Economic Budget of Pakistan Presentation

Farid Ahmed Haroon Umar Naseer M. Junaid Umar Pervaiz

Macro Economics 3rd semester HU

Objective of budget 2010-11

1.Economic recovery Waste will be eliminated, expenditures tightly controlled, and the policy mix carefully managed for a strong and stable recovery. 2. Inflation Control The best relief package we can offer is to do whatever we can to reduce inflation. 3.Employment generation Employment generation will be an important test of our policies. Our youth, the largest segment of our population will expect this. 4. Enhancing investment In order to achieve growth, we must make Pakistan attractive for investment. Surveys of competitiveness and cost of doing business suggest that reforms need to be undertaken to improve governance and markets in Pakistan. In order to attract investment we also need to emphasize productivity and efficiency, given our limited resource availability. 5. Energy Supply a. In order to secure private sector investment in the power sector in a transparent manner, an Energy Development Fund is being established in consultation with Asian Development Bank. The proposed fund is likely to be started with seed money of Rs. 20 billion. b. In FY 2010-11, an allocation of Rs.131 billion has been made for hydel, thermal and nuclear energy projects to augment generation and improve transmission. 6. Food Security 1. Our special programme for food security and productivity enhancement for smaller farmers, covering 13,000 villages starting

with 1,012 villages in all provinces, has commenced successfully and is expected to gather momentum. 2. I would like to draw your attention to the raising of Mangla Dam, Gomal Zam Dam and Satpara Dam, which would be completed in FY 2010-11. This will substantially add to the availability of water. 3. Diamir-Basha Dam shall be launched as a mega project in FY 2010-11 which would generate 4500 MW electricity and store 6,450 MAF water. It is gratifying to share that the resettlement chapter has been conclusively settled by the Government which would now enable us to fast track this project. 7. Social protection program a. Benazir Income Support Fund: Rs 46 billion would be disbursed in the outgoing year, and we will increase the outlays to Rs 50 billion next year to benefit four million families. b. Waseela e sehat: The Government will develop innovative schemes for benefitting the poor. In this connection, a health insurance scheme (Waseelae-Sehet) has been introduced on a pilot basis to provide health insurance cover of Rs 25,000/- per family per year for hospitalization.

c. Waseela e Haq: The government is fully conscious that beneficiaries of BISP need to graduate into income earning individuals. We are designing a comprehensive exit strategy based on international best practices. Several initiatives have already been taken. For example, Waseela-e-Haq provides self employment through setting up of small businesses. Vocational training to one person of a beneficiary family is also been launched. d. Pakistan baitul maals program: Pakistan Baitul Maal shall continue to run pro-poor programmes with an allocation of Rs 2 billion.

Key point of budjet 2010-11

Total outlay of the national budget for new fiscal year 2010-11, presented at the National Assembly here Saturday is to the tune of Rs 2764 billion, 12.3 percent higher than the size of the budget estimates for outgoing fiscal 200910.

Following are cardinal features of the national budget for FY 201011:-

The total outlay of budget 2010-11 is Rs 2764 billion. The size is 12.3 per higher than the size of budget estimates 2009-10. The resource availability during 2010-11 has been estimated at Rs 2598 billion against Rs 2299 billion in the budget estimates of the outgoing fiscal year. Net revenue receipts for 2010-11 have been estimated at Rs 1377 billion indicating an increase of 1.9 percent over the budget estimates for current fiscal year 2009-10. The provincial share in federal revenue receipts is estimated at Rs 1034 billion during 2010-11 which is 57.9 per cent higher than the budget estimates for 2009-10. The capital receipts (net) for 2010-11 have been estimated at Rs 325 billion against the budget estimates of Rs 191 billion in 2009-10 indicating an increase of 70.2 per cent. The external receipts in 2010-11 are estimated at Rs 387 billion. This shows a decrease of 24 per cent over the budget estimates for 2009-10.

 The overall expenditure during 2010-11 has been estimated at Rs 2764 billion of which the current expenditure is Rs 1998 billion and development expenditure at Rs 787 billion. Current expenditure shows decline of less than one per cent over the revised estimates of 2009-10, while development expenditure will increase by 25.3 per cent in 2010-11 over the revised estimates of 2009-10. The share of current expenditure in total budgetary outlay for 2010-11 is 72 per cent as compared to 78 per cent in revised estimates for 2009-10. The expenditure on General Public Services (inclusive of debt servicing transfer payments and superannuation allowance) is estimated at Rs 1388 billion which is 69.5 per cent of the current expenditure. The size of Public Sector Development Programme (PSDP) for 201011 is Rs 663 billion. While for Other Development Expenditure an amount of Rs 124 billion has been allocated. The PSDP shows an increase of 30 per cent over the revised estimates. The provinces have been allocated an amount of Rs 373 billion for budget estimates 2010-11 in their PSDP as against Rs 300 billion in 2009-10. An amount of Rs 10 billion has been allocation to Earthquake Reconstruction and Rehabilitation Authority (ERA) in the PSDP 2010-11.

