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Pakistan Budget Speech in Urdu & English for 2012-2013 »
PART-I
Bismillahir Rehmanir Raheem
Madam Speaker
I want to start by thanking Almighty Allah for giving
me the responsibility to present the fifth budget of
the elected government. This is a historic occasion.
The nation should be proud of this achievement. The
world can see that democracy is thriving in Pakistan.
This Parliament has made landmark legislations, and
I want to appreciate the Leader of the House, Prime
Minister Yousuf Reza Gilani for making the parliament
the centre of political life of the nation. It is appropriate
that he has become the longest-serving Prime Minister
in the history of our nation. I also want to acknowledge
the contributions of the leadership of the opposition
and all the political parties, who have worked for the
success of democracy.
And I want to recognize your role Madam Speaker also.
The leadership that you have provided to this House
and that Mr. FarooqNaek provided as Chairman of the
Senate is noteworthy.
Above all, we must recognize the wisdom and sagacity
demonstrated by the President Asif Ali Zardari in leading
the country during this transition. He returned the
powers of the President to the parliament. He adopted
reconciliation in national politics. History will remember
the leadership of our times for their role in making
Pakistan strong.
In 2008, this nation began a new journey. Democracy
made a come back. The people elected this Parliament.
The rule of law was established. A President was elected
unanimously. Politics of reconciliation was introduced.
The Constitution was restored. The Judiciary has been
active. The media has been free. The Leader of the Opposition
became the Chairman of the Public Accounts Committee.
Institutions were strengthened. The provinces were empowered.
The Eighteenth Amendment gave them more authority. The
Seventh NFC Award gave them more resources. Eighteen
Ministries were transferred to the provinces. The concurrent
list was abolished. Normal political activity was allowed
in FATA. Gilgit-Baltistan was granted new administrative
status. As a nation, we have managed the challenges
of an inherited economic crisis, regional conflict,
global turmoil, and the great floods of 2010 –
this shows the resilience of the Pakistani nation. It’s
a testimony to the will of our people to overcome adversity
and realize their destiny. Let me salute the Armed Services
of Pakistan, the Para-Military and Police, the FC for
the innumerable sacrifices they
have rendered in protecting our country. Above all,
let me acknowledge the men and women of Pakistan for
their love for the country and their willingness to
work hard who make it strong.
What we inherited?
It is important that we must realize the economic situation
that this government inherited, when the people entrusted
them with this responsibility in 2008.
(1) Real GDP growth had slowed down;
(2) Headline CPI 12-month inflation had been rising
since 2006 and peaked at 25 percent in October 2008;
(3) External current account deficit 8½ percent
of GDP
(4) Fiscal deficit rose to 7.6 percent
(5) Gross reserves declined from $16 billion to $6 billion.
(6) Karachi KSE-100 index dropped by one third, prompting
exchange authorities to closedown the market.
(7) Within months, the rupee had depreciated from sixties
to the eighties.
There was no escape from starting a Fund program, which
we received as we had queued up early before countries
affected by 2008 financial crisis approached the Fund
for support. Although we have not achieved all of our
objectives, the program helped us in stabilizing the
economy. For the last nearly two years, when Pakistan
specific calamities have affected us, we managed the
economy without funding from the IMF. Rather we have
repaid $1.2 billion of the loan amount.
During the last four years, we have faced volatility
in international prices, the great floods of 2010, devastating
rains in Sindh and parts of Baluchistan and adverse
security situation. These have caused slow-down in foreign
investment. It is remarkable that our domestic businesses
have continued to perform, and also succeed in holding
on to their foreign buyers under these circumstances.
The world economic outlook remains weak particularly
in the Eurozone where considerable amount of our trade
and investment is focused. It is not clear how the Eurozone
crisis will play out. International oil prices and trade
and investment from Eurozone will be affected depending
on how this crisis is unfolded.
Despite such daunting challenges, it is the resilience
of our economy and the strength of our people that we
have maintained growth in the economy. The growth rate
in the last two years has averaged around 3.4% compared
to less than 2% in the previous two years. This is a
reasonable performance and the current year growth of
3.7% shows an upward trend.
With grace of Allah, we have succeeded in achieving
economic stabilization and are now confident that growth
will soon resume to its potential. It will now share
elements of the economy showing stability and note some
of our continuing challenges.
Economic Achievements of the Government
Madam Speaker
Our primary goal has been to stabilize the economy.
Macroeconomic stability
At the outset, let me state that Pakistan has a stable
macroeconomic framework. We have maintained a stable
external position which we have managed in the absence
of IMF disbursement during the last two years. We have
returned $1.2 billion in loans from the IMF. Yet we
have adequate reserves, our exchange rate is relatively
stable, our exports have again performed remarkably
well and our remittances are increasing. Our higher
imports are primarily due to global price oil shock
and we are not alone is facing this external challenge.
