The Federal Budget for the year 2003-04, with an
outlay of Rs805.2 billion against the projected receipts estimated at
Rs626.2 billion, was presented by the finance minister amidst hue and
cry raised by the opposition in the National Assembly last week.
The gap of Rs179 billion between income and
expenditures is to meet through borrowings.
The voices raised by the opposition on the occasion
of budget presentation had however nothing to do with the economic
interests of the people. All that uproar was focused to serve the party
interests rather than to highlight the grievances and economic hardships
faced by the masses. Contrary to the expectations of the people in
general and the business community in particular pinning high hopes for
some relief in exorbitant utility prices, the relief was given to a
certain class of the society that is the government employees and the
A 15 percent raise in the salary as well as
concessionary loans for house construction to the government employees
sounds that it was a pro-government budget.
The utility services, especially electricity and
telephone instead of providing quality services at the enabling rates,
have assumed the role of tax collecting agencies. Consequently, the
government levies on the consumption of petroleum, electricity and
telephone have pushed high the prices of these essential items having a
widespread economic fall out from farm to factory and kitchen of a
housewife to the oven of the industrial sector.
In this budget too, the government has allocated Rs53
billion for two power generating companies i.e. WAPDA and KESC to keep
the cost of electricity under control. Justifying the heavy financial
support to these power companies, it is said that without this financial
support the electricity tariffs would have called for much larger
increases. This incentive to the power companies has been given to
mitigate the impact of increased cost of electricity. The budget
document elaborates two things about the cost of utilities.
First, for lack of any significant domestic source,
country has to depend on imports for meeting energy needs. Second,
government has no control over international prices. The effect of
changes in international oil prices is passed on transparently.
The budget document, however, keeps the hope alive
for that utility prices may come down in not too distant a future. In
this respect, the document explains that the country was nearly through
with the frontloaded payment due to Independent Power Producers (IPPs),
after which there will be substantial cut in electricity tariffs.
Another step taken towards reduction in power tariffs is the supply of
additional gas to oil-fired power projects even in the private sector
which would significantly lower the cost of production.
To some extent, the reasons for high tariff rates
appear to be valid, however, the other side of the pictures presents a
KESC claims that over 80 per cent of its power
generation has already been shifted from oil to the gas-fired system,
yet the benefit were not passed on to the consumers and it continues to
charge power rates fixed on the basis of oil-fired system. The price-hit
consumers also say that when industry like cement can entirely moved to
the cheaper source of coal-fired system why the power sector cannot move
on the same track. The government, however, claims that it is trying
hard to develop new power projects on coal and hydel. The cost of these
projects will be significantly lower than oil-fired projects. The
combined effect of these developments will be positive on utility prices
in the coming years and hopefully this burden will also be abated.
HIGHLIGHTS OF THE BUDGET
—Total Expenditures Rs805.2
—Total Receipts Rs626.2 Billion
—Deficit Rs179 Billion
—Wealth tax repealed
—Cut in Withholding tax from 7.5 per cent to 5 per cent
—Duty on paper and board abolished
—Income Tax returns under Self Assessment Scheme
—25 per cent cut in excise duty on cement
—15 per cent increase in salaries of government employees
—20 per cent increase in health allocations
—Wire and cables free from excise duty
—30 per cent increase in Development Budget
—Tax refund system to prevail
—10 per cent customs duty replaced with 20 per cent sales tax on
imported oil seed
—Duty on vehicles of 1800cc and above reduced from 200 per cent to 150
—Duty on tea, spices, silk yarn and ball bearing reduced
Agriculture sector which, offers a strong support to
the economic growth of the country, has been allocated Rs1,502.546
million from Public Sector Development Program. This allocation
indicates an increase of 91.45 percent as compared to the allocations of
Rs784.799 million in the previous year. This fundamental sector
contributed significantly during the previous year by registering 4.2
per cent growth. The crop wise achievements showed that the wheat
production was estimated at 19.2 million tons that was almost close to
the target of 19.5 million tons mainly due to high temperature stress at
grain formation stage.
The cash crop of rice also recorded an increase as
its net output was 4.5 million tons; sugarcane production was 52.1
million tons against the target of 48.1 million tons. The cotton crop
was estimated at 10.2 million bales against the target of 10.5 million
bales registering a shortfall of 0.3 million bales. However, the overall
growth in the major crop registered an increase of 5.8 per cent against
the target of 0.3 per cent, while the growth rate in the minor crops was
0.4 per cent against the target of 3.5 per cent.
During the current year, the government plans to
extend high priority to augmentation of irrigation water through
construction of dams and lining of canals. A number of measures have
also been taken to provide relief to the growers which include cut down
in electricity rates while fertilizer prices would also be stabilize
under this policy.
Besides the on going projects, a number of new
projects have also been initiated in this agriculture sector which
includes National Agriculture Research Program, restructuring and
strengthening of National Agriculture Research System and strengthening
of laboratories and other facilities in compliance with WTO conditions.
Oil-seed cultivation is another important part of the
agriculture sector which is also being promoted on priority basis to cut
down the import bill on this account. In this respect, the project of
Rapid Conversion of Wild Olive Species and Accelerated Promotion of
Olive cultivation in NWFP and Potohar region will continue. In this
promotional drive, oil palm seed will be distributed among the growers
in Sindh and Balochistan under oil palm development pilot program. An
agreement will also be finalized with the government of Japan for
procurement of fisheries research vessel for Marine Fisheries
The energy sector has been given its due share in the
budget with an allocation of Rs35.16 billion during next fiscal year
when the power sector would be reinforced with additional 1450 megawatt
capacity with the operation of Gazi Barotha power project.
