Great expectations — A further standpoint
By Syed Furqan H. Shamsi
July 09 - 15 , 2001
The proficient justification of taxes in the
current budget through the extensive appropriateness of customs duty
and sales tax will ultimately reduce the cost of industrial goods and
will escort boost exports and encourage investment.
Pakistan's economy have shown a blends of record
for the last fifty years but it still has to go miles for the peak.
Budget is a key concept for any country's economy, financial
architecture, development and for policy issues.
The federal budget presented on June 18th, 2001
depicted a gap of nearly Rs. 187 billion which is to be filled mainly
by borrowing while allocating over 40% of the disbursement for
debt-servicing. The balancing act between keeping the debt burden
under control and achieving a healthy balance of payments remains the
biggest challenge for the economic managers. Through this budget,
People would get some relief and investors some inducement within the
existing patterns with an assistance of some reshuffling of existing
taxes as had already been set out in good details in the IMF's policy
framework paper relating to the stand-by arrangements. Altogether, The
budget appears to be largely agreed with the IMF requirements under
the Stand-by agreement (SBA).
During for the current year, the poor agricultural
performance was the result of the water shortages in most parts of the
country during the most period of the year that pulled down the
overall GDP growth. Manufacturing Sector performed well with support
from the petroleum refinery, textile, fertilizer and other related
industries. GDP growth rate declined to 2.5 per cent due to the
aforementioned explanation while the manufacturing sector inflates
upto 6.78 per cent. The fiscal deficit was dipped to 5.3 per cent from
6.5 per cent of 1999-2000 whereas the inflation rose to 4.7 per cent
from that of 3.4 per cent prevailed in 1999-2000. It was estimated
that about 87.9 per cent of total investment was financed through
The size of the budget has been increased by Rs.
53.7 billion to Rs 751.7 billion. Primarily financed through internal
resources (i.e. tax and non-tax) to the extent of Rs. 491 billion and
Rs 261 billion from external resources, which include Rs. 48.7 billion
project aid and Rs 190.6 billion non-project aid. Net revenue receipts
are expected to total Rs. 453.8 billion in 2001-02 as against Rs.
412.1 billion of the estimates for the current year. These receipts
are expected to finance 60.3 per cent of total expenditure. The
decline with reference to the current year's is mainly due to the
decline in the domestic borrowings.
Rs. 130 billion has been allocated for FY02
development expenditure particularly for Public Sector Development
Programme (PSDP). On the expenditure side, debt-servicing will consume
Rs 329 billion, Defence Rs 131 billion and expenditures on the
operations of the administration will cost Rs 80 billion. With so much
of the added tax revenue going towards the enhanced debt servicing, so
little will be left for other profitable activities.
There appears to be no surplus on revenue account
despite the debates about debt exit strategy and a substantial
increase in revenues. The target of Rs. 457 billion has been set for
the revenue collection for FY02 higher by 16.9% as compared to Rs. 406
billion revised target for FY00-01. One of the major highlight of the
budget for the current fiscal year is the promotion of the Fiscal
Responsibility Law which may curtail the limits of the government's
borrowing for fiscal deficits financing. The budget looks as though to
be contractionary with the tax implications shaped within it. The main
concern within the taxation imperatives present in the budget is the
institutional restructuring for the better collection and to widen the
Major incentives announced for the exporters are
their endowment to keep their 50 per cent earnings in foreign currency
accounts to purchase raw materials or machinery. This action to be
backed by the predicament where they increase their exports 10 per
cent more than the last years'. The proficient justification of axes
in the current budget through the extensive appropriateness of customs
duty and sales tax will ultimately reduce the cost of industrial goods
and will escort boost exports and encourage investment. Housing
finance was given a boost with allowances in for interest payments on
mortgages declared income tax deductible up to a certain limit. The
fiscal incentives for the house building industry will benefit various
industries directly. Agriculture motivations are partially a step
towards the elimination of government role and compensating the poor
cash-flows as a long term objectives of the government.
Overall, the budget portrays a combine and
multi-dimension approach to streamline the process. Poverty,
Unemployment, Imbalances in source of income, illiteracy, Lack of
investment in human capital are all the issues which are augmenting to
the current situation. We crave a policy framework lasting at-least
for 5-7 years; and which the announced budget moderately ascribes. We
need to develop capacity to back national debt, enhance exports while
encouraging investment both domestic and foreign. However the
framework demanded and the considerations of budget should be aligned
for a better future.
The author is presently working as Associate
Consultant with Anjum Asim Shahid Associates (Pvt) Ltd. (A Human
Resource and Social Sector Consulting firm).