Continuing reforms
We have continued with economic reforms. Those who thought
the end of Fung program would lead to irresponsible
economic management and loss of discipline have been
proven wrong. In the last two years, we have displayed
more fiscal discipline than even in the past.
The following are the key reforms undertaken during
this period:
(1) Sales tax exemptions, except those on food items,
agriculture produce, education and medicines, have been
removed.
(2) Zero-rated regimes eliminated on domestic sales;
expanding coverage.
(3) Sales tax rate reduced from 17% to 16%;
(4) All special excise duties have been removed.
(5) 392 regulatory duties have been abolished.
(6) Major rationalization in excise duties; FEDs have
been eliminated or rates decreased.
(7) Focus of tax policy has been shifted to enforcement,
audit and diligent follow-up of court cases;
(8) Austerity in expenditures was continued for the
second consecutive year and current expenditures, other
than those for defense and debt servicing, have been
kept constant, or in some cases, brought down in nominal
terms; Civilian Government expenditure 10% than last
year.
(9) Poverty reducing and social safety net expenditures
have been increased while ensuring the targeting;
(10) Development expenditures have also been protected
and fully utilized;
(11) Public sector reforms have moved forward with the
appointment of professional managers in PIA, Pakistan
Steel Mills, GENCO, DISCOs and reconstitution of the
Board of Directors of most of these entities. More reforms
in other public sector corporations are underway;
(12) Debts parked outside budget were brought into books
and commodity debt significantly reduced.
(13) Interest rate brought down by 200 bsp by Central
Bank in response to easing of inflationary pressure.
National Finance Commission Award and its implications
One of the revolutionary steps adopted by this government
is finalization of the 7th NFC Award. It is a watershed
in federal provincial relationship. Through this award,
federal government gave a much larger share of federal
taxes to the provinces. The combined effect of divisible
pool transfers and other related grants to the provinces,
Gilgit-Baltistan, AJK and FATA comes to nearly 70% of
divisible pool. To appreciate the extent of such transfers,
note that in 2009-10 Rs.633 billion were transferred
to the provinces which have risen to Rs.1204 in 2011-12,
a doubling of the amount in two years.
This huge transfer of resources imposed major adjustment
for the federal government in the short-run. While we
grapple with this challenge, we are confident that higher
transfers will enable the provinces to provide health,
education and other services now exclusively in their
responsibility.
18th Amendment and its implications
It again goes to the credit of this Parliament for passing
the 18th Constitutional Amendment with consensus.
This Amendment has devolved eighteen ministries to
the provinces. The combination of higher autonomy and
larger resources will allow provinces to better serve
the people.
Welfare measures and poverty reduction
Despite the challenges we have faced, the welfare of
the poorest segments of population was always in our
minds. Insulating and protecting them from the vagaries
of swinging economic conditions is an important goal
of economic policy.
The flagship program of the government in this regard
is the Benazir Income Support Program (BISP). It is
a program recognized as one of the best international
practices.
The program aims at covering nearly 7 million vulnerable
households in the country for provision of Rs.12,000
per year. Women are the recipient of cash support in
the family, understandably as they are the ones managing
the households. The program has many additional features
that allow funds for training, health insurance and
small business to graduate from the program.
Apart from this, we have undertaken a number of initiatives
to broaden the social safety net programs for the aid
and support of the poor and calamity affected population.
Pakistan Poverty Alleviation Fund, Bait-ul-Maal, Citizen
Damage Compensation Program (CDCP), provision of low-mark-up
loans for affected farmers etc. are some of the programs
through which hundreds of billions of additional funds
have been provided to mitigate the sufferings of the
poor.
There are other programs of support. We are providing
electricity at one-sixth the cost of production to about
eight million lifeline families whose consumption is
below 50 units per month. Instead of paying Rs. 600
per month, they need to pay less than Rs. 100. The total
subsidy given on electricity on consumption under 700
units in a month comes to around Rs. 180 billion annually.
We are giving a subsidy of at least eight billion rupees
per year for sugar. In addition to this, are the continuing
poverty alleviation programs like the Bait-ul-Maal,
under which Rs. 1000 billion have been distributed to
the poor over the past four years.
We have been giving employment opportunities for the
educated unemployed. In the National Internship Program,
100,000 Masters Graduates were provided training in
high demand areas. We facilitated the employment of
at least 1.6 million Pakistanis abroad during the last
four years. We created hundreds of thousands of jobs
in the public sector. And, we converted thousands of
contract employees into permanent employees to give
them security.