PSDP 2010-11 Following are the highlights of Public Sector Development Programme (PSDP) 2010-11, released here on Saturday: Total amount of Rs. 663 billion has been allocated in PSDP-2010-11 for various ongoing and new schemes. Out of total PSDP, the federal share is Rs. 280 billion, provincial share Rs.373 billion where as Rs.10 billion would be spent for Reconstruction and Rehabilitation of Earthquake-hit areas.

Main Allocations:-

These are the main allocation of the budjet 2010-11 of Pakistan

Rs.28423.8 million for Water and Power Division (Water Sector) Rs.15227.5 million for Pakistan Atomic Energy Commission. Rs.14565.7 million for Finance Division. Rs.13629.6 million for Railways Division. Rs.9395.7 million for Planning and Development Division. Rs.15762.5 million for Higher Education Commission. Rs.16944.5 million for Health Division. Rs.10873.7 million for Food and Agriculture Division. Rs.3220.1 million for Industries and Proudction division. Rs.5140.9 million for Education Division. Rs.5584 million for Interior Division. Rs.3887.1 million for Defence Division. Rs.3618.3 million for Housing and Works Division. Rs.3618.7 million for Cabinet Division. Rs.4115.5 million for Population Welfare Division. Rs.1646.2 million for Science and Technological research Division. Rs.885.6 million for Livestock and Dairy Development Division. Rs.1000 million for Law and Justice Division. Rs.1000 million for Environment Division. Rs.1000 million for Special Initiatives Division. Rs.1234.7 million for Revenue Division.

 Rs.623.4 million for Petroleum and Natural Resources Division. Rs.718.3 million for Information Technology and Telecom Division. Rs.1229.7 million for Defence Production Division. Rs.474.1 million for Commerce Division. Rs.149.1 million for Communication Division (other than NHA). Rs.518.6 million for Ports and Shipping Division. Rs.246.9 million for Pakistan Nuclear Regulatory Authority. Rs.152.9 million for Women Development Division. Rs.107.6 million for Social Welfare and Special Education Division. Rs.65.8 million for Labour and Manpower Division. Rs.82.3 million for Local government and Rural Development Division. Rs.125 million for Tourism Division. Rs.140.8 million for ministry of Foreign Affairs. Rs.549.8 million for Narcotics Control division. Rs.114.4 million for Establishment Division. Rs.353.9 million for Culture Division. Rs.229.6 million for Sports Division. Rs.74.5 for Youth Affairs Division. Rs.509.9 million for Information and Broadcasting Division. Rs.164.6 million for Textile Industry Division. Rs.82.3 million for Statistics Division. Rs.81.1 million for Ministry of Postal Services. Rs.15 million for Economic Affairs Division. Rs.12029.7 million for WAPDA (Water) Rs. 44637 million for National Highway Authority Rs.10523.5 million for Azad Jammu and Kashmir (Block and other projects) Rs.6584.9 million for Gilgit-Baltistan (Block and other projects) Rs.8642.6 million for FATA.

 Rs. 5000 million for Peoples Works Programme-I Rs.25000 million for Peoples Works Programme-II

Fiscal policy
The budgetary measures pertaining to Sales Tax & Federal Excise are primarily aimed at:-

Enhancing the federal excise and sales tax revenues without inducing any additional burden on the common man and poor segments of society. Distributing the burden of extra taxation measures on all sectors of the economy.

Enhancing tax incidence on cigarettes which are injurious to health.

BRIEF POINTS ON MAJOR FISCAL MEASURES: RELIEF MEASURES

o Withdrawal of restriction on adjustment of Federal Excise Duty paid on

beverage concentrate. concentrate is aimed at attracting new investment in beverage industry and reducing the prices of aerated waters in the country.

REVENUE MEASURES o Increase in the rate of sales tax from 16% to 17%.
the burden of extra tax measures on all sectors of the economy.

o Increase in rate of Federal Excise Duty on Natural Gas from Rs. 5.09 per MMBTu to Rs. 10/- per MMBTu. implementation of the NFC recommendations.

o Upward revision of Federal Excise duty structure on cigarettes. Cigarettes in different slabs is aimed at bringing tax incidence on cigarettes up to the international standards and discouraging smoking.

o Levy of Federal Excise Duty @ Rs. 1/- per filter rod of cigarettes. - per filter rod for cigarettes is aimed at realization of revenue on sale of filter rods to unregistered and illicit manufacturers of cigarettes.

o Levy of 10% Federal Excise Duty on electricity intensive home

appliances aimed at reducing the consumption of electricity and generation of some extra revenue. Enforced through amendment in Table I of First Schedule to the Federal Excise Act, 2005, effective from the 6th June, 2010.

