ISLAMABAD - Terming economic ‘revival’ a result of prudent government measures, Finance Minister Ishaq Dar presented budget proposals for fiscal 2014-15 with a total outlay of Rs3.945 trillion and deficit of Rs1,422 billion in the special session of the National Assembly, carrying forward ambitious development targets and reforms in almost every sector.
In his budget speech, Ishaq Dar said the government is allocating Rs205 billion for investment in various power projects to overcome the energy crises on a priority basis. In line with his government’s declared policy, he reaffirmed that privatization of the state owned organisations will be undertaken and the proceeds will be spent for the development of the people.
The finance minister told parliament that he aimed to reduce the budget deficit to 4.9 per cent of economic output in the 2014-15 fiscal year from 5.8 per cent a year earlier. Budget spending has been set at Rs3.8 trillion ($39.3 billion), while tax revenues are estimated at 3.94 trillion rupees for the fiscal year.
The finance minister said that when they took over last year the economy was in tatters but with their stringent economic management and control over unproductive expenditure they have managed to put the national economy back on the track which is widely acknowledged by the international community and Pakistan is being considered as the second most lucrative place for foreign investment across the globe.
While announcing widening of the tax base, Dar listed a series of steps to enhance revenue generation with main focus on taxing the rich and providing relief to the middle classes and the poor.
The minister said the government has specially designed a programme to provide housing credit to low cost housing units to enable the poor to have their own homes. He said the banks will provide loans up to one million rupees for the scheme and the government will guarantee forty percent of the portfolio amount. The scheme will cover all areas of Pakistan and 25,000 loans worth Rs20 billion will be provided to low and middle-income people. He said to expedite construction activities in housing sector, House Building Finance Corporation will be rehabilitated.
The finance minister said the budget strategy is embedded in a three-year medium-term macro economic framework with increase in GDP growth rate up to seven percent by the end of 2016-17. He said similarly inflation rate will be maintained in single digit throughout the medium term. He said investment to GDP ratio will rise to 20 percent at end of medium term while fiscal deficit will be brought down to 4 percent of DGP by 2015-16.
Dar said to achieve the vision of an industrialised Pakistan in foreseeable future, the government wants to attract both the domestic and foreign investment into manufacturing sector. He said tax rebate will be allowed till 2017 in order to attract foreign direct investment in manufacturing, construction and housing sectors.
The minister said tax to GDP ratio will be increased by 13 percent by 2016-17. He said foreign exchange reserves will go up over $22 billion by the end of this period. He said the government is committed to creating new job opportunities for youth and hoped that introduction of 3G and 4G technologies in telecom sector will help create about nine hundred thousand jobs over the next four years.
Dar said the government has made a conscious policy decision to enhance the contribution of taxes, which are progressive taxes and gradually reduce the burden of indirect taxes, which affect the common man. Therefore, no new tax has been imposed in connection with sales tax and federal excise duty, he said.
The minister said main objective of the government is to broaden the tax net, increase the cost of non compliance for those who remain outside the tax net, remove distortion and anomalies and promote automation in order to reduce interaction between tax payers and tax collector.
Ishaq Dar said to facilitate exporters the government has been decided to introduce a consolidate export facilitation scheme which will be implemented after broad based consultations with exporters. He said accordingly the government has also decided to form tax reforms commission with the objective to review the entire tax policy and tax administration.
The finance minister said the government has established Pakistan Development Fund Limited Company with resources of Rs157 billion. The company will provide the financing to key infrastructure projects and promote public private partnership. He said the government has revived its efforts to promote Islamic banking and financial system and a committee comprising ulema, bankers, economists and government officials has been constituted which will finalise its recommendations by December this year.
He said the government has proposed concessions in the agriculture to encourage farming by removing customs duty on the import of plastic coverings and mulch film etc. He said corporate tax in the next financial year would be up to 33 percent while withholding tax on marriage functions is being reduced by five percent. He said the government feels that disabled persons need special consideration therefore it is being proposed to reduce tax liability of such persons having income up to one million rupees by 50 per cent.
The minister announced special initiatives to enhance exports especially that of textile. He said the government has decided to set up export import bank of Pakistan to enhance export and reduce cost of borrowing for exporters on the long term basis with authorised capital of hundred billion rupees having initial paid up capital of ten billion rupees. He said the government also decided to reduce mark up rate on exports finance from 9.4 to 7.5 percent. He said it has also been decided to set up Pakistan Land Port Authority to transform land ports into efficient facilitators of trade. He said the authority will help boost exports.
Dar also listed some of the major achievements of the government and gave special mention to the boosting up of foreign exchange reserves, launch of Euro bonds, 3/4 G licences sale and boost in foreign remittance.
As expected, the minister proposed a 10 per cent ad hoc relief in the salaries of federal government employees and raise in minimum wage to Rs12,000 from Rs10,000. The minimum pension is being raised from Rs5,000 to Rs6,000. Conveyance allowance for employees of Grade 1-15 is proposed to be increased by 5 percent.
Under Benazir Income Support Programme (BISP) the poor will now receive Rs1,500 per month, Rs300 more compared to previous fiscal. Now 5.3 million families will be supported instead of 4.1 million. The number of customs slabs are being reduced from 8 to 6. The maximum customs duty is being reduced from 30 to 25 per cent.
Health has been allocated Rs26 billion. Polio will be given the highest priority, and the federation will work with the provinces to help eliminate polio. The population welfare fund from last year will be continued to the upcoming year as well, with Rs8 billion allocated to it to help curb diseases like Tuberculosis and Hepatitis.
The finance minister said to ensure due contribution from the rich and discourage consumption, 7.5 per cent adjustable advance tax on monthly bill of Rs100,000 and above on domestic electricity consumers is being proposed. About some of the measures for stabilizing the stock market he said that it is proposed that capital gain tax rate will be 12.5 percent for securities held up to 12 months and ten percent for securities held for a period of twelve to 24 months. He said securities held for more than twenty-four months shall be exempted from this tax.