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The hint of populist budget 2017-18

The government hinted at a populist budget for 2017-18 with a focus to facilitate people and entice the business sector. It would accord top priority to the wellbeing of the people in the budget for 2017-18. The budget would also focus on measures for further improving ease of doing business and increasing financial inclusion in the country. It would be finalized keeping in view the primary aim of achieving higher, sustainable and inclusive economic growth.

The government may announce a series of development schemes and provision of electricity and gas connections to be undertaken during the next year.

It is to be noted that Federal Board of Revenue (FBR) has sought the budget proposals for the upcoming financial year 2017-18 from its field officers, as well as from other stakeholders, including the business community.

DEFENCE ALLOCATIONS

There is expected increase in normal defence budget by about 10 percent besides separate allocations for operations against terrorists across the country including Punjab. Besides, additional funds would also be provided for security enhancement and development in the federally administered tribal areas, in addition to allocations for fool-proof security to China-Pakistan Economic Corridor (CPEC).

The FBR has prepared a detailed list of proposal for next budget and big ticket items are continuation of super tax in the wake of ongoing war against terror especially in the context of reconstruction in the aftermath of Zarb-e-Azb in tribal areas.

So far Pakistan has spent around $3.5 billion on Zarb-e-Azb and reconstruction efforts in tribal areas so next budget will be aimed at consolidating the gains Pakistan achieved after rendering so many sacrifices. The government will have to allocate more than Rs100 billion in this head.

The rate of super tax may be changed. The rate of withholding tax for creating difference between filer and non filers would be further deepened in the coming budget. The rate of withholding tax on cash withdrawal will be enhanced in the next budget.

BANKING SECTOR

The taxation related proposals for the next fiscal year will rationalize the tax burden on the banking sector. The State Bank of Pakistan (SBP) proposed that the banking industry has time and again expressed reservations on section 236P of Income Tax Ordinance 2001 on the deposits base of the banks.

It is a matter of concern that Pakistan has one of the lowest saving ratios among its peer countries, while imposition of advance tax on banking transactions is further discouraging the public from using banking channels for their financial transaction.

The SBP has also made recommendations to the Ministry of Finance for carrying out amendments in the ‘policy on import of used cars’ to stop misuse of the scheme. The scheme is reportedly being misused by unscrupulous individuals and commercial car importers in Pakistan who are importing used cars in the name of overseas Pakistani workers.

Payments for such imported cars are mainly made through informal channels which is creating distortions by widening the gap between kerb and interbank rates.

Appropriate policy modifications as suggested by SBP may be made to the scheme to prevent its misuse.

The banking sector proposals pertain to the treatment of provisions of non-performing advances, waiver of advance tax on cash withdrawals and online transfers, changes in tax collection practices, etc.

Tax proposals for Islamic banking have been devised to provide a level playing field aiming to provide tax neutrality to Islamic financial services. This policy initiative will help in making Islamic financial products more competitive against conventional banking products.

The tax concession proposals for MFBs are planned in a way to promote financial inclusion as this segment and its customers need some fiscal space to survive the initial phase.

Top officials have ruled out possibility of abolishing seventh schedule from the income tax related to special regime for banking sector in the budget.

It can be major move if the government decides to do away special tax regime for banking sector but its chances are very dim.

TRADE AND BUSINESS/TAX COLLECTION

In order to facilitate trade and secure government’s legitimate revenue, MCC Appraisement East has recommended certain changes in Customs Rules and several SROs in their proposals for the Federal Budget 2017-18.

The Federal Government levied Regulatory Duty at 50 percent on new vehicles above 1800cc engine capacity (excluding Hybrid Electric Vehicles) vide amending SRO 1190(I)/2015 whereas the old & used vehicles of same engine capacity are subject to levy of RD of 60 percent.

Keeping in view the increasing trend of import of new vehicles, it is proposed that the rate of Regulatory Duty on new vehicles may be brought at par with the existing rate of 60 percent applicable on old & used vehicles. This will not only eliminate the disparity but also yield additional revenue for the National Exchequer.