As part of Peoples Government’s legacy, empowerment
of women has also been one of our primary concerns.
We have empowered women in several ways. During the
last four years, the parliament has passed no less than
24 bills to protect women’s rights and to empower
them.
Prices
A key objective of economic policy is to maintain price
stability. Inflation is affected by the international
oil and commodity prices, seasonality and shortages
in agriculture produce and government expenditures financed
through printing of money. In our country, much of the
inflation is either because of international prices
and supply shocks.
The explosive inflation nearly 25% in late 2008 is
now firmly behind us. There is gradual decline in the
rate of inflation during the last four years. This year
it has been brought down to 11% and we are targeting
single digit inflation for the next fiscal year. In
fact, there has been a decline in inflation for three
years in a row. Due to our austerity last year, we froze
nominal expenditure of government in the current year
the running of the civilian overnment is 10% less than
last year.
Tax collections
In the first four years of our government, tax collections
will be doubled from about Rs.1008 billion in June 2008
to nearly Rs.2000 billion in June 2012.
Much of this growth has been achieved in the last two
years, where tax revenues rose from Rs.1327 billion
to Rs.1950 billion representing an increase of 46% during
the period. Such a collection performance is unprecedented
in country’s history. This was done while reducing
the rate of sales tax, eliminating a large number of
special excise duties and nearly abolishing all regulatory
duties on imports, to facilitate production and growth.
By the grace of Allah, this performance has been achieved
by going after those who were outside the tax net, by
strengthening the enforcement regime, by massively improving
the tax administration, vigilant follow-up of cases
under litigation and carefully auditing the performance
of the withholding agents.
Agriculture
Agriculture Sector is the backbone of Pakistan economy.
Despite two consecutive floods, the sector has rendered
outstanding performance in the last two years. This
year, in particular, agriculture sector has given more
production in all the major Khareef crops, namely rice,
cotton and sugarcane, which have recorded unprecedentedly
good production.
For the agriculture sector, we have spent this year
nearly Rs.50 billion in subsides on fertilizer when
local production was not possible due to gas shortages.
We have also helped sugar growers by procuring sugar
from domestic sources. This has enabled sugar mills
to make timely payments to sugar growers. As a result
of our policies, Pakistan is now exporting wheat and
sugar.
Industry
After sluggish performance in recent years, industrial
sector has begun to record positive growth. Industry
will grow by 3.4% compared to 3.1% last year. However,
this is still below its potential as excess capacity
remains in the industrial sector which will pick up
as the economy gains further pace.
This growth has been registered despite shortages of
electricity and gas. Prominent sub-sectors where growth
has been registered are sugar, cement, automobiles,
textiles and chemicals. The government has given incentives
to industry, opened regional and international markets
and provided facilitation.
Power sector
Power sector remains a source of concern for the government.
Electricity is mostly generated through furnace oil
because of limited gas availability. Thus, the cost
of generation has risen as the international prices
of oil rise. For 18 months oil price is averaging about
$110 per barrel, unprecedented in country’s history.
We have not passed the full impact of higher cost to
the consumers and shared the burden costing us roughly
Rs. 250 billion. The total amount of subsidies to power
sector in the last five years is Rs.1250 billion. This
is a huge burden on country’s fiscal system. After
NFC award, federal resources cannot carry this burden
for too long.
Tariff subsides are not the only problem with the power
sector. There are system losses, non-collection of dues,
interest charges on delayed payments and host of management
issues. Government is undertaking reforms to set the
system right, but these are painful reforms and will
not be implemented overnight. The government has added
3500 MW to the system. Regarding hydroelectric power,
we are working on numerous projects such Neelum-Jehlum
(1000 mw), Kohala (1000 MW), Jinnah (100), Munda-Dam,
Kurram-Tangi, 4th Extension of Tarbella Hydroelectric
power station (1400 MW) which will add some 5000 MW
of cheap electricity to the national grid.
Work is in progress on Pak-Iran gas pipeline as well
as Turkmenistan- Afghanistan-Pakistan-India pipeline,
both of which will bring as much as 2 BCF gas for Pakistan.
Simultaneously, we are finalizing plans for import of
LNG that would provide another 0.5 BCF gas. Projects
in solar, nuclear, wind and Thar coal are also being
pursued.
Full impact of petroleum prices
We have also tried to give consumer relief by not passing
all the increases in international prices. Government
had to sacrifice its revenues to the tune of Rs.70 billion
to prevent prices from rising to the international level
Development expenditure
As economic growth is picking up, we have to sustain
its momentum and accordingly we are significantly raising
the overall public sector investment. This year the
National Economic Council (NEC) has approved an Annual
Development Plan (ADP) from Rs.730 billion to Rs.873
billion reflecting an increase of Rs.120 billion or
25% from last year. The federal share of ADP is planned
at Rs.360 billion, representing an increase of Rs.60
billion from Rs.300 billion last year, or 20%.
