 76.5 billion have been allocated for the two LNG-based power plants in Balloki and Haveli Bahadurshah, Rs 54 billion for Dasu Hydro Power project, Rs 21 billion for construction of Diamer Bhasha Dam, Neelum-Jhelum Hydro Power Project, Rs 19.6 billion, and Rs 16.2 billion have been allocated for Jamshoro coal power plant. There would be addition of 10,000MW of electricity by 2018, he added
The government is allocating Rs 38 billion for the development of water sector while extension of Right Bank Outfall Drain (RBOD - II), RBOD- I and Kaachi Canal will be given the largest share (Rs 17.7 billion) in the water sector portfolio. To pay pending sales tax refunds, it has been decided that all the pending sales tax refunds whose RPOs have been sanctioned by 30th April 2017 shall be paid in two parts. RPOs up to the value of Rs 1 million will be paid till July 15, and the remaining RPOs will be paid till 14th August 2017.
For national highways, a massive outlay of Rs 320 billion has been allocated as compared to Rs 188 billion for the outgoing year, reflecting a 70 per cent increase for development of roads, motorways, highways and bridges.
Higher Education Commission has been allocated Rs 35.7 billion with an additional allocation of Rs 60.2 billion for recurrent budget. The finance minister said that the GDP growth target for the next fiscal year has been set at 6 per cent, investment to GDP, 17 per cent, and tax to GDP ratio, 13.7 per cent. He said that foreign exchange reserves are enough to cover a minimum four months of imports while net public debt to GDP ratio is targeted below 60 per cent of the GDP.
The minister added that FBR revenues are targeted to increase by 14 per cent while the federal expenditures are projected to increase by 11 per cent, non-tax revenue (Rs 979 billion) is estimated to increase by 7 per cent. The government announced new initiatives for agriculture, financial sector, exports, textile, social sector and employment hoping to increase job prospects and income of the people. The tax incentives were announced to facilitate agriculture, SMEs, and IT sectors.
The government has allocated Rs 118 billion in the budget to continue providing subsidy to those using electricity below 300 units per month, electricity on tube-wells in Balochistan for agriculture sector and for off-peak rate of Rs 5.35 per unit for agriculture tube-wells. An allocation of Rs 20 billion has been earmarked in the budget for the Prime Minister's youth schemes and under special initiatives BISP beneficiary families who are willing to start their own businesses will be provided with training as well as a one-time cash grant of Rs 50,000 to start their own business and 250,000 families are targeted in this regard.
The government would also introduce solar power off-grid electricity scheme in partnership with the World Bank to provide electricity to remote areas and small cities where there are no transmission lines with special focus on Balochistan. Measures announced in the agriculture package announced by the Prime Minister would continue for the next fiscal year and ZTBL and National Bank of Pakistan will launch a new scheme for small farmers with holdings of 12.5 acres who will be provided agricultural loans at a reduced rate of 9.9 per cent per annum. Under this measure, small loan of up to Rs 50,000 per farmer will be provided and two million loans will be provided by ZTBL, NBP and other banks. The State Bank of Pakistan will monitor the implementation of this new scheme and the volume of agriculture credit is being enhanced to Rs 1,001 billion from the last year's target of Rs 700 billion.
Moreover, the government has also decided to sell the existing stock of imported urea fertiliser available with NFML at Rs 1,000 per bag and a fixed sales tax would be charged on DAP and rate would be Rs 100 instead of Rs 400, which would have an impact of Rs 13.8 billion as a result . Through a reduction in tax rates and subsidy, the price of per bag of urea will be maintained up to Rs 1,400 per bag, which would entail an impact of Rs 11.6 billion. This is estimated to cost around Rs 27 billion.
The government has decided to abolish the customs duty and sales tax at import stage on new and up to 5-year-old combined harvesters machinery while GST on imported sunflower and canola hybrid seeds is being removed. There is also a proposed reduction in sales tax rate on imported machinery for poultry from 17 per cent to 7 per cent while sales tax on import and local supply of agricultural diesel engines between 3 to 36 horse power for tube-wells has been exempted.
