Sindh Budget

Sindh Senior Minister Syed Sardar Ahmed presented a Rs 193 billion budget for fiscal 2006-07 on 15th July, showing a surplus of Rs 302 million, with total receipts estimated at Rs 193.4 billion. It was for the first time that the provincial government managed to propose a surplus budget as, according to the Minister, a successful effort has been made to cut down non-development expenses.
General revenue receipts were estimated at Rs 147.6 billion, 16.3 percent higher than the revised estimates of the outgoing year, while the budget proposed revenue expenditure at Rs 139.2 billion and a record allocation of Rs 50 billion for development expenditures.
The Annual Development Plan (ADP) was increased by 33 percent to Rs 32 billion, comprising Rs 24 billion for the Provincial ADP and Rs 8 billion for the District ADPs. The break-up showed that the divisible pool tax transfers were estimated at Rs 63.5 billion, and federal grant in aid at Rs 5.8 billion. Straight transfers were set at Rs 37.9 billion against revised estimates of Rs 37.1 billion for the current year, and the district support grant was fixed at Rs 18.6 billion.
The province's own receipts were estimated at Rs 22.8 billion as against the revised estimates of Rs 18.4 billion for the current year. As for the allocations under general revenue expenditures, Rs 21.1 billion are earmarked for general administration, Rs 17.8 billion for law and order, Rs 3.5 billion for community services, Rs 19.4 billion for social services and Rs 10.3 billion for debt servicing.
The Minister added that according to the new N.F.C formula, the overall share of provinces in the net proceeds of divisible pool had been raised from 37.5 percent to 41.5 percent for the coming year and would annually increase by one percent till it reaches 50 percent.
No new taxes were announced by the Finance Minister, while several tax rationalisation measures and relieves were proposed. The salaries of Sindh police force were proposed to be at par with Punjab police and Rs 500 million was allocated for the purpose in this budget.
As expected, 15 percent dearness allowance was given to serving employees; and 20 percent increase will be provided to pensioners who retired prior to May 31, 1977, and 15 percent to those who retired after this date. Stamp duty on allotment order or transfer of allotment order issued by a developer/builder or a co-operative society for all kinds of residential and commercial properties, is proposed to be abolished.
This will simplify the allotment process. However, it will have a nominal financial impact. Stamp duty on mortgage deed with or without possession is being reduced from 5 to 3 and from 4.2 to 2 percent respectively to bring it at par with stamp duty on conveyance.
This reduction will encourage people to register transfers and sales as well as mortgage. While the reduction is welcome it does not address the real issue of documenting the sale on real value instead of present registration practice at depressed values.
In the absence of wealth tax and exemption on capital gain on properties, there is no earthly reason not to register the transactions on real value. The only obstacle appears to be the fear of revealing one's non-tax paid earnings. This calls for an amnesty, which the Federal Government needs to grant.
It will induce everyone to declare true valuation of properties (including 'benami') in their own name. Future transactions should attract a nominal capital gain tax. It will provide provinces/local councils additional revenue.
The other alternative would be for provincial authorities to raise the registration value (DC Value) close to real market value. Abolition of stamp duty on registration of new companies will facilitate greater registration in the province.
Stamp duty on power of attorney for sale of immovable property is being reduced from 5 to 3 percent. Wide usage of irrevocable power of attorney to avoid registration of transactions needs to be checked through imposition of a time limit.
An important initiative is setting up of a Small Dams Corporation for construction of small dams. This will serve to allay, to a considerable extent, the misgivings in the province about the construction of dams in the upper riparian region.
Providing Drip and Sprinkle system to farmers at 20 percent of the value will indeed help in overcoming water scarcity. Establishing Cattle Colonies with modern facilities is another important measure for development of milk and dairy products.
For female education, besides the Rs 1000 for all girls in classes five to 10, a new policy has been devised for low-income districts/talukas, for which Rs 500 million have been allocated. A remote areas allowance to primary school teachers posted in rural areas has been announced to bring their salary scales at par with teachers posted in urban areas.
The agriculture budget has been increased by 103 percent, while the interests of fishermen are also to be protected by providing infrastructure facilities etc.
The Minister took credit for retiring Rs 13.7 billion federal and State Bank loans over the past few years.
Overall, the Sindh Budget seems to be well balanced and proposes to cater for the needs and aspirations of those sections of the population who really deserved the government's attention. Tax rationalisation measures have also been proposed in the same spirit.
Relief has been provided where it was due and allocations have been increased markedly in high priority areas. Another healthy feature of the budget is the urge to avoid deficit financing and reduce the level of overdraft. This would definitely improve the province's finances and reduce the debt burden and debt servicing liability overtime. Other provinces also need to follow the example of Sindh in this respect.
However, we would advise the Sindh government to make additional efforts for resource mobilisation to meet its current and development expenditures. The province's own receipts at Rs 22.8 billion appear to be inadequate for its requirements.
Unfortunately, this trend prevails in all the provinces, which is against the very spirit of federalism. Provinces always try their utmost to get a better deal from the Federal Government but do not make substantial efforts themselves to increase to their own revenues.
Another unfortunate aspect is that the funds allocated for a specific purposes are not spent effectively with the result that there is no improvement on the ground even after increasing the spending level several fold.
The most glaring example of this a tragic shortcoming was witnessed on the very budget day when higher allocations for police force were again being proposed and several terrorists were gunning down a police party, not far away from the Assembly building.
Imposition of capital value tax on real estate business will not be very rewarding. A better option would be a capital gains tax, of a nominal amount, collected by the provincial government. In the last few years there has been a boom in property prices in the province.
However, it has not contributed any additional revenue to the provincial exchequer. A still better alternative could have been to authorise local governments to benefit from this windfall to meet their expenditures on education, health and roads.