This year the entire Rs. 300 billion were released
and utilized in the Federal PSDP. At the federal level,
we have completed over 200 projects during the year
including such important projects like Chashma Nuclear,
Khan Khowar Hydro, Rainee Canal Phase-I and roads etc.
The development strategy of the Government is not to
spread available resources too thinly across numerous
projects, but to concentrate on completion of projects
to deliver benefits to the public at the earliest. The
core priorities of the Government in next year’s
PSDP include:
(1) Completion of ongoing projects
(2) Regional balance, with a focus on underdeveloped
areas
(3) Projects with welfare of women and children
(4) Infrastructural development, especially in the energy
and water
(5) Projects in higher education
I will now share with you the PSDP allocations that
have been approved by the NEC for the Next Financial
Year.
(1) Out of the total Federal PSDP outlay of Rs.360 billion,
the Government has allocated Rs.346 billion or 96% to
ongoing schemes.
(2) Rs.69 billion for power sector and Rs.115 billion
additional by federal entities like WAPDA and electric
companies.
(3) Water Sector has been allocated Rs.48 billion
(4) Rs.44 billion will be spent for the social sector.
(5) Rs.37 billion have been provided for special areas,
including FATA, Gilgit-Baltistan and AJK.
(6) Rs.16 billion have been allocated for higher education.
(7) Rs.84 billion for Transport and Communications sector
including Rs.51 billion for NHA and Rs.23 billion for
Railways.
Focus on Regional development
An important objective our development strategy is to
ensure balanced regional growth. Federal government
is responsible for special needs of Balochistan, and
all needs of GilgitBalitstan, FATA and AJK from its
own programs.
Balochistan
It is important for the Parliament as well as people
of Balochistan to know what have done by way of special
efforts to make for the past deficiencies in our obligations
toward Balochistan:
(1) The share of Balochistan was increased in the divisible
pool to 9.09 percent.
(2) In the first year after the NFC Balochistan’s
resources were doubled.
(3) The government also accepted the right of Balochistan
to the payment of Rs.120 Billion in royalty from the
sale of gas between 1954 to1991.
(4) The Federal Government is financing 11,500 jobs
for the educated Baloch youth.
In addition, the Balochistan Package also includes:
(1) Internships for 15000 youths
(2) Provision of Agriculture Tubewell Subsidy of Rs.4.00
billion
(3) Filling of 2400 vacant posts in Federal Government
(4) Regularization of all contractual employees from
Balochistan
(5) Significant share of Baluchistan in the Federal
PSDP.
Gilgit-Baltistan (GB)
(1) In 2009, the longstanding dream of a more participatory
system of governance was introduced in GB. The offices
of Governor, Chief Minister, and Ministers have been
created. A Gilgit-Baltistan Council, democratically
elected and headed by the Prime Minister, has been introduced.
(2) The financial allocation for GB has been enhanced
to bring this part of the country into the mainstream.
The block development allocation for GB has been raised
to Rs.16 billion during the period of Democratic Government.
(3) Other initiatives for GB’s development include:
• Appointment of 5,000 police officials
• 100% increase in the salaries of GB police force
• Monthly financial support for 50,000 households
under Benazir Income Support Program
• Royalty of Diamer-Bhasha Dam for local people
• PSDP mega projects worth Rs.10 billion
• Improvement of the Sust Dry Port to enhance
trade links with China
• Expansion of Gilgit and Skardu airports
• Subsidy on 150,000 metric ton wheat
• Allocation of Rs.5.5 billion for institutional
capacity-building
Federally Administered Tribal Areas
The People’s Government fully realizes that the
Federally Administered Tribal Areas are amongst the
most under-developed areas of Pakistan and that sustained
affirmative action is required to bring this region
at par with the rest of the country.
The Government is also alive to the extremely difficult
circumstances that the people of the area are passing
through. It is for the accelerated development of the
people of FATA that the Government provided over Rs.110
billion to FATA over the past four years. These allocations
also included subsidies for wheat and electricity. For
the next financial year Rs.17 billion have been allocated
in the PSDP, Rs.10 billion for power subsidy and Rs.11
billion for current spending.
AJK
In the same spirit, the People’s Government has
paid special attention to the welfare of the people
of Azad Jammu and Kashmir. Over the past four years,
the Government has provided Rs.72 billion in budgetary
and development support. For the next financial year,
Rs. 12 billion have been allocated for development and
Rs.16.5 billion have been allocated for current expenditure.
