June 4 - 10, 20

A coalition partner of the present PPP-led government, Muttahida Quami Movement (MQM), has recently presented a detailed shadow federal budget 2012-13 in a press conference in Islamabad.

The political party called the budget proposal a roadmap to economic recovery and sustainability in the preamble of the document prepared by its economic and finance committee.

It is for the first time in the history of Pakistan that a political party has prepared a federal budget comprised of comprehensive estimates of revenues and expenditures. Among other things, the budget also proposed realization of Rs400 billion from the unexplored sources including agriculture income tax (Rs100 billion), tax on agriculture trading (Rs50 billion), rectification of Afghan transit trade (Rs50 billion), and tax base expansion and elimination of tax evasion (Rs200 billion).

The objective of the proposed budget is to present roadmaps for poverty alleviation through reducing prices of essential items including transportation, oil, petrol, utilities, etc., reducing cost of doing business and improving exports, resolving energy shortages and circular debt issues, and improving employment opportunities, industrial growth etc. It encourages the national assembly and people of Pakistan to consider a nonconventional approach to take flight off the beaten track.

The shadow budget represents the aspirations of 98 per cent of the population of Pakistan who are being oppressed by the two percent elitists, said the members of the committee in the document made available to Page.

Issues like the increase of proportion of direct taxes, reduction of indirect taxes (e.g. sales tax to 12 per cent), minimizing the debts and deficits, reducing the discount rate to increase production and employment have also been addressed.

According to the shadow budget, total receipts for the 2012-13 are estimated at Rs3.73 trillion compared with the budgeted receipts of Rs2.89 trillion in the government budget 2011-12. The proposed budget has a deficit of Rs575 billion as compared to Rs1.14 trillion projected deficit of fiscal 2011/12.

Reduction in sales tax and abolition of petroleum levy would lead to reduction of 20 per cent in prices of petroleum products, it proposed. Other major proposals included: no duty or sales tax on machinery and raw materials essential for industries; reduction in the discount rate to 10 per cent; reduction of federal government expenditures through devolution and austerity measures; improvement in governance of public sector enterprises by increasing participation of private sector under the public-private sector partnership model; removal of corruption and increasing efficiency of federal board of revenue (FBR); provision of food and energy subsidies; overcoming abuse of Afghan transit trade, under invoicing and smuggling; social sector and human resource development through investments; infrastructure development in primary and secondary cities on war footing to make them engines of economic growth; promotion of micro financing, venture capital financing, cooperative farming, agriculture reforms, small and medium enterprises, and labour and value addition industries; encouragement to overseas Pakistanis to further invest under public-private partnership into low-cost housing schemes and establishing of IT parks, industrial zones, technology cities, etc.; and improvement of security environment through increasing community participation.

The document also highlighted the effects of the proposals. Inflation in Pakistan is cost-push, and therefore when prices of petroleum products and sales tax come down, inflationary pressure will go away, according to the projected outcomes of the measures taken under the light of the shadow budget.

Fall in discount rate and rise in revenues cut government borrowings. Subsidy to energy sector prevails over energy crisis. Decrease in cost of borrowings, private credit off-take, and availability of energy due to resolution of circular debt issue hop up industrial production. Bringing the direct and indirect taxes ratio to 45:55 from 35:65 improves equity in taxation system.

Additionally, proposed budgetary measures are expected to save huge money of national exchequers spent currently on ailing public sector enterprises and bring basic food into the access of poor people at subsidized rates.

Comparing the actual revenue generation by the federal government and proposed sources of funds, the shadow budget document brought forward a pinpointing review. At present, borrowings account for the major portion of total tax and non-tax annual income of the government. Borrowings constitute 28 per cent of the government incomes. Of them, foreign debts have a cumulative share of 36 per cent, debts from local banks 27 per cent, credits from nonbanking institutions 26 per cent, and surplus from provinces stands at 11 per cent of total borrowings.

Other sources of federal government receipts consist of income tax (19 per cent), sales tax (21 per cent), nonrevenue receipts (16 per cent), custom duty (five per cent), federal excise duty (four per cent), net public accounts receipts (four per cent), and petroleum levy and others (three per cent).

On the other hand, MQM's budget proposed cutback in the contribution of borrowings in the government receipts to 19 per cent. Borrowings should primarily be made of funds from local banking system (47 per cent), nonbanking institutions (35 per cent), and foreign debt's share be reduced to 18 per cent of total government borrowings, according to the recommendations of the shadow budget.

It also jacked up revenue contribution from income tax in total receipts to 27 per cent, custom duty to seven per cent, federal excise duty to five per cent, and nonrevenue and public accounts receipts to 17 per cent and five per cent respectively. Input of sales tax should inch down to 20 per cent, it noted.

A comparative analysis of allocations of funds also sheds light on the priorities of the political party, which said the expenditures should be on transfer to provinces (34 per cent), debt servicing (16 per cent), foreign debt repayment (seven per cent), defence (12 per cent), subsidies/transfer/grants (11 per cent), federal government (eight per cent), and development (12 per cent) instead of existing 30 per cent, 18 per cent, seven per cent, 12 per cent, 12 per cent, 10 per cent, and 11 per cent, respectively.