The federal budget for the next fiscal year announced by Finance Minister Ishaq Dar provides incentives to real estate investment, agriculture/manufacturing sectors as well as business community with enhanced rates of withholding taxes on non-filers of returns. The Finance Minister in his two-hour-long speech in a lacklustre sitting of the National Assembly mostly focused on government''s performance and promised to increase investment to GDP ratio to 16.5 percent, reduce debt to GDP ratio within the limit of the Fiscal Responsibility Act in the medium and sought appreciation by desk thumping from the opposition for raising Benazir Income Support Programme (BISP) to Rs 102 billion.
5.5 percent growth target set:
The Minister faced criticism from the Opposition leader for announcing a 7.5 percent ad hoc relief for government employees. Dar said the government was facing fiscal constraints and thus announced a 7.5 percent ad hoc relief allowance on running basic pay to all federal government employees and merger of Ad-hoc increases of 2011 and 2012 in the pay scales. The government announced an increase in medical allowances of government employees by 25 percent and allowed a 100 percent increase in rates of special pay to Senior Private Secretaries, Private Secretaries and Assistant Private Secretaries as well as rate of orderly allowance and special additional pension was also increased to Rs 12,000 per month. He also announced a 7.5 percent increase in pension to all pensioners of federal government and medical allowances of pensioners by 25.
The Finance Minister announced a federal outlay of Rs 4,451 billion for the next fiscal year with gross revenue estimated at Rs 3,103 billion. Fiscal deficit for the next fiscal year is projected at 4.3 percent (Rs 1328 billion) after excluding Rs 297 billion provincial surplus. The share of provincial governments out of these taxes will be Rs 1849billion and net resources left with the federal government will be Rs 2463 billion. The current expenditure is estimated at Rs 3128 billion for 2015-16 with defence allocation of Rs 780 billion, reflecting an increase of 11 percent against Rs 700 billion for the current fiscal year. Public Sector Development Programme projected at Rs 700 billion against a revised estimate of Rs 542 billion for 2014-15, showing an increase of nearly 29 percent.
Dar announced that the government plan is to raise GDP to gradually rise to 7 percent by 2017-18, contain the inflation to single digit, raise investment to GDP ratio to 20 percent at the end of medium term, reduce fiscal deficit to 3.5 percent and increase tax to GDP ratio to 13 percent as well as to maintain foreign exchange reserves to $20billion. Targets for the next fiscal year: The GDP growth for 2015-16 is targeted at 5.5 percent on the assumption of a 3.9 percent growth by agriculture sector, 6.4 percent by industry and 5.7 percent by services sector. Cumulative development spending is targeted at Rs 1513 billion with federal PSDP share of Rs 700, he added.
Dar announced an increase of only Rs 2 billion in Pakistan Bait-ul-Mall allocation and stated that a project for Universal e-telecasters of Rs 12 billion has been approved to establish telecentres in 217 sites across Pakistan and Rs 2.8 billion to connect 128 Tehsils with optic fiber.
The government announced a credit guarantee scheme for small and marginalized farmers up to 100,000 through the State Bank of Pakistan guarantee to commercial, specialised and micro finance banks for up to 50 percent loss sharing. Total disbursement under this scheme will be Rs 30 billion while the government will have a contingent budget cost of Rs 5 billion. He said that the government plans to take the agriculture credit to Rs 600 billion and Interest free loans for solar tube wells in the next fiscal year as well as an increase the Value of Production Index Units (PIU) to Rs 3000.
Dar said that the Prime Minister''s Health Insurance Scheme would be launched in 23 districts with the premium cost of Rs 9 billion for 2015-18 and mark-up rate of Youth Business Loans (PMYBL) Scheme for borrower was reduced from 8 percent to 6 percent and Rs 2 billion and Rs 2 billion was allocated for execution of Prime Minister''s Special Schemes.
The Finance Minister added that the government has decided to increase rate of Capital Gains Tax (CGT) from 12.5 percent and 10 percent to 15 percent and 12.5 percent, respectively, and decided to tax the securities held for a period of more than 2 years and less than 4 years, though at a reduced rate of 7.5 percent.
Dar further stated that the rate of tax in the case of non-filers was increased for contractors by 3 percent, suppliers by 2 percent and commission agents by 3 percent. The government also proposed that adjustable advance income tax at the rate of 0.6 percent of the amount of transaction may be collected on all banking instruments and other modes of transfer of funds through banks for those who do not file income tax returns. The income of banks from all sources is proposed to be subjected to 35 percent income tax.
The government also increased tax on dividend for non-filers from 15 percent to 17.5 percent; however, 5 percent would continue to be adjustable. Advance adjustable income tax at the rate of 0.1 percent tax on each transaction would also be collected on every purchase and sale of futures contract.
-- The government reduced threshold of adjustable advance income tax rate of 7.5 percent on domestic electricity bills above Rs 100,000. to Rs 75,000 and imposed 10 percent withholding tax on renting out machinery and for use or right to use commercial, scientific or industrial equipment, in case of residents also, and be treated as final tax liability. It is proposed that in the case of a public company other than a scheduled bank or a modaraba, which does not distribute cash dividends within six months at the end of the tax year or distributes dividends to such an extent that its reserves, after such distribution, are in excess of 100% of its paid up capital, the excess amount may be taxed at the rate of 10 percent.