A ways and means loan of Rs.8.5 billion is in addition
to this. It must be mentioned that the Government is
also executing mega hydel power projects like the Neelum-Jhelum
in AJK, which will play a pivotal role in the development
of the area.
Remittances from overseas Pakistanis
The most outstanding support Pakistan has enjoyed is
from its expatriate community. They have remitted unprecedented
amounts in the last two years. From about $9 billion
in 2009-10 to over $13 billion this year, there is an
increase of 45% in two years.
Let me also dispel a misgiving some people have tried
to create regarding such extraordinary increase in remittances.
More than 75% of remittances are less than $500 per
month, showing the family-help nature of such transfers.
Also, we have not made any changes in foreign remittances
regulatory regime, which is the same that was framed
some 3 decades ago. However, we have set up the Pakistan
Remittance Initiative and contacted more than 300 foreign
financial institutions to participate in remittance
business and establish counter-part arrangements with
Pakistani institutions. Also, we have encouraged global
corporations engaged in money transfer business to come
to Pakistan and do business here. These initiatives
are behind the outstanding performance of foreign remittances
that have helped stabilize the Balance of Payments situation.
Imports, exports and balance of payments
Pakistan has experienced phenomenal performance in exports
in the last two years. Last year, exports increased
by 28%, crossing the $25 billion mark. This year, in
spite of global downturn, we will be able to maintain
this high level of exports. Our imports are likely to
rise 15% this year, primarily due to higher oil prices.
We had to import about 1.2 million tons of urea at a
price of more than $500 dollar per ton, costing a large
sum of nearly $700 million. This was imperative to save
our agriculture sector which otherwise would have suffered
immensely because of lessdomestic production.
We have still not received nearly $1.2 billion in Coalition
Support Fund, which had an effect both on our external
receipts as well as on the budget.
Fiscal Situation
We recognize the importance of fiscal restraint and
the need for fiscal balance. To achieve this, we have
followed austerity on the expenditure side and extraordinary
mobilization of taxes on the revenue side. However,
the policy of not passing the entire burden of oil price
increased and electricity prices and to preserve the
safety nets for the vulnerable groups, have added to
government expenditures. The reduced fiscal space, post
NFC has also curtailed government’s ability to
maneuver in the short run.
We had targeted a fiscal deficit of 4% in the budget.
However, for the reasons
outlined above, the deficit is projected to be 5.5%.
Budget Estimates for 2012-13
Let me place before the House the salient features of
the Budget 2012-13:
(1) The outlay of the federal budget for FY 2012-13
is proposed to be Rs.2,960 billion, which is 0.6 % higher
than the revised outlay of Rs.2,940 billion for the
outgoing financial year.
(2) The gross federal revenues have been estimated at
Rs.3,234 billion during FY 2012-13 as compared to Rs.2,732
billion budgeted for Financial Year 2011-12, reflecting
an increase of 18.3%
(3) FBR is expected to generate Rs.2,381 billion, reflecting
an FBR tax to GDP ratio of 10.1%.
(4) Out of federal revenue collections, a sum of Rs.1,459
billion will be transferred to the provinces under the
7th NFC Award as compared to Rs.1,203 billion during
the Current Financial Year, which means an increase
of over 21.3%.
(5) The net federal revenues are estimated at Rs.1,775
billion during Financial Year 2012-13 in comparison
to the Rs.1,529 billion budgeted in Financial Year 2011-12,
which indicates an increase of 16.1%
(6) This is expected to produce a federal budget deficit
of Rs. 1,185 billion
(7) Provincial surplus is estimated at Rs.80 billion
during Financial Year 2012-13
(8) The consolidated fiscal deficit is estimated at
Rs.1,105 billion or 4.7% of the GDP as against 5.5%
of the GDP in Financial Year 2011-12, excluding debt
consolidation of Rs.391 billion, which is 1.9% of the
GDP.
(9) Allocation to Benazir Income Support Program will
be enhanced from Rs.50 billion this year to Rs.70 billion
next year
(10) Rs.10 billion will be allocated to Export Development
Fund
Benefits for the vulnerable groups/safety nets
The Government has planned several far-reaching new
initiatives for Financial Year 2012-13 to benefit those
groups who deserve the special care and attention of
the state. Let me share some of these initiatives with
you:
A targeted subsidy on food items will be given by the
Government to help lower income consumers through the
Utility Stores Corporation. Under this scheme, BISP
cardholders will be given a special additional discount
of 10 percent at utility stores on essential food items,
including sugar, ghee, rice, dall channa, dall moong,
and wheat flour. This means that the poor will be able
to buy these items at 17 percent below their market
rates. To give the poor easy access to this concession,
the Government also plans to establish 2000 new utility
stores. The scheme is expected to bring immediate relief
to 35 hundred thousand families.
