Friday, June 14, 2013

Pakistan: Budget 2013-2014

The much anticipated budget was announced by the new Finance Minister, Ishaq Dar, yesterday in the National Assembly. Contrary to the hopes of people seeking relief, this budget will further burden the poverty-stricken masses through increased taxation and an ambitious revenue generation plan proposed by the government. The budget for the fiscal year 2013-2014 has an outlay of Rs 3.591 trillion, out of which the federal government will be left with net revenue of Rs 1.918 trillion after a transfer of Rs 1.502 trillion to the provinces under the National Finance Commission Award. The fiscal deficit, which was 8.8 percent of GDP in the outgoing financial year, is expected to be brought down to 6.3 percent of GDP, amounting to Rs 1.651 trillion by the end of fiscal 2013-14. A major chunk of this deficit according to the proposed budget will be financed domestically through bank loans and the remainder will be financed through external borrowing. The Federal Board of Revenue has been given a very ambitious target of generating Rs 2.475 trillion in revenues, which is a 22 percent increase from the current year’s expected collection of Rs 2.020 trillion. The levying of additional taxes will, it is hoped, help meet this revenue target. An increase in sales tax (GST) from 16 percent to 17 percent is expected to realize Rs 63.5 billion whereas an additional Rs 18.5 billion would be realized through federal excise duty(FED). The rate of income tax has been increased by 5 percent for those earning Rs 30 million or more per year. Overall, Rs 209 billion is expected to be raised through greater direct and indirect taxation in the coming year. However, business has been accommodated as a decrease of 1 percentin the rate of corporate tax has been proposed. The corporate tax rate currently stands at 35 percent and the government eventually plans to reduce it to 30 percent incrementally. GDP has been targeted to grow 4.8 percent in 2013-2014. As Pakistan is deeply mired in debt, the biggest component of expenditure next year will be devoted to debt servicing, a staggering amount of Rs 1.154 trillion. The next biggest expenditure item as usual is defence with Rs 627 billion, a 10 percent increase on last year’s revised estimates. The new government has allocated Rs 225 billion to combat the energy crisis. This amount will be invested in the energy sector partly through the Public Sector Development Programme (PSDP) and partly by WAPDA. It is reported that funds have been specifically allocated towards construction of additional dams, already in the pipeline, such as the Diamer-Bhasha and Neelum-Jhelum projects. In addition, the Finance Minister claimed that the circular debt which has been at the centre of Pakistan’s economic woes will be retired within 60 days. The new budget also proposes some austerity measures aimed at slashing the government’s expenditures. Ishaq Dar has vowed that a 30 percent reduction in expenditure will be implemented across the board. The number of ministries will be reduced from 40 to 28. Moreover, the Prime Minister’s Secretariat’s costs will be reduced by 44 percent. Most importantly, the new government took a bold step by freezing the secret funds at the disposal of ministries and departments in an effort to bring in transparency. In an effort to provide some sort of relief to the poor, it was declared that the Benazir Income Support Programme initiated by the previous government will be continued and the monthly stipend increased from Rs 1,000 to Rs 1,200. Despite such relatively minor reliefs, it is safe to say that the new government has increased the burden on the already crippled common man who struggles to make ends meet. The increase in indirect taxes, specifically sales tax, will contribute towards inflation. The budget seems to be pro-business and does not provide much relief to a majority of the people. The people who came out in droves and voted for Nawaz Sharif hoping that he would pull out the economy from this quagmire will be disheartened by this budget.

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