The government's special packages for export sector announced in the current fiscal year would continue in the next fiscal year as well and additionally to stabilise cotton prices in the country, a system of cotton hedge trading for the domestic cotton will be initiated in consultation with stakeholders. The approval process of establishment of 1,000 stitching units has been completed and its implementation will start in 2017-18.
The customs duty on raw-hides will be reduced to zero, stamping foil used in producing high value-added finished leather will also be exempted from customs duty, and the government decided in principle to allow warehousing of rice outside Pakistan.
The minister said that for housing sector, the government allocated Rs 6 billion for risk sharing guarantee scheme for low-income housing to be launched with a 40 per cent credit guarantee cover by the government to banks and DFIs for home financing for up to Rs 1 million.
The government has increased development spending to fulfill the needs of infrastructure and in addition to financing for public sector infrastructure, private sector investment is also being facilitated through Public Private Partnership framework. Pakistan Development Fund (PDF) has been created which will be made fully operational soon. This effort will be spearheaded by the IFC with a 20 per cent equity of the government through PDF, while the remaining share will be from private sector.
Rs 8 billion fund will be created at the State Bank of Pakistan to provide loans to low-income segments through microfinance banks and in order to facilitate transactions through mobile banking and gateway systems, the government is establishing a state-of-the-art gateway system at the State Bank of Pakistan at a cost of Rs 200 million. There would be exemption from withholding tax on cash withdrawals by Branchless Banking Agents. In order to enable banks to provide financing to SME sector, the government is planning to introduce risk mitigation facility for Small and Medium Enterprises through a Rs 3.5 billion fund to be established in the SBP and to cater this requirement of SMEs, an innovation challenge fund with Rs 500 million will be established, federal government shall establish the registry during the next financial year to enable the small borrowers in SME and agriculture sector to obtain small loans by pledging their moveable property.
The government will set up an IT software park in Islamabad with the help of Korean government at a cost of Rs 6 billion to promote IT and start-up software houses will be exempted from income tax for the first 3 years. The exports of IT services from Islamabad and other federal territories will be exempted from sales tax and IT export houses/ companies will be allowed to open foreign exchange accounts in Pakistan on the condition that deposit in these accounts will only be allowed through remittances from abroad in respect of their export earnings. They will be allowed to use these accounts for meeting business related payments outside Pakistan and mobile phones which are an important element in providing IT connectivity will be charged reduced withholding income tax on cell phone call from 14 per cent to 12.5 per cent, and FED from 18.5 per cent to 17 per cent. Customs duty on mobile phone has been reduced from Rs 1,000 to Rs 650, while import duty is also being reduced on mobile telecom products.
The minister announced to reduce the corporate tax to 30 per cent for the next year. The government announced that withholding tax on registration of motor vehicles will be reduced from Rs 10,000 to Rs 7,500 for engine capacity up to 850CC, from Rs 20,000 to Rs 15,000 for engine capacity between 851CC to 1,000CC and from Rs 30,000 to Rs 25,000 for engine capacity between 1001CC to 1,300CC. The rates for non-filers will remain unchanged.
There would be exemption from collection of advance tax on vehicles leased under the Prime Ministers Youth Loan Scheme. The threshold of 5 per cent in tax relief on education expenses for low-income groups/ individuals with Rs 60,000 limit has been increased from Rs 1 million to Rs 1.5 million per annum.
At present every individual deriving income above Rs 500,000 is required to pay advance tax in four instalments on the basis of tax paid for the last tax year. This threshold of Rs 500,000 has been in place since 1st July 2010 and is now proposed to be enhanced to Rs 1,000,000 in order to facilitate small taxpayers. The limit for importing raw material by manufacturers through exemption from income tax at import stage is proposed to be enhanced from 110 per cent of the quantity imported in the last year to 125 per cent of the quantity imported in the last year to promote industrial expansion and facilitate industry. A limit of 5 per cent placed on turnover for sales tax for pharmaceutical sector has been enhanced to 10 per cent of turnover.
