Sindh Budget

Chief Minister Sindh, Syed Qaim Ali Shah unveiled a Rs 686.2 billion budget for the fiscal year 2014-15, with a deficit projected at Rs 14 billion and slight or no adjustments in the existing tax rates. The proposed budget is Rs 136 billion or 24 percent higher than the outgoing fiscal year's revised budget estimate of Rs 550.2 billion. Total revenue receipts of the province are estimated at Rs 672.1 billion while overall expenditures are proposed at Rs 686.2 billion. Under the revenue assignment, estimated revenue receipts from Federal Divisible Pool stand at Rs 381.4 billion, which are 24 percent higher than the revised estimates of the current year. Receipts under Straight Transfers are also estimated at Rs 82.6 billion or Rs 10 billion higher than FY14. On expenditure side, Rs 436.1 billion have been allocated for current revenue expenditures as compared to revised estimates of Rs 368.4 billion for 2013-14 while Rs 215.4 billion have been estimated for development expenditures including Rs 168 billion of the provincial ADP and Rs 24.9 billion worth of foreign project assistance. The Chief Minister, who also holds the portfolio of Finance Minister said that the major reason for sharp increase in the estimated revenue expenditures during FY15 was increases in the wage bill, non-salary budget of education and health departments; allocation for payment of electricity dues and grants and subsidies for public utilities and universities. As for the revenues, Chief Minister revealed a plan to improve the performance of tax administration and enhance the capacity of the government, which envisaged setting up a Tax Reform Unit in the Finance Department to maintain linkages with tax collecting agencies, legislatures, academia and other major stakeholders. A major surprise was the reduction in provincial ADP to Rs 168 billion during FY15 from the budget estimate of Rs 185 billion in 2013-14 but this was probably done in view of the lower revised estimate of Rs 115 billion under this head during the outgoing fiscal year.
Coming to the individual tax measures, sales tax on services was proposed to be reduced from 16 percent to 15 percent. Qaim Ali Shah claimed that this step would provide a substantial relief to taxpayers and citizens. However, sales tax would now also be applicable to technical, scientific and engineering consultants, tour operators, manpower recruiting agents, share transfer agents, property dealers, fashion designers, interior decorators, rent-a-car, automobile dealers and laundries and dry cleaners. A reduced concessionary rate of 5 percent would also be applicable on costly services provided by educational institutions, doctors and laboratories. It was proposed to revise stamp duty in certain cases and levy stamp duty on the value of both immovable and moveable property. Owners of open plots would also now pay stamp duty at the rate of one percent. Besides, transfer fee on motorcycles and commercial vehicles as well as lifetime tax on motorcycles and scooters was enhanced.
Although the Sindh Budget for FY15 would appear to be a routine one and devoid of any major initiative, yet it would not be appropriate to disregard some of its peculiarities altogether. According to the Chief Minister, priority areas for the government for budget were improved service delivery; peace and security through investment in law and order, education, improved healthcare, energy generation, infrastructure and development of agriculture, livestock and fisheries. These are, of course, the areas which need utmost and immediate attention in the current circumstances and government has allocated higher level of funds for utilisation in the relevant departments. For instance, allocation for maintenance and rehabilitation of existing infrastructure has been increased by 58 percent and for law enforcement agencies by 20 percent. Besides, a special allocation of Rs 4.65 billion has been made for the operational requirements of police while education has received highest share of resources amounting to over Rs 134 billion. This was necessary in view of the crumbling infrastructure, deteriorating law and order situation in the province and low level of educational facilities, particularly in the rural areas. Another very positive step was the commitment of the Sindh government to pay for its electricity bills for which an allocation of Rs 26 billion has been made as against the outgoing year's allocation of Rs 9.5 billion. This was important due to the worsening woes and rising debt of Wapda and KE. The establishment of a Tax Reform Unit could also yield dividends over time but to expect that efforts directed at a better tax management could increase the provincial tax receipts from Rs 91 billion to Rs 200 billion in three years' time as mentioned by the Chief Minister is overly optimistic. The reduction in sales tax rate by one percentage point could provide some relief to the consumers and improve compliance but the overall impact would only be insignificant. However, the real test of the Sindh government would be how effectively it could utilise the allocations, remove corruption, ensure security and improve the management of public funds to make a difference in the quality of life of the people in Sindh province.
On the revenue side, Sindh needs to make a greater effort to tap other sources and plug the leaks to create a fiscally sound administration. A peculiar aspect of Sindh budget continues to be the lack of any effort to tax the agriculture sector and broaden the tax net only in the urban centres of the province. In fact, while certain concessions have been proposed for the agriculture sector in the budget speech, there was no mention of the agriculture sector at all as far as its tax contribution was concerned. Understandably, this is due to strong presence of the landlords in the provincial legislature but it should not be forgotten that such a distortion of tax policy is not only against the principle of equity in taxation but would increase frustration and the sense of deprivation in the urban centres. It is time to impose a uniform tax rate irrespective of the source of income. Another distortion seems to be presentation of a deficit budget when the federal budget had stipulated a surplus of Rs 289 billion in the provincial budgets to reduce the level of overall fiscal deficit agreed with the IMF. How this contradiction will be played out during the course of the year would be interesting to watch. Finally, we fail to understand the logic of enhancing transfer fee on motorcycles and commercial vehicles when cars and other luxury vehicles have not been subjected to the enhanced tax. Such a step seems to be regressive and unjustified when there is hardly any public transport plying on the roads of cities and motorcycles have become a necessity for the common man. Also, there seems to be hardly any justification for a levy of 5 percent on expensive doctors and labs when there are hardly any facilities in the government hospitals and even poor and common people have to take their patients to such facilities in emergencies by borrowing from their friends and relatives or cutting on other expenditures. Such a measure should have been postponed till the working of the government hospitals was visibly improved.