The new Federal Budget for 2008-09 has evoked a     mixed reaction. Some analysts and observers have     termed the new budget as a balanced approach of     the government in the prevailing critical economic     scenario while some others believed that the budget was just a fixation of fiscal targets and the ongoing tricky process of mini-budgets would continue to haunt the nation. The critics also say that in the new budget the federal government did not announce adequate measures to pre-empt unbridled price-hike, artificial shortage of essential commodities, their hoarding and frequent increase in the tariffs of utilities that have made miserable the life of the common people in the country. The critics also say that before the announcement of the budget the rulers had pledged to impose taxes on the elite class, but in the new budget the government had targeted the fastest-growing telecom sector and the consumers by increasing federal excise duty and the slab of sales tax from 15 to 16 per cent. In the new budget the government would raise Rs 77 billion through additional tax measures and a major chunk of this tax revenue would come from sales, excise duty and increase in tax rate on imports. Meanwhile, the government had slashed the quantum of subsidies by Rs 112 billion, to Rs 295 billion in 2008-09 as against Rs 407 billion in 2007-08. A huge cut in subsidies and increase in the rate of sales tax and excise duty at a time when the consumers are already facing the worst-ever wave of price hike and inflation, would certainly hurt the consumers in next financial year and it would erode purchasing power of the people and trigger more poverty. The proponents of the new budget say that increase in the amount of subsidy on DAP fertilizer, tax relief on fertilizers sale, 20 per cent increase in salaries, and pension of the government employees would benefit the farmers and employees. They, however, said that the government's financial support of one thousand rupees a month to a family under the Benazir Programme was a mockery of the poor people, wastage of the official funds and it would not help in providing real relief and support to the deserving families. What the poor families could buy with mere one thousand rupees financial support from the government in a month, argued a capital market analyst. He said the government should have announced 2500 to 3000 rupees per month relief for one family selected under the programme. Meanwhile, JOVC Report on new budget said the new government has decided to take the economic growth on a completely different path altogether leaving the services sector aside for a while. Accordingly, Finance Minister in his speech emphasized through his pro-agriculture policies that now is completely different game plan. Many incentives have been announced to improve the productivity of the agriculture and industrial sector that faced its worst times during the outgoing year. About 113 percent increase in DAP subsidy, tax relief on fertilizers and pesticides, agriculture credit, national commercial seed program underscore its focus. High zest to keep the industrial sector afloat was also reflected in the budget primarily the textile and power sectors with zero rating of duties for many raw materials for the former while a hefty allocation of Rs 66 billion was made to compensate the latter. However it is believed that services sector would be adversely affected not only due to increment in FED on banking and insurance but hike in NSS rates would turn out to be the biggest nightmare for the financial services. The JOVC Report further said that considering the sky rocketing prices levels prevailing in the economy ignoring the social aspect from the budget would have been highly unjust. Although the present government has been very famous for its much publicized party manifesto favoring the poor but everything looks good on paper until it is implemented. The government has announced various relief measures for the lower income group in the budget by increasing the minimum wage rate to Rs 6000 versus Rs 4000 while a 20 percent raise has also been announced in pensions and salaries of federal government employees and for defense services. Although these measures would compensate for the burgeoning inflation but at the same time it would improve the purchasing power and thus keep basic demand intact. Other programs like food support through Benazir cards aim to meet the growing need of relief for food inflation. Since the country was heavily relying on the much needed foreign direct investment for past few years to plug in the fiscal gap thus the need for increasing the revenue base wasn't really felt but now when that support has been eroded, thanks to the uncertain environment, the government is in a pure fix as expenditures are becoming uncontrollable. Like many previous governments, the finance minister emphasized on lower tax to GDP ratio of 11 percent that should be improved by shifting the focus from indirect to direct taxation and broadening the tax net. Hike in GST would trigger inflation: In its efforts to improve the revenue side, the government has increased the tax collection target of FBR to RS 1025 billion up by 25 percent. To achieve this goal taxes rates have been increased with GST and Federal Excise duty up by 1 percent to 16 percent. FED on cement has also been increased from Rs 750 per ton to RS 900 per ton while increasing the FED on services from 15 percent to 21 percent has also been proposed. It is believed that this would create a significant inflationary impact, as these companies would eventually transfer the prices to the end consumer who is already bearing the burden. Another very important decision has been made regarding increasing the import duty on 300 luxury items that are non essential, from 30 to 35 percent which was highly imperative under the current situation with CAD already touching 7 percent of GDP. Additionally, custom duty on imported cars with 1800cc and above capacity has been increased from 90 percent to 100 percent. Looking at the direct income