Rs 1.6 trillion tax target, containing fiscal deficit: expenditure control, revenue mobilisation measures unveiled

The government on Tuesday announced expenditure control and revenue mobilisation measures to achieve revenue collection target of Rs 1600 billion and contain the fiscal deficit below 5.5 percent for the current fiscal year. The revenue collection target of the Federal Board of Revenue (FBR) has been revised downward from Rs 1604 billion to Rs 1600 billion.
The following expenditure control measures for remaining part of the budget year will be effective immediately: The expenditure on the heads of POL entitlements, purchase of stationary and travelling allowance has been cut by half and the purchase of durable goods has been banned. Total ban has been imposed on fresh recruitment unless process was already initiated through proper advertisements. An exercise was undertaken successfully to secure surrender of excessive budgetary allocations over and above the last year.
Other savings: Numerous other small heads of account relating to grants to entities and bodies outside the government have been closely examined and savings effected. Rationalisation of PSDP: The PSDP has been rationalised while protecting projects in social sectors, less-developed areas and of strategic significance. The combined impact of these measures will be Rs 120 billion.
The following additional revenue measures have been adopted to partially offset the increase in expenditure demands on account of floods, foregone revenues due to postponement of RGST and to remove inequities in the tax system: The government imposed one-time surcharge of 15 percent on income tax payable for the remaining period of 2010-11 and additional special excise duty (SED) of 1.5 percent on items already subjected to SED for the remaining period of tax year 2010-11
Withdrawal of exemption of sales tax on fertiliser, pesticides and tractors. The facility of zero-rating on plant, machinery and equipment including parts thereof has also been withdrawn. Zero-rating on five major export oriented sectors (textiles, carpets, leather, sporting goods and surgical goods) has been restricted to registered exporters and manufacturers-cum-exporters for export purpose only.
A clear distortion visible in the assessable value of sugar by artificially limiting it to Rs 28.88 per kg has been removed. The ex-factory price shall hitherto be the prescribed price for levy of sales tax on sugar. However, to protect the consumers, special rate of 8 percent for levy of sales tax on sugar has been retained. These measures would assist in achieving the revenue target of Rs 1600 billion during 2010-11.
The determination and resolve of the government is beginning to show visible results. These improvements include: The budget deficit, which some observers had predicted to cross 8 percent has been reigned in and will be under 5.5 percent of GDP. Recourse to the State Bank of Pakistan borrowings has aggressively managed. The SBP borrowing stood at Rs 68 billion at end of February 2011 from a high of Rs 321 billion reached during the first half. Inflation rates have begun to decline for the last two months. During February 2011 the CPI was 12.9 percent significantly down from 15.7 percent recorded in December 2010.
The external sector has shown extraordinary performance. Exports have increased by 26 percent in the last eight months. For February 2011, growth in exports was at historic 46 percent. Exports at this rate are likely to cross $25 billion. Remittances will surpass the $11 billion mark, which will also be historic. More works remain to be done to ensure that these gains are consolidated and a solid foundation is laid for stability, growth in the economy and the prosperity of the citizens. The government has decided to further control expenditures and to raise revenues to secure the public finances.