-- The government also proposed a one-time tax on the affluent and rich individuals, association of persons and companies earning income above Rs 500 million in tax year 2015 at a rate of 4 percent of income for banking companies and 3 percent of income for all others for rehabilitation of TDPs. The government announced a reduction of Tax Rate for Companies to 32 percent, exempted profits and gains derived from Transmission Line Projects for a period of 10 years and enhanced tax credit for new investment in shares from one million to 1.5 million and tax credit for enlistment of a company from 15 percent to 20 percent.
The government announced that it has reduced the withholding tax on token tax and transfer of vehicles to 20 and in the case of income tax returns filers and adjustable advance income tax to 75 percent and for non-filers by one third. Tax on earning taxable income from Rs 400,000 to Rs 500,000 has been reduced to 2 percent and for non-salaried individual taxpayers and Association of Persons earning taxable income from Rs 400,000 to Rs 500,000 are chargeable to 7 percent.
The peak customs duty slab was proposed to further reduce from 25 percent to 20 percent and federal excise duty on cigarettes was increased from 58 percent to 63 percent. Rates of further tax has been enhanced to 2 percent and there will be a 100 percent increase in sales tax payable on various categories of imported mobile sets. Federal Excise duty on Aerated waters increased to 12 percent. The government also decided to give special incentive packages to the Construction, Agriculture, Manufacturing and Employment Generation Sectors, he said, adding that certain items are only exempted from Sales Tax and Customs Duty on import if they are not locally manufactured. However, import of Solar Panels and certain related components was exempted from this ''local manufacturing'' condition until 30th June 2015. It is proposed that exemption from Sales Tax and Customs Duty in this manner may be extended for one year to 30th June, 2016. It was also proposed to grant exemption, for 5 years, to industrial undertaking engaged in the manufacturing of equipment, plant and items required to produce solar and wind energy. The Finance Minister stated that for new industrial undertakings engaged in setting up and operating cold chain facilities, and setting up and operating warehousing facilities for storage of agriculture produce may be granted Income Tax holiday for 3 years if they are set up before 30th June, 2016. Finance Minister stated that Customs Duty and sales tax in respect of items used in Aviation Sector may be exempted like aircraft - whether imported or leased, maintenance kits for trainer aircraft, spare parts for use of aircraft, trainer aircraft and simulator, one time import of Machinery, equipment & tools imported by recognised Maintenance, Repair & Overhaul company, operational tools, machinery, equipment and furniture & fixtures on one time basis for authorised Greenfield airports and aviation simulators by recognised airline company. Infrastructure connectivity with major economic hubs is key to economic development of a region. Some areas of the country having great economic potential are however located far from existing major economic routes. In order to open up remote areas through aviation links it is proposed that air routes in Gilgit-Baltistan, the Makran Coastal belt, Azad Jammu and Kashmir, Chitral and FATA be exempted from payment of FED and withholding tax.
He said that the energy sector would continue to remain a priority with an allocation of Rs 248 billion for the next fiscal year to add 10600 MW to the system to end load shedding. Water sector would get Rs 31 billion in the PSDP and Roads and Highways Rs 182 billion. He said the HEC would get 51.5 billion and Railways Rs 78 billion. Finance Minister also promised that sincere efforts would be made to increase allocation for education to 4 percent by 2017-18. The government has also allocated Rs 20 billion as part of the MDGs for undertaking small development schemes in the fields of health, education, small roads linking farms to markets, spurs and small dams, being selected and implemented by the provincial governments with the participation of community representatives.
China-Pak Economic Corridor: Pakistan and China have jointly signed projects worth about $46 billion and Keeping in view the significant role Gwadar, the government allocated Rs 3 billion in the next fiscal year for New Gwadar International Airport, Rs 2 billion for Gwadar Development Authority and Rs 3 billion for necessary facilities of water treatment, supply its distribution in Gwadar.
"Pakistan is poised to grow at an accelerating pace. At this stage of transition we need to consolidate recent gains, hasten the process of reforms and take required measures to enable some of those sectors that have not performed as per expectations. In this section I will confine to the last of these objectives as I have already dealt with the other two. I now outline some of the measures we propose in the budget for enabling those sectors to perform to their potential. Measures for exports promotion: Dar said that mark-up rate on export finance would be further reduced to 4.5 percent from July. 1 2015 to promote exports, and long term financing facility for 3-10 years would be further brought down to 6 percent." He said that more measures in this regard would be announced in the trade policy by the Commerce Ministry.
The Finance Minister also stated that fiscal incentives would be provided to entice private investment through promoting public private partnerships, FDI and by creating special economic zones to boost economic growth.
Finance Minister said under the Textiles Policy 2014-19 a financial package of Rs 64.15 billion has been approved in order to double textiles exports and create 3 million additional jobs by the year 2019 and a benefit of drawback of local taxes & levies scheme would remain available for the textile exporter in the next fiscal year. They would be entitled to the drawback on FOB values of their enhanced exports if increased beyond 10% of their previous year''s exports, as per 4 percent for garments, 2 percent made ups and 1 percent processed fabric.
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