tax, the government has provided relief by increasing the basic exemption from Rs 150,000 for salaried taxpayers to 180,000 rupees for males while the slab has been raised to 240,000 rupees for females. In terms of utility bills industrial and commercial consumers would now pay an advance tax of 20 percent for electricity bills exceeding 20,000 rupees per month that would be adjusted from final tax liability. This is a good way to bring more people under the tax bracket. With massive shifts in the economic picture of the country the size of the budget has also been raised to Rs 2.01 trillion in order to deal with growing challenges faced by the economy. Although this is roughly 29.7 percent higher compared to last year's budget size but we believe it's justified keeping in mind growing inflation and rising expenditures on the subsidy side. As per the composition presented by the Ministry current expenditures constitute a hefty chunk of 73 percent in the total pie amounting to Rs 1.49 trillion down by 1.5 percent YoY while PSDP would take the rest 27 percent worth Rs 550 billion in the upcoming fiscal year. In any developing economy, the allocation of PSDP in any budget becomes the most crucial facet for the well being of the country. It goes for Pakistan as well and the need is more pronounced when prices of every other commodity are becoming fiery day by day. However these subsidies had an adverse impact on the fiscal deficit as they were piling up very quickly. The subsidies, totaling Rs 407 billion include; petroleum Rs 175 billion; electricity Rs 133 billion; wheat Rs 40 billion, and textiles and fertilizers Rs 48 billion, of which only Rs 114 billion were provided in the budget. Although the government has increased the PSDP allocation by 20 percent as compared to last year despite many issues with the fiscal deficit but the expected "rationalization" of subsidies give a clear indication regarding a potential cut in the current subsidy packages with oil differential topping the list. Nonetheless the government has provided the following allocation for subsidies for some of the major sectors primarily fertilizer providing a DAP subsidy of Rs 100 per bag from Rs 470 previously given. Additionally other relief measures to industrial sectors in the form of duty exemptions on raw materials have also been announced. Agriculture sector: Although Pakistan Peoples Party has always been very focused on uplifting the agriculture sector but this time this emphasis became more pronounced that was evident in the subsides and relief measures announced for the agriculture sector. The biggest advantage would be in the form of hike in DAP subsidy that would improve the farmers' capacity to use balanced fertilizer and improve crop yield. This would eventually increase the production levels and enable the country to export its crops. Additionally, wheat support prices have also been increased from Rs 510 per 40 KG bag to Rs 650 per 40 KG bag thus encouraging the farmers to grow more wheat and the current crisis would be eliminated. Other measures like additional allocation of agriculture credit to the tune of Rs 30 billion have also been announced. While there has been complete exemption of sales tax on all the fertilizers and pesticides to improve productivity. LSM fetches good support: As far as the industrial sector is concerned power and textile sectors stand out in terms of the benefits derived from the current budget. Keeping in mind the power shortages prevailing in the country with an estimated shortage of 4500 MW in peak hours the government has announced a cumulative allocation of Rs 66 billion for power sector and it pans to increase the capacity by 200 MW in order to reduce the burgeoning demand and supply gap. Textile sector would benefit greatly from zero rating of duties on molasses being raw material of acetic acid and zero rating of caustic soda, cotton linter and sequins that are primarily used in manufacturing of textiles. It is expected that the synthetic fiber sector benefit from reduction in import duty on PSF and PTA to 4.5 percent and 7.5 percent from its previous levels of 6.5 percent and 15 percent respectively. These chemicals are also being used in chemicals industry so benefit would also trickle down there as well. However, the picture is not so rosy for cement sector as the excise duty on cement has been increased from Rs 750 per ton to Rs 900 per ton. Services sector: Stringent regulatory measures, declining consumption patterns and slowing economic growth have all worked against the said sector and then came the budget to further aggravate the situation. Although we weren't expecting a highly favorable policy for the budget but strict measures like increasing the FED rate from 5% to 10% for banking and insurance sector would jolt their earnings to a large extent. Highlights of the budget FY08-09: Total Budget outlay of Rs 2.01 trillion Revenue collection target for FBR for FY09 has been increased to Rs 1250 billion up by 25 percent as compared to last year's revised target of RS 1000 billion From the cumulative outlay, current expenditure would take a hefty chunk of Rs 1493 billion while PSDP would take an amount of Rs 550 billion registering a change of 1.5 percent and 20 percent respectively Fiscal deficit is estimated to be curtailed at a level of 4.7 percent GDP growth rate would slow down to 5.5 percent during FY09 Current account deficit would hover around 6 percent of GDP Inflation rate would loom at a yearly rate of 12 percent in the upcoming fiscal Foreign Exchange reserves which are shrinking would be improved to a reasonable level of USD 12 billion GST has been increased from 15% to16% Estimates of privatization proceeds are Rs 25 billion Income tax exemption slab has been increased from Rs 150,000 to Rs 180,000 per annum for males while a new slab of Rs 230,000 has been implemented from the previous level of Rs 200,000 for females Focus on plunging the fiscal gaps by offering commercial papers, savings schemes at attractive pricing to lure investments Hike in NSS rates by 2 percent.