With Pakistan's economy in the grip of acute energy shortage, heightened security challenges and limited external inflows, the Federal Budget FY11-12 focuses on stabilisation. The overall theme of the budget is to protect the fragile recovery by curtailing non-developmental expenditure, effective implementation of new tax measures and elimination of untargeted subsidies, Nauman Khan, an analyst at Topline Securities said.
Therefore, the financial managers of the country in FY11-12 has to play a balancing game to meet an ambitious consolidated fiscal deficit target of Rs 849bn (4 per cent of GDP) at one end, while providing impetus to economic recovery to achieve the GDP growth target of 4.2 per cent, he added.
MAJOR HIGHLIGHTS OF THE BUDGET The total budget outlay of FY11-12 is targeted at Rs 2.7tn (US $32bn), of which current expenditure is Rs 2.3tn. The government has allocated Rs 1.7tn as General Public Service (which also includes debt servicing) while Rs 495bn is projected for defence, up 17 per cent against the Rs 442bn of last year.
Furthermore, in an attempt to eliminate untargeted subsidies the government has projected only Rs 166bn in FY-1112. However, the actual disbursement will primarily hinge on the implementation of the energy sector reforms. The government has earmarked Rs 730bn for PSDP (Public sector development programme), up 56 per cent as compared to the revised target of last year. Bifurcation of the number reveals that federal government has allocation of Rs 300bn while the remaining would be utilised by the provinces.
Total revenues are projected to stand at Rs 2.7tn, encompassing Rs 2.074tn from tax revenue while the residual Rs 658bn is expected to come from non-tax revenue. With Rs 1.203tn allocated to the provinces, net revenue of the centre comes to Rs 1.53tn.
With the total tax revenue, FBR tax collection for FY-1112 is projected to stand at Rs 1.952tn (9.1 per cent of GDP), up 22 per cent from the revised target of Rs 1.588tn in FY11. "We believe this target would be on a higher side and much will be dependent on the actual implementation of the taxation measures and tax administration which the government has embarked in FY11-12," he said.
Overall, the government has targeted a federal fiscal deficit of Rs 975bn (4.5 per cent of the GDP) while with Rs 125bn cash surplus from provinces consolidated deficit is expected to be Rs 850bn (4 per cent of GDP). This looks difficult to achieve in light of taxation measures and eventually the government would lower its development spending. Overall, the fiscal deficit is projected to be primarily financed through indigenous sources with 84 per cent from domestic sources.
MAJOR RELIEF MEASURES 15 per cent increase in government employee salaries, while 15-20 per cent increase in pension. Enhancing the basic exemption limit on income tax to Rs 350k. 100 per cent tax credit on corporate industrial undertakings, which are 100 per cent equity financed up to 5-years after commissioning. The same will be applicable for new BMR activities.
Reduction in withholding tax (WHT) on cash withdrawal above Rs 25k to 0.2 per cent previously from 0.3 per cent.
Enhancing tax rebate to 15 per cent from 5 per cent for the year in which they get listed. 1 per cent reduction in the GST (General Sales Tax) rate to 16 per cent.
Removal of all types of SED (Special Excise Duty) Reduction in excise duty from Rs 700 per ton to Rs 500 per ton, while withdrawal of excise duty on cement. Removal of FED (Federal Excise Duty) on 15 items with the gradual removal on all the items in next 3-years.
MAJOR TAXATION MEASURES Rate of tax increased to 20 per cent from 10 per cent on dividend received by banks from AMCs (Asset Management Companies). Withdrawal of sales tax exemption from 17 items includes agricultural inputs like Fertiliser, Pesticides and tractors.
The sales tax on sugar on import and local supply has been replaced by FED at the rate of 8 per cent. Value addition tax has revised upwards to 3 per cent on commercial imports compared to 2 per cent last year.