INCOME TAX

RELIEF MEASURES

1. In order to provide relief to large number of taxpayers deriving their incomes from Salary and business, the limit of Basic Exemption is proposed to be enhanced from Rs.200,000/- to Rs.300,000/- in respect of Salaried taxpayers, while in the respect of Non-Salaried taxpayers it has been proposed to enhanced from Rs.100,000/- to Rs.300,000/-. 2. For welfare of industrial & commercial consumers of electricity, the maximum rate of advance tax deductible under section 235 on monthly electricity bills is proposed to be reduced from 10% to 5%, on the amount of the bills payable by them; 3. The Senior Citizens of the age of 60 years or more, are proposed to be eligible for relief of 50% of tax on their income, if their income does not exceed Rs.100,000/- as compared to previous maximum limit of Rs.75,000/-. However this relief shall not be available on income subject to Presumptive Tax Regime. 4. In pursuance of Prime Ministers Relief Package to rehabilitate the economy of Khyber Paktunkhwa, FATA and PATA, some amendments are proposed to be introduced in the Income Tax Law. These measures provide following reliefs to industrial and commercial taxpayers hailing from most and moderately affected areas, as prescribed: a) Waiver of entire amount of default surcharge & penalty till 30th June 2010; b) Exemption from advance tax on electricity for tax years 2010 and 2011;

c) Exemption from withholding tax on exports; d) Recovery of outstanding income tax arrears through easy installments; e) Enhancement of income tax exemption limit from Rs.0.1 million to Rs.0.3 million; f) Annual Audit with the approval of FBR; and g) Exemption from advance tax on import of plant and machinery upto 30th June 2011; However these concessions shall not be available to manufacturers and suppliers of cement, sugar, beverages and cigarettes. 5. For the wellbeing of disabled persons, 100% depreciation expense can be claimed on Ramp built to provide access to disabled persons, is proposed through a new provision to be inserted in the law. 6. In order to provide relief to employees, exemption from taxation of perquisites on waiver of employees obligation to pay or repay, and amount owed to employer, is proposed. 7. In order to facilitate the withholding agents, instead of e-filing monthly, quarterly and annual withholding tax statements, the e-filing of only quarterly withholding tax statements is proposed;

TAX INCENTIVES FOR FOREIGN AND DOMESTIC INVESTMENTS

1. For the wellbeing of listed company a Tax credit for BMR costs incurred by such a company is proposed to be provided @ 10% for the tax year of its incurrence. This concession has been proposed to be admissible for the tax years 2011 to 2015; 2. With the purpose to encourage enlistment of corporate sector, a 5% tax credit is proposed to be allowed to a company in the tax year of its enlistment. 3. In order to align with rest of the scheme, 10% withholding tax deductible on Government Securities is proposed to be a FINAL tax. 4. Withholding tax deductible on debt instruments is proposed to be a FINAL tax, in order to relieve the non-resident taxpayers of statutory requirement for filing income tax return. 5. For providing incentive to foreign lenders for tax-free repatriation of profits earned on foreign industrial loans, Clause 72(iii) of Part-IV of Second Schedule to the Income Tax Ordinance 2001 is proposed to be re-instated. 6. The maximum rate of withholding tax deductible on payments made to non-resident taxpayers who are not subject to Avoidance of Double Taxation Treaties (other than payments made on account of royalty and fee for technical services) is proposed to be @ 20% instead of 30%; 7. Honoring wide demand, the rate of withholding tax deductible @ 20% on cross-word puzzles is proposed to be reduced to a rate of 10%;

REVENUE MEASURES 1. In order to strengthen the drive for documentation, a uniform tax rate for small companies as well as AOPs is proposed @ 25% of their taxable income. 2. Advance tax deductible on imports made by commercial importers is proposed to be enhanced to @5% being a FINAL tax. 3. Tax on capital gains accruing on account of holdings of stocks/shares/securities for six-months or less is proposed @ 10%, while holdings of stocks/shares/securities exceeding six-months is proposed @ 7.5%. However no tax has been proposed on such capital gains arising held for a period exceeding 12 months. 4. In order to rationalize and simplify slab-rates provided in respect of advance tax deductible on goods transport vehicles under Item (1) of Division-III of Part-IV of Second Schedule to the Income Tax Ordinance 2001 are proposed to be abolished, and tax is proposed @ Re.1 per kilogram of the laden weight capacity of goods transport vehicle. No change has been proposed in the rate of tax on goods forwarding contracts, which remain taxable at the existing rate of 2%. 5. In order to bring clarity on advance tax deductible on Cash Withdrawals from Banks, various banking transactions including modes like withdrawals through Demand Draft, Pay Order, Online Transfer, Telegraphic Transfer, TDR, CDR, STDR and RTC, are proposed to be subject to 0.3% deduction of the advance tax, if such transactions exceed threshold of Rs.25,000/- in a single day. The advance tax is adjustable. 6. Turnover Tax on Loss Making Companies is proposed to be enhanced to @ 1%.

