The budget 2009-10 is expected to deliberate on Pakistan's long-standing structural issues, led by the tough performance and qualitative criteria set by the IMF, analysts said.
This includes elimination of electricity subsidy, resolution of circular debt, tax administration & policy action plan (including merger of income & sales tax department, carbon tax & introduction of VAT) and lastly, formation & activation of single treasury accounts, a pre-budget research report by JS Global Capital said.
Unlike the outgoing fiscal year, the government of Pakistan's ability to finance budget deficit will be better placed, driven by commitments from Friends of Pakistan and international financial institutions (IFIs). Resultantly, the financing mix will shift from domestic sources to external. This should take the pressure off bank borrowing. The subsidies on fuel and electricity will be eliminated. The GoP had budgeted Rs 295bn worth subsidies for FY09, which is likely to decline in FY10.
However, subsidy to agriculture sector is expected to continue even in FY10. Higher Public Sector Development Programme (PSDP). Recent IMF approval for counter-cyclical policies to accommodate the recent external flows commitment will stimulate the PSDP allocation for next fiscal year. In FY09, the GoP slashed its development budget massively, due to constraint financing options. The report said that the Advisor to PM on Finance Shaukat Tarin has called next budget as - pro-growth, poor and markets. "We also view the next budget as positive, even in the presence of the IMF's looming tax threat," it added.
The reasons why we are positive are as follows:
-- Status quo for Capital Gains Tax (CGT) and turnover taxes.
-- No change likely for corporate and dividend tax.
-- Some relief to cement companies likely through excise duty cut-down.
-- Reduction in WHT along with abolishment of excise duty on auto sales.
-- Fertiliser subsidy and higher agri-credit targets to prompt agriculture growth.
-- Proposed reduction in GST and mobile activation charges for telecom sector.
As this budget will be supervised by the IMF, the report revisited the IMF notes and extracted the key highlights and recommendations regarding taxes, which are as follows:
-- Imposition of carbon taxes on sale of petroleum products.
-- Introduction of VAT and elimination of zero-rated sales tax.
-- Taxes on services sector, agriculture and real estate sector.
-- To enhance the tax base, a concept of gross asset tax is also likely to be proposed.
"Things are positive on the market, however, sector-wise it is expected that OMCs and cement would stage a strong recovery," the report said. The budget FY10 is likely to be a non-event for E&Ps, power, oil & gas marketing and financial sector. However, it is likely to carry good news for cement, auto and fertiliser sectors, the report said.
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