To generate job opportunities, one hundred thousand
unemployed educated youth will be given an opportunity
to work and develop their skills through internships
and technical training. Under the National Internship
Programme, 40,000 internships, in both government and
private sector organizations, will be offered to Master’s
Degree holders and another 40,000 to Bachelor’s
Degree holders. In addition, 20,000 Bachelor’s
Degree holders will be trained in skills that are in
demand home and abroad. This intervention is estimated
to cost the Government Rs.9.5 billion in Financial Year
2012-13.
The province of Balochistan and the regions of FATA
and Gilgit-Baltistan comprise the most underdeveloped
areas of Pakistan. The Federal Government is already
implementing a number of development projects in these
areas for special dispensation, but we need to take
further affirmative action for their socioeconomic uplift,
so as to bring them at par with the rest of the country.
The Federal Government has, therefore, decided to promote
higher education in Balochistan, FATA and Gilgit-Baltistan
by paying the tuition fees of all students studying
for masters and PhD in reputable universities of Pakistan.
This measure is expected to cost the Government Rs.500
million annually.
Relief to Government Employees
The People’s Government has always made an effort
to ensure that Government servants do not face acute
hardships on account of low public sector salaries vis-à-vis
the private sector. To ensure that the Government acquires
and retains competent civil servants who can serve the
citizens of Pakistan with peace of mind, our Government
has increased pay by more than 100% during the last
four years. Similar relief has also been provided to
pensioners. And now, I am pleased to announce that in
the Next Financial Year, an ad hoc relief allowance
of 20% in pay and pension is being given. This is the
fifth successive increase in pay and pension given by
this Government.
PART-II
Madam Speaker,
Let me now turn to the Part-II of my speech which relates
to tax proposals
TAXATION PROPOSALS
As a country, we have not been successful in mobilizing
revenues. Success on this front has eluded all governments.
Consequently, our tax system is characterized by following
features:
The overall Tax-GDP Ratio is less than 10% (FBR at
8.6%, overall at 9.6% in
FY11);
Only about three million people pay income taxes
About 50% of registered corporate taxpayers and withholding
agents file tax
returns Only around 100,000 persons are registered under
sales tax Under-invoicing and undervaluation have become
a norm in our business practices Collusion between the
taxpayers and tax collectors persists despite reforms
We are acutely aware of the centrality of revenue mobilization
in country’s economic development and sovereignty.
For this reasons, we have thus taken difficult decisions
to broaden the tax net, to bring in sectors that were
enjoying exemption, to identify new taxpayers and to
make sure that the rich abide by law and contribute
towards achieving this very important national goal.
As I mentioned earlier, our government has collected
an unprecedented amount of taxes during its tenure and
particularly during the last two years. This success
is the result of the resolve of the government and the
co-operation of the business community. The good news
is that the overall Tax-GDP Ratio is expected to improve
from 9.6% in 2010-11 to 10.3% in the current fiscal
year. A lot more needs to be done to build upon this
good result.
While we have tried to meet the national goal of raising
revenues, we have also ensured that this is achieved
without extra burden on the existing honest taxpayers.
We do not want those who are paying to be burdened further.
We want to lessen the load on the honest tax partners.
In fact, our approach is to reduce taxes and rates so
the people and businesses are not faced with too many
taxes, or high rates. We only want to go after those
who are powerful, well connected, and well organized
and simply do not pay taxes at all.
Let me share the good news with all honest taxpayers
--- salaried employees, individual businesspersons,
corporations, --- there is no extra burden on you. There
is only relief for you. You have done your duty to be
an honest taxpayer. We will now do our duty to give
you relief.
The government has ensured that the interests of the
salaried class and public servants are protected. Every
year, we have increased salaries, allowances, pensions
and other benefits of government employees. We have
also given tax cuts to the salaried persons and tax
payers in the lower brackets.
Madam Speaker,
Let me draw your attention to our provisions for Income
Tax.
In 2009-10, we increased the basic income tax exemption
limit from Rs.100,000 to Rs.300,000, benefitting 1.2
million taxpayers in the lower brackets.Last year, we
raised this exemption to Rs. 350,000. In continuation
of this fiscal support to the salaried class, the basic
exemption limit for Income Tax is being further enhanced
to Rs.400,000 this year. Similarly, the exemption limit
for business individuals and Association of Persons
(AOPs) is also being enhanced to Rs.400,000. This will
benefit many taxpayers.
We have also decided to reduce the tax slabs to 5 only.
Importantly, a major relief will be that only the portion
of income exceeding a tax bracket would be charged at
the higher tax rate. A taxpayer with an income of Rs.