7. Withholding tax on gross value of Inland Air Ticket has been proposed @ 5%. Under the scheme the Inland Air-Ticketing persons shall withholding the tax, which will be adjustable against the tax liability of the purchaser of such ticket;

TECHNICAL MEASURES

1. Section 4 of the Income Tax Ordinance 2001 is proposed to be amended to include a reference regarding tax credit on account of share of profits received by a company from an AOP. 2. In order to bring clarity, expression CD appearing in Division-V of PartIV of First Schedule to the Income Tax Ordinance 2001 is proposed to be replaced by any electronic medium. 3. The mandatory requirement of Filing of Wealth Statement by the Taxpayers in FTR cases with yearly tax amounting to Rs.35, 000/- is proposed to be included in section 116 of the Income Tax Ordinance 2001. 4. For enforcing checks on non-compliant taxpayers, and to encourage compliant-taxpayers, a new section 181A is proposed to be inserted in the Ordinance. 5. In order to streamline accounting of Advance Tax payments, certain amendments are proposed in section 147 of the Ordinance, so that quarterly advance tax payments are paid by 25th of last month, as compared to earlier requirement of such payments by 15th of every month after the end of a quarter. 6. Through an editorial amendment, the reference of minimum tax on importer of edible oil and packing materials under section 148, is proposed to be incorporated in provisions referring to final tax on the income of an importer.

7. For the purposes of clarity, through an editorial amendment the reference of sub-section (1AA) of section 152 is proposed to be inserted in sub-section (2) of section 152. 8. In order to rationalize the definition of Prescribed Persons as given in sub-section (9) of section 153, an individual with turnover of Rs.50 millions or above is proposed to be added. 9. In order to perceive better audit of withholding taxes, the withholding agents shall be required to e-file quarterly statements even in the cases where no-tax was deducted. For the purpose of alignment and uniformity, the words a person collecting tax are proposed to be replaced with the words a withholding agent in sub-section (2) of section 165. 10. Editorial amendments in Section 236A of the Ordinance are proposed in order to bring clarity and remove confusion about the charge of advance tax on public auction of all kind of property including confiscated or attached goods. 11. On merger of Investment Corporation of Pakistan with Industrial Development Bank, the exemption available to ICP on dividend received from any other company is proposed to be withdrawn. 12. Exemption under clause (52) of Part-IV of the Second Schedule to the Income Tax Ordinance 2001 available to Vanaspati Ghee or Oil is proposed to be withdrawn, in view of demise of SRO. 593(I) 1991 Dated 30th June 1991.

Role of Islamic state

There is a lot to learn in the way Hazrat Umar, the rightly-guided second caliph, ruled more than 14 hundred years ago. The total area of his caliphate was around 23 lakh square miles with continuously expanding its frontiers. To rule over such a big caliphate stretched from Libya to Makran and from Yemen to Armenia, Hazrat Umar had to establish an entirely new administrative system. For the Arabs, in fact, it was for the first time that such a central government was established. Hazrat Umar believed in shura and what today we call the devolution of power. He would take no decision without the consultation of the assembly of the great Companions. Common people were also consulted on matters of special significance. He used to say: "There is no concept of caliphate without consultation". The roots of modern democracy can be clearly seen in the administration of Hazrat Umar at a time when the whole world was ruled by despotic kings and emperors Hazrat Umar divided the whole country into provinces and smaller units. He followed a very strict standard for the appointment of governors, and took particular care to appoint men of approved integrity to high offices under the state. He kept a watch over them like a hawk, and as soon as any lapse on their part came to his notice, immediate action was taken. Before assuming his responsibility, a governor was required to declare his assets and a complete inventory of his possessions was prepared and kept in record.

 He was the first ruler in history to separate judiciary from the executive. Qazis/judges were appointed in sufficient numbers at all administrative levels for the administration of justice. They were chosen for their integrity and learning in Islamic law. High salaries were fixed for them and they were not allowed to engage in trade Under his wise and courageous leadership, the Islamic caliphate grew at an unprecedented rate, taking Iraq and parts of Iran from the Sassanids, and thereby ending that empire, and taking Egypt, Palestine, Syria, North Africa and Armenia from the Byzantines. He was assassinated by a Persian free slave, Abu Lulu Fairoz, and embraced shahadat on first of Muharram, 24 Hijri.