Islamabad - Finance Minister Ishaq Dar revealed Rs4394 billion federal budget of 2016-17 yesterday. Besides, Rs. 800 billion federal PSDP the major chunk similar to that of last year goes to interest payments and defense payments.

It is a mere estimation of taxation and expenditures. Every year government takes few measures to address the prevailing major issues in the economy. Three major problems the government has been facing since it took over are terrorism, energy crisis and stagnant economic growth.

Economic growth is linked with the first two issues, therefore, in the past two years, the government tried its best to allocate a big chunk of funds to eradicate terrorism and mitigate the energy shortages. It is worth to mention here that the war on terror has separate budget than the budget allocated on the defense expenditures. Due to better energy management the government has controlled loadshedding especially in bigger cities. Nonetheless, it won’t be wrong to say that due to energy crisis economy is performing less than the potential.

In this budget, Rs. 432 billion are allocated in PSDP for electricity generation and distribution. It includes PAEC allocation for Chashma Nuclear Power Projects but it did not include the CPEC PSDP fund. It is expected that due to the projects which were set up in previous few years almost 5000 MW electricity will be added to the national grid. This will lessen loadshedding to very short duration. Moreover, it will mark a big impact on the manufacturing sector which is currently deprived of due to energy shortages.

Last year was among the worst year for the farmers due to negative growth of agriculture sector. Therefore, in this budget special initiatives are taken for the agriculture sector. Among them reduction in the price of Urea and DAP, abolishment of sales tax on pesticides and reduction in the electricity price in peak hours are the main policies that will probably reduce the cost of production. The only concern is the effectiveness of implementation that farmers will get the benefits of reduction in prices of these products.

In addition to that, duty rates on cold storage have been abolished. This implies that supply chain process of food from farm to market will be improved. In addition to that, this also implies that if cold storages are properly utilized then problem of food security will be reduced by minimizing the food wastage.

Exports recorded a decline in the last year which was surprising on one end because of having GSP plus status, however, it was not contracting the expectations due to energy constraint and exchange rate forced overvaluation. Therefore, the government has tried to give incentives to those industrial sectors which are active in exporting their products. Especially textile sector will get maximum benefits from the announced policies in this budget. Nonetheless, it is also believed that not all the products in the textile sector will be benefited from the policies announced in the budget.

PSDP has included several infrastructure projects which will directly affect the employment in the country. Moreover, allocation for Diamir, Bhasha and Bunji Dams is a positive sign that people will get employment in those projects which will be completed by 2019 and beyond.

Withholding tax, which was started in 1990s became favourite of the Finance Minister. It seems he knows that this tax can be used in various ways to include people in the tax net as well as to get maximum revenues. Nevertheless, the former objective has not been achieved for the last three years but the later objective, which is a short term gain, is successfully achieved. The budget reveals several higher tax rates for non-filers and lower tax rates for filers. This will eventually hurt a common man and above middle class person who wants to earn little more money but is afraid of filing tax returns due to the behaviour of FBR personnel. Therefore, if the objective is to get more revenue each year then the policy is achieving that goal otherwise it is a bad policy to adopt.

Reduction in corporate income tax by one percent is a shaggy policy. Corporate sector does not feel privileged by paying 1 percent lesser tax than in the previous year. They will feel good if the government reduces the rate by 5 to 10 percent. Nonetheless, there is always a fear to get lesser revenue if the rates are slashed by a bigger margin.

Apart from economy and taxation, one of the important aspects of budget is the relief for common person. The present government is known to be “industrialist friendly government”, however, they came up with few policies which will ease the burden of common person. One of the policies which have already discussed was agriculture policy which will reduce the prices of agriculture products due to decline in the cost of production.

In addition to that 10 percent raise in the salaries of government employees, merging the 2013 and 2014 ad hoc relief allowance with basic pay, 10 percent raise in pensions and 25 percent increase in pension of those who are more than 85 years of age are few initiatives which help government employees.

Beside government employees, the budget of BISP is raised to Rs.115 billion and number of beneficiaries will be increased. Although total anticipated number of people who should get benefit from BISP program is higher but every year more and more people are included in the pool. Minimum wage is increased to Rs.14000 for the informal sector, however, how much actually they will get is always one of the major concerns.

Overall we can call it “agriculture budget” even though there is no policy device for the cotton crop apart from reduction in the duty of pesticides. However, it is hoped that in the next fiscal year economic activity will be kicked off due to a better energy situation. In addition to that similar to that of last year, Mr Dar is trying his best to collect revenues from the non-filers’ pockets. Above all, even though there is some relief to government employees but there isn’t much for a common man in this budget.

– The writer is a Research Economist at PIDE

M Ali Kemal