The reduction of withholding tax rates on fast moving consumer goods distributors at low profit margins was proposed to be reduced from 3.5 per cent to 2.5 per cent. This will not be applicable on non-filers. On the demand of withholding agents right to revise their withholding tax statements in the case of any error or omission within 60 days of filing the statement was granted, tax credit at a rate of 20 per cent for the first two years of enlistment at Stock Exchange at a rate of 10 per cent for the succeeding two years and adjustable withholding tax at the rate of 1 per cent on life insurance premium is proposed to be enhanced to Rs 300,000. The filers will continue to remain exempted from this withholding tax.
Gulab Devi Chest Hospital, Pakistan Poverty Alleviation Fund and National Academy of Performing Arts have been exempted from tax. The revenue measures for the next fiscal year were announced included enhancement of tax rate on dividend- flat rate to 15 per cent, reduced rates of tax for certain types of dividend will remain unchanged. Rates for dividend paid by mutual funds are also proposed to be enhanced to 10 per cent in line with the increase on general dividend as well as rationalization of slab rates for interest income- 10percent, 12.5percent and 15percent for interest income between Rs 25 million and Rs 50 million and above Rs 50 million respectively. It is proposed to maintain the existing rates but the slabs on which they are to be made applicable are proposed to be changed to up to Rs 5 million, between Rs 5 to Rs 25 million and above Rs 25 million respectively.
The existing three-tier rate structure for capital gain tax on securities is proposed to be replaced with a single rate of 15 per cent for filers and 20 per cent for non-filers for simplification and promotion of stock market transactions, withdrawal of tax credit on sales made to sales tax registered persons- currently tax credit @ 3 per cent of tax liability is available to all manufacturers who make 90 per cent of their sales to Sales Tax registered persons. It is proposed to withdraw this tax credit as it has not achieved its desired objectives and is being used a means of getting tax break of 3 per cent without any consequent benefit in the form of increase of sales tax registration.
A tax on the income of the affluent and rich individuals, association of persons and companies earning income above Rs 500 million at a rate of 4 per cent of income for banking companies and 3 per cent of income for all others was levied. This tax was extended for one more year through Budget for the year 2016-17. Since the circumstances that necessitated this measure are still continuing, it is proposed to extend this measure by one year for tax year 2017.
Any public company which has derived profits for the year but does not distribute cash dividends within six months of the end of the tax year or distributes dividends to such an extent that its reserves remain are in excess of 100 percent of its paid up capital, the excess amount shall be taxed at the rate of 10 per cent.
The rate of minimum tax on turnover has been proposed to be increased from 1 per cent to 1.25 per cent and on recommendation of association of builders and developers a final tax regime on the basis of fixed tax per unit area was announced for builders and land developers in the last budget but it failed to achieve the desired results and is proposed to be withdrawn.
On the demand of Electronics Retailers Association the rate is being increased to 1 per cent, withdrew extra tax @ 2 per cent on lubricating oils supplied by Oil Marketing Companies, and on energy efficient motor vehicles the reduced rates of sales tax available at import stage are proposed to be made applicable on local supply of these vehicles as well. The Minister announced withdrawal of sales tax withholding on supplies from registered persons to other registered persons, however, withholding of sales tax will continue in the case of supplies to government departments.
Reduction in Sales Tax on Certain Services- Certain services have been subjected to sales tax by the provinces at reduced rates without any input adjustment. To bring uniformity and provide relief to the service providers in Islamabad Capital Territory similar reduction in sales tax rates is proposed. The rate of the custom duty on multimedia projectors is already at the rate of 3percent.
The inputs of the five major export oriented sectors were zero-rated in the last budget. The retail sales by these sectors were subjected to sales tax at 5 percent, which was proposed to be enhanced to 6percent.
Sales tax on commercial import of fabrics was proposed to be collected @ 10 percent to provide competitive edge to the local producers of fabrics. Finance Minister said that in order to enhance duty from this non-essential sector, to discourage cigarette smoking and to arrest the declining revenue trends from this sector, the rate of duty is enhanced on the existing tiers of the cigarettes. Moreover, a new tier is being introduced this year to document and curb the menace of illicit trade of sub-standard low priced cigarettes.
