Hina Khar presents Rs 2.48tr outlay, estimates

[Naveed Yaseen]

722.5bn deficit, Rs 1.37tr revenue and 3.3% GDP growth rate

Budget to save failing economy

* Govt employees and pensioners get relief
* No additional taxes on industry
* Cell phones made more affordable
* Capital value tax on property at 4%, income tax ceilings increased

By Sajid Chaudhry

ISLAMABAD: The much-anticipated ‘people-friendly’ budget for the fiscal year 2009-10 – with a total outlay of Rs 2.48 trillion – was presented on the floor of the National Assembly on Saturday. Minister of State for Finance Hina Rabbani Khar also made history, becoming the first woman in Pakistan’s history to present the budget.

With revenue receipts estimated at Rs 1.37 trillion, the budget envisages a total deficit of Rs 722.5 billion, 4.9 percent of the gross domestic product (GDP).

To meet this deficit, Rs 264.9 billion in external financing and Rs 457.6 billion in expected internal financing will be used.

The government also expects external inflows of nearly Rs 178 billion in commitments made during the Tokyo Donors Conference.

A growth rate target of 3.3 percent has been set, and an overall consolidated expenditure of Rs 2.89 trillion (including federal and provincial budgets) is expected. Khar said the tax to GDP ratio would be improved by 0.6 percent in the next fiscal year.

During FY2009-10, real GDP growth is expected to stay at 3.3 percent and may stay between 4 and 4.5 percent during fiscal years 2010-11 and 2011-12, respectively.

Relief: Government employees have been promised ad-hoc relief of 15 percent from July 1 and a 15 percent increase in retired government employees’ and armed forces personnel’s pensions has also been announced. The president has already announced an increase in the allowance (equal to one month’s basic salary) of existing armed forces personnel.

Income tax: The income tax ceiling for working men has been increased to Rs 200,000. The exemption limit for working women now stands at Rs 260,000. Senior citizens will now get a 50 percent exemption on their tax liabilities if their income does not exceed Rs 750,000.

Taxes: Khar told the House that except tobacco, the government has not increased taxes on industries, and had included several industrial incentives in the budget.

These include a 5 percent cut in excise duty (CKD) to support automobile manufacturers and vendors; a proposed reduction of Rs 200/tonne on cement; the abolition of a Rs 250/unit regulatory duty on cellular phones; slashing the Customs duty from Rs 500 to Rs 250/unit.

The excise duty on cellular service providers is also being reduced from the existing 21 percent to 19 percent; SIM activation charges have been reduced from Rs 500 Rs 250.

The tax-credit limit on donations by companies is also being increased to 20 percent. Several services are also being brought under the Federal Excise Duty net to widen the tax base.

These include fees on banking services, import cargo handling, stockbroker’s fees, insurance companies’ fees and fees charged by media outlets for advertisements.

The withholding tax on import of trade goods is being increased to 4 percent, and the capital value tax on property is being raised to 4 percent.

It has also been proposed that in order to raise money for internally displaced persons, a special 5 percent tax will be levied on people with an annual income of over Rs 1 million. Corporate sector employees earning more than Rs 1 million/annum will also have a 30 percent tax imposed on bonuses.

Industry and agriculture: The budget also includes a number of measures to promote Pakistan’s ailing industrial sector.

These include prioritising the provision of gas and power and a phased reduction in the cross subsidies on power and gas prices for the benefit of the industrial sector. Large export houses will be established to support the export sector and special economic zones will also be developed on priority-basis.

The state minister said in her budget speech that special attention has been paid to the agricultural and industrial sectors in order to speed up economic growth. The government’s agriculture policy aimed at ensuring food security; creating jobs and enhancing farm profitability and competitiveness by maximising the existing productivity potential of various crops.

The government will also work to develop new technologies for the productive use of water, and promote production and export of high value crops.

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