35,000 per month previously paying Rs. 10,500 would
only pay Rs. 1000 as tax. Apart from fundamentally simplifying
the income tax system, this measure will provide relief
of Rs. 8 Billion and benefit all existing income tax
payers by reducing the effective income tax rate.
Under the present scheme of taxation, if an employee
obtains a loan from the employer at a concessional rate,
it is taxed at 13%. In order to facilitate such employees,
it is proposed that such loans up to Rs.500, 000/- shall
be exempt from income tax. Loans above this limit shall
be taxed at the maximum rate of 10%.
As a relief measure to pensioners, amount received
from approved income payment plans or annuity plans
invested from any balance of voluntary pension schemes
upon retirement will be exempt from tax if invested
for a period of ten years.
Madam Speaker,
The tax collection has improved due to the cooperation
of law abiding businesses and individuals. The government
appreciates them. To recognize them, a taxpayers’
Honour Card is being introduced. It will entitle its
holders to concessions and facilities at various public
and private forums such as NADRA, Passport offices,
Airports, Customs, Immigration, FBR and other public
offices. FBR will also honour them by displaying their
names on its official Web Site.
Madam Speaker,
We want to give incentives in income tax to promote
business activity and lessen the burden on our business.
I turn to some of the important measures. These represent
the acceptance of demands from the Chambers of Commerce
and Business Community.
Under the existing income tax structure, the businesses
are being taxed at the minimum rate of 1% of their turn
over, even if they are reporting losses. To mitigate
the hardship faced by registered businesses the rate
of minimum tax on turn-over in this budget is being
reduced from 1% to 0.5%. We should consider moving away
from this method of collection entirely in the near
future.
The government wants to phase out the presumptive tax
regime (PTR) in three years. We are thus reducing the
rates of tax from 5% to 3% or commercial importers,
from 1% to 0.5% for exporters and from 3.5% to 2.5%
for suppliers to give them the incentive to opt out
of the PTR.
Withholding tax on profits paid on intra-group debt
is being abolished. Currently there is a withholding
tax on cash withdrawals if they exceed Rs. 25000 per
day. This limit is being enhanced to Rs. 50,000 per
day. To rationalize the rates of depreciation, the value
of vehicles is being enhanced to Rs.2.5 million, while
the initial rates for new buildings are being reduced
to 25%.
Capital Markets are important for economic development
of a country. To develop them and give confidence to
the investors, the changes made through the Finance
(Amendment) Ordinance, 2012 may be incorporated into
the Statute through the Finance Bill.
To encourage the Capital Markets, exemption on the
profit and gains of a Venture Capital Company and Fund
is being extended upto the year 2024.
To promote investment in securities and insurance,
the limit of investment as a proportion of taxable income
is being increased from 15% to 20% and from Rs. 500,000
to Rs. 1 million, which ever is lower. The required
retention period of shares is being reduced from 3 years
to 2 years.
To encourage a competitive market for Retirement Schemes,
transfer of funds between retirement funds will be exempt
from tax. Further, retirement funds shall be exempt
from withholding tax provisions on Capital Gains Tax.
Dividends received by banks from money markets and
income funds will be taxed progressively over a period
of two years as normal business income. Dividends will
be taxed at 25% in tax year 2013 and at 35% from tax
year 2014 onwards to eliminate tax arbitrage.
To bring certain undocumented sectors into the tax
net, manufacturers are being made withholding agents
to collect 1% adjustable tax on sales made to distributors
and dealers.
SALES TAX
Madam Speaker,
Let me turn to sales tax.
This government has reformed the general sales tax
system last year, by eliminating zero rating; reduction
of the multiplicity of rates; and expanding coverage
to all sectors except food, health, and education. This
process of reform must continue, to realize the full
potential of this task.
To avoid multiplicity or rates and decrease the burden
on the consumers, all GST rates above 16% are being
brought down to 16%.
To discourage fraudulent refunds and streamline local
supply chains in plastic, sprinkler, drip and spray
equipment, mono filament yarn and net cloth, and remeltable
scrap, it is proposed to eliminate zero-rating of these
items. These items shall, however, be exempted from
sales tax.
Local waste paper is one of the major inputs used in
the manufacturing of paper. The waste paper is collected
and supplied by the unorganized sector, leading to a
high rate of abuse through a market for flying invoices.
To curb this practice, it is proposed to exempt local
supply of waste paper from sales taxes.
Cotton-seed is zero-rated while Cotton-seed-oil is
exempt from sales tax. The mills producing Cotton-seed-oil
are, therefore, not required to issue any sales tax
invoice and their production remains undocumented. The
Oil and Ghee manufacturing units using undocumented
purchases may suppress their production to evade sales
tax.