Increase and rationalization of sales tax on steel Sector - in order to rationalize the rate of sales tax on steel sector, the existing rate of Rs 9/unit of electricity is being enhanced to Rs 10.5 in consultation with the industry and corresponding increase shall be made in ship breaking and other allied industry.
To promote the ease of doing business the issues of the steel industry shall be resolved in consultation with the industry. Poultry Sector is not only providing affordable chicken meat to middle class families of the country but it is also playing vital role in the economy of the country. To provide further relief, it is proposed that 5 percent Regulatory Duty on the import of Grand Parent and Parent Stock of Chicken may be withdrawn and Customs Duty may be reduced from 11 percent 3 percent. Similarly, it is also proposed that Customs Duty may be reduced on the import of Hatching Eggs from 11 percent to 3 percent. This will substantially reduce their cost of inputs and boost further expansion. The government is making efforts to flourish mechanised farming so that productivity can be enhanced and the sector can contribute in the economy. There is a customs duty exemption on new combined harvesters; however, there is a 3 percent duty on old and used harvesters. To give relief to the agriculture sector and as the recommendations of Ministry of National Food Security exemption on customs duty will extend to new and up to 5-year-old and used harvesters so that their import cost is reduced.
It is proposed that Customs Duty may be exempted on the import of Ostriches. The customs duty on the import of Pre-fabricated Modular Clean Rooms is proposed to be reduced from 20percent to 3percent. Currently, this fabric is importable @ 16percent customs duty. To provide relief to the pharmaceutical sector and reduce cost for patients it is proposed that rate of customs duty may be reduced from 16percent to 5percent; (3) Machinery, equipment, apparatus, appliances, Wheelchairs, medical, surgical, dental furniture and spares etc. import are allowed duty free by charitable non-profit making institutions operating hospitals of fifty beds, hospitals run by the Federal or a Provincial Governments.
Electric cigarettes may be properly classified with 20 percent customs duty. To provide relief to the industry, it is proposed to reduce the rate of Regulatory Duty from 10 percent to 5 percent; (3) Metalized yarn is used in the traditional wearing. Its industry is currently facing problem due to high tariff rates on its raw material and low rate on its finished product. To provide relief to this industry, it is proposed that 5percent RD may be levied on its finished product while rate of customs duty on its vital raw materials may be reduced from 20 percent to 11 percent.
It is, therefore, proposed that customs duty may be reduced on raw materials, not locally produced, from 16 percent to 11 percent and from 20 percent to 16 percent for manufacturers of Baby Diapers. Currently leviable customs duties at the rates of 11 percent and 16percent, are being withdrawn and a uniform rate of 9 percent Regulatory Duty is being levied on telecom equipment. Wood Sector- To give boost to the wood sector, it is further proposed that customs duty on veneer sheets may be reduced from current 16 percent to 11 percent.
Current concessionary rate of customs duty and taxes, which is 50 percent of the total applicable duty and taxes, will continue on the import of Hybrid Electric Vehicles (HEVs) up to 1800 CC and 25 percent concession on total duty and taxes will be available for vehicles with engine capacity between 1801 and 2500 CC.
On the recommendation of EDB Eleven (11) more components are being included in view of diversified requirement of trailers for upcoming CPEC projects. On the recommendation of the State Bank of Pakistan regulatory duty on various items is being enhanced. It is proposed that the date of this concession may be extended till 30-6-2018. Concessionary rate of sales tax at 5 percent is also proposed to be extended till 30-6-2018.
It is therefore proposed that in addition to pensioners and widows this segment may be made eligible to invest in 'Behbood Saving Certificates' which provides higher profits.
The government plans to invite the Pakistani diaspora to invest in infrastructure development of the country. For this purpose, the Government will issue a sovereign non-convertible Bond million specifically for the overseas Pakistanis with a rupee coupon. This initiative will be undertaken by Pakistan Development Fund which will only finance financially and commercially viable projects. The proceeds will serve the financing needs of commercially viable projects of national importance while providing good returns to the investors. To further facilitate investment by the Pakistan diaspora in the real estate sector, CDA shall announce an exclusive sector for ex-pat Pakistanis.