Despite the rising political temperature in the aftermath of Panama verdict, the government is considering fixing the tax collection target of Rs4, 007 billion for the next budget 2017-18 in a bid to ensure financial discipline.

According to IMF’s assessment, FBR’s collection could fetch Rs3,500 billion against the actual target of Rs3,621 billion for the current fiscal year so next year’s target could achieve Rs4,007 billion through nominal growth as well as through combination of administrative and taxation measures.

PUBLIC DEVELOPMENT

The Finance Division has proposed Rs18.166 billion budgetary allocations for its 28 provincial projects under the Public Sector Development Programme (PSDP) for the upcoming financial year (2017-18).

During the PSDP of the current fiscal year, the total funds of Rs8.332 billion were allocated for the 28 projects.

The details show an amount of Rs12.932 billion has been proposed for 14 projects of Balochistan for which Rs4.131 were allocated in the previous budget while Rs4.004 billion have been suggested for 9 projects of Sindh provinces, for which Rs3.001 billion were earmarked in the 2016-17 budget.

The finance division also proposed allocations of Rs1.130 billion for 4 projects of Khyber Pakhtunkhwa, for which Rs1.100 billion were earmarked in the PSDP of ongoing financial year.

Similarly, Rs 100 million have been proposed for one project in the Punjab province for which Rs100 were allocated in the federal PSDP 2016-17, the official sources said.

It is pertinent to mention here that the releases to these projects are made on the authorization by the Ministry of Planning, Development and Reform (PD&R) and are placed in the PSDP by the ministry in pursuance of Prime Minister or President’s directive, while the provincial governments are executing agencies.

The government so far released Rs 4445.689 million for various projects of Finance Division under PSDP 2016-17.

Government urged to consider budget proposals of trade chambers. The representatives of 5-prime exports and members of leading business and trade chambers have asked the finance mangers of the government to consider the budget proposal of the business and trade community for fiscal year 2017-18.

Finance experts in the government have been requested to take into account the suggestions, aiming to put the economy on right direction and apropos to enhance the exports of the country.

Representatives of Pakistan Tanners Association, Pakistan Apparel Forum, Pakistan Yarn Merchants Association, All Pakistan Marble Mining, Processing, Industry and Exporters Association, Surgical Instruments Manufacturing Association Pakistan, All Pakistan Business Forum, sport goods and carpet sectors were of the opinion, our budget proposals are an effort to give the government a set of suggestions that would help turn the upcoming budget business-friendly in true sense.

The budget proposals will cover recommendations, including proposals to incentivize investors, broaden the tax net through documentation of economy, simplify tax system and reorganize the Federal Board of Revenue (FBR) and many industry-specific proposals.

Promoting foreign direct investment, increasing the share of direct taxes in revenue and lowering the slab of indirect taxes would help achieve key economic targets set for fiscal year budget 2017-18.

The sales tax slab should immediately be curtailed in order to reduce inflationary pressures.

Federal Board of Revenue may utilize its abilities to overcome the economic challenges and consult the private sector to remove hitches to speedy economic recovery.

They informed that sector-specific details about the problems being faced by respective business sectors would also be put before the budget finance managers.

Prime exporters have imported raw material and eventually they re-exported after value addition and earn precious foreign exchange for the country.

Export-oriented manufacturing sector of the country contributing more than 15 percent to country’s Gross Domestic Products. They were confident that government to consider the demands of these sectors to be incorporated in the upcoming federal budget for year 2017-18 to facilitate/equip member exporters to get the best results for the promotion of exports as per aspiration of the government.

OTHER PROPOSALS

Government was considering a 10-15 percent increase in salaries and pensions of government employees. The decision could be taken in the annual budget 2017-18 by merging 50 percent ad hoc allowances into the basic pay.

Other recommendations under consideration were to increase the allowances including medical, housing and others.

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