It is proposed to zero-rate Cotton-seed-oil to keep
it in the documented sector and provide level playing
field to the tax compliant Oil and Ghee manufacturing
units.
The current sales tax of the steel sector, fixed in
2008, is at the rate of Rs. 6 per unit of electricity
consumed. To harmonize it with the current market prices,
this rate is being enhanced to Rs. 8 per unit of electricity
consumed.
Smuggling of goods causes injury to the local industry,
and discourages legal imports. High rates of duties
and taxes on these goods provide incentive for underinvoicing.
It is being proposed that sales tax on black tea be
reduced from 16% to 5% to encourage legal import of
tea.
FEDERAL EXCISE
Madam Speaker,
Let me turn to Federal Excise Duty.
To bring prices down and give incentives to the private
sector, the Government intends to phase out Federal
Excise Duty (FED) in the next two years. To ensure this,
FED was abolished on 15 items, last year, and the rates
were brought down on many more. The Government intends
to further eliminate FED on the additional 10 items
including base lube oil, lubricating oils, filter rods,
and skin care products.
The Dairy Industry has great potential in Pakistan.
Pakistan is the fifth largest producer of milk in the
world. But a very large quantity of local milk is never
processed. To promote investment in dairy development,
it is proposed to abolish Federal Excise Duty leviable
on livestock insurance.
To develop capital markets, FED on services rendered
by Asset Management Companies is also being abolished.
To boost the construction activity and generate jobs,
last year, the FED on cement was reduced from Rs. 750/
PMT to Rs. 500/ PMT. This year, it is being further
reduced from Rs. 500/ PMT to Rs. 400/ PMT.
FED is leviable on foreign travel to or from Pakistan.
However, collecting FED on foreign travel into Pakistan
is practically difficult and not in conformity with
international best practice. Therefore, it is proposed
that FED may be collected on embarkation of passengers
from Pakistan.
CUSTOM DUTY
Relief Measures:
Madam Speaker,
I now turn to Custom Duty.
The government wants to reduce the tariffs, simplify
procedures and create a conducive environment for boosting
the economic activities. In order to reduce the prices
and to provide relief to general public, the highest
tariff rate is being reduced from 35% to 30%.
Education is the main priority of the government. Therefore,
to make text books, exercise books, pencils, pens and
inks available at cheaper prices, customs duty on 18
raw materials and 9 components for manufacturing of
stationery items are being exempted.
New tariff headings are being created in the Pakistan
Customs Tariff, to align our tariff structure with export
partner countries (e.g. USA, EU). This measure shall
eliminate operational problems of exporters, particularly
textiles.
The Government is fully aware of the hardships being
faced by the people of Pakistan because of energy shortages.
To mitigate people’s suffering, it is being contemplated
to provide fiscal relief on the import and installation
of alternate energy sources, UPS and generators.
Madam Speaker,
Promotion of the Construction Industry generates economic
activities in thirtyeight downstream industries. To
promote the use of scrap of rubber and shredded tyres
as a substitute fuel by manufacturing plants, such as
cement, duty on scrap of rubber and shredded tyres is
being reduced from 20% to 10%.
To ensure availability of medicines at affordable prices,
customs duty on 88 pharmaceutical raw materials is being
reduced from 10% to 5%.
To promote energy-efficient Hybrid Electric Vehicles
(HEVs), the rate of duty and taxes presently applicable
to HEVs and their batteries is being reduced by 25%.
In order to encourage legal import of self-copy and
self-adhesive papers, their high rate of customs duty
is being reduced to 10%.
Administrative Measures
Madam Speaker,
To align Pakistan Customs Tariff with international
conventions, it is being updated in conformity with
the latest WCO nomenclature.
New departments are being created in Customs to deal
exclusively with Transit trade issues, including the
prevention of smuggling.
To separate the judicial functions from the executive
in Customs, offices for adjudication are being created
in the Customs department to address this demand.
The government provides incentives to the local industry
through reduced rates of import duties through SROs.
These complicated procedures are being simplified and
the anomalies are being rectified. These measures will
reduce the cost of doing business.
Concluding Remarks
Madam Speaker,
We have given a budget that will build hope and lay
the foundation of a better tomorrow in which not only
economic stability will be maintained but growth will
be accelerated. Our young population is our assurance
for a strong and prosperous Pakistan, provided we can
create job opportunities for the use of their capabilities.
Growth is the answer and this will be our main focus
during the year.
There is no limit to the economic potential of Pakistan.
The challenge is to create the enabling environment
in which this can be realized. May Allah bless this
country and our people. Ameen!
Pakistan Zindabad
01-06-2012
Pakistan Budget Speech (Urdu) »
Courtesy: Ministry of Finance Government of Pakistan
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