It has been decided and give a 10percent adhoc relief allowance on the merged salary to all civil and armed forces employees. For Armed Forces, Zarb-e-Azb allowance would be in addition to this; a 10 percent increase is also being proposed in pensions; (3) Up to BPS-5 employees are being exempted from paying house-rent charges at the rate of 5 percent; (4) Daily allowance - domestic - is being increased by 60 percent; (5) Orderly allowance is being revised from Rs 12,000 to Rs 14,000; (6) Rate for transportation of dead bodies and local burial of are being revised from Rs 1,600 to Rs 4,800 and Rs 5,000 to Rs 15,000 respectively; (7) Constant attendant allowance admissible to Armed Forces and CAF is being increased from Rs 3,000 to Rs 7,000; (8) Different allowances for offices and sailors of Pakistan Navy are being revised including; hard-lying pay, compensation for batman, uniform allowance and ration allowance; (9) Design allowance is being increased by 50percent; (10) For employees of Pakistan Post, certain rates of allowances are being revised; (11) The Jawans of the Frontier Constabulary are performing their duties all over Pakistan. In order to make their salary structure attractive it had been decided to allow them a Rs 8,000 per month fixed allowance. One-third of that allowance has been allowed w.e.f 1st March 2017; the one-third of it will be allowed from 1st July 2017 and the balance one-third from 1st July 2018; BUDGET SPEECH 2017-18 Page 65 of 71. The above measures are estimated to cost an additional Rs 125 billion. On the pattern of increase in the pay of Government employees the minimum wage of labour for their benefit is being increased from Rs 14,000 to Rs 15,000 per month.
AFP and Reuters add: the government on Friday announced a 40 percent increase in its development budget over the next financial year as the government continues to invest in infrastructure projects.
Speaking to parliament, Finance Minister Ishaq Dar said the Public Sector Development Program would have its funding increased from 715 billion rupees ($6.8 billion) to 1,001 billion rupees for 2017-18.
The government also announced an 11 percent hike in total expenditure over the next year, as positive financial indicators and an improving security situation attract more investors to the country. "The estimate for the total expenditure in the year 2017-18 is 4,753 billion rupees, which is 11.7 per cent more than the previous year's expenditures of 4,256 billion rupees," Dar said.
The defence budget has been increased from 841 billion rupees to 920 billion rupees. On Thursday, the government said its economy expanded almost 5.3 per cent, its largest increase in a decade. The rise follows a construction boom linked to a $50-billion Chinese investment plan to upgrade transport and power infrastructure.-AFPThe government will continue agricultural subsidies and offer new loans for farmers next year, the finance minister said on Friday, announcing a rise of about 4 percent in government spending ahead of an election.
The 2017/18 budget estimates expenditures of 5.19 trillion rupees ($49.52 billion) and total revenues of 5.31 trillion rupees, according to the Annual Budget Statement. The government set ambitious tax collection goals for the 2017/18 fiscal year, which begins July 1, after falling just short of targets this fiscal year, according to the budget statement. The government projected it would expand tax revenue in 2017/2018 to 4.33 trillion rupees from 3.83 trillion rupees, according to the document.
Finance Minister Ishaq Dar announced the new loan scheme for farmers in his speech to parliament and said agriculture subsidies would continue, which should be popular ahead of elections due by June 2018. He set a target tax-to-GDP ratio at 13.7 percent of GDP, according to a prepared text of his speech distributed to reporters. A fiscal deficit target of 4.1 percent of GDP for 2017/18 was also set.
The current year's fiscal deficit is estimated to be 4.2 percent, Dar said in the speech. That misses the original target of 3.8 percent. Pakistan's economy grew an estimated 5.3 percent in the year to July 2017 - short of the government's 5.7 percent target but at the fastest rate since 2007 - amid a rise in agriculture output and steady service sector performance.
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