During the new financial year, fuel sector will get
Rs646.704 million. The installed power generation capacity would
increase from 18,052MW to 19,502MW. The target for total energy
generation including private sector has been fixed at 77,724GWh in
2003-04 as compared to 15,144GWh during 2002-03 showing an increase of
3.4 per cent. The power sector plans to add 595,000 new connections both
in the WAPDA and KESC distribution systems, besides electrification of
over 2000 new villages.
Currently, Pakistan produces about 65,128 barrels per
day which is planned to enhance up to 73,216 barrel per day this year.
The natural gas production has been planned to
increase up to 3,472 MMCFD against an estimated production of 2,654
MMCFD in the previous year. In the new fiscal year, drilling of 77 new
wells is planned in the public and private sector, comprising 32
exploratory and 43 appraisal development wells. Currently, a large
portion of the LPG is imported to meet the domestic requirement. In the
current financial year, LPG production has been planned to increase to
1,245 tons per day.
The coal production has also been planned to increase
to 3.6 million tons per annum which shows a 6 per cent increase over the
coal production in the previous year.
In order to accelerate coal production from local
resources, a feasibility study in the public sector on Thar coal
development will be completed this fiscal year in collaboration with
Efforts are being made by research organizations such
as Hydrocarbon Development Institute of Pakistan to convert public
transport to compressed natural gas instead of HSD. The gas
infrastructure projects are scheduled to be completed in the new
Finance Minister Shaukat Aziz has, however, described
the federal budget as investment inducing and employment generating
aimed at poverty alleviation from the society.
A special saving scheme along the lines of pensions
will be initiated. The scheme will offer a higher rate of profit for
widows. Fresh incentives for the overseas Pakistanis, including an
increase in the duty-free allowance, raising it from $800 to $1000 per
year for holders of silver card and from $1500 to $2000 per year for
gold card holders was also announced.
In his concluded remarks, the finance minister
observed that this is budget without any new taxes. In fact a large set
of relief measures aimed at improving the welfare of the common man was
proposed in the budget.
These measures, he outlined, include increase in
salary, pension and provision for housing finance. In addition, the
budget provides encouragement to private sector for investment in SMEs,
housing and agriculture sectors all of which have the potential to
create new jobs. The development plan included in the budget will
accelerate the growth process and employment creation. This budget will
thus be a harbinger of renewed economic activity. This is the need of
the national economy, which has been stabilized and is now poised for a
take-off. This is indeed a golden opportunity for the nation. We have
all the necessary elements in place. It is up to us, how far we want to
take this opportunity, the finance minister observed.
The key to future success will be our ability to stay
the course. Continuation of reforms and consistency of policies are
essential. It will be easy to stray this course, more difficult to hold
ourselves together and forge ahead with second generation reforms. The
dividends of the reforms that we are already reaping should be a
sufficient basis to hope for an even a better future that awaits us, the
finance minister remarks.
The focus of Public Sector Development Program (PSPD)
worth Rs160 billion is on infrastructure sectors and other projects to
reduce poverty characterized by formidable unemployment.
The program envisages spending Rs89.2 billion in the
areas of public works, human resource development and poverty reduction.
In these areas, some new programs have also been launched to alleviate
poverty mainly because of commitments with donor agencies.
People from different walks of life have come out
with a mixed reaction of the federal budget for 2003-04. Mian Nasser
Hyatt Maggo, President of Karachi Chamber of Commerce and Industry (KCCI)
said that the federal budget was not up to the expectations of the trade
and industry and was unlikely to benefit the general public.
The budget is short of incentives for exports and
export-oriented industry. The budget does not deal with the higher rates
of General Sales Tax (GST) as no reduction has been made. Although a
revenue target of Rs510 billion has been fixed for 2003-04 yet nothing
has been done to expand the existing tax base. Despite the long standing
demand of the business community, extraordinary powers of the Central
Board of Revenue (CBR) have not been curtailed. He said that the two
percent reduction in Income Tax rate is just an eye wash.
KCCI Chief expressed his concern that no relief on
import duty on machinery has been allowed while the important sector of
Information Technology has also been ignored. He was of the view that
reduction in import duty of machinery and development of IT and the SMEs
was essential for the development of industry and the exports of the
He, however, observed that the only positive steps in
the budget were the abolition of the Wealth Tax and reducing the number
of Audits for the entrepreneur to once a year.
KCCI Chief Nasser Maggo said that the budget speech
of the finance minister was extraordinarily short this year and perhaps
that is why some important issues were not discussed in the budget
speech such as the matters of privatization of public sector entities.
The finance minister also failed to mention the ways and means to cover
up the deficit of Rs179 billion in the budget. While contradicting the
announcement regarding DTRE made in the budge speech, the KCCI president
said that nothing has been conveyed to the Federation of Pakistan
Chambers of Commerce and Industry (FPCCI) as well as the KCCI by the
ministry of finance. The matters related to DTRE have not been resolved
so far. However, proper comments could not be offered since the finance
minister has not given details of the amendments in DTRE rules.
The KCCI president while describing the reduction in
the Central Excise Duty on cement as nominal, said that reducing the
duty on cement by Rs250 was inappropriate and would not benefit the
construction industry. He criticized the government for not reducing the
duty on small cars and motor bikes. He maintained that reduction in the
duty on small cars and motor bikes could benefit small industry and the
general public. Reduction in duty on 1800CC cars from 200 per cent to
150 per cent is meaningless since production of such cars was only 5 per
cent of the total production and such cars are included in luxury items
and their use is also very limited.
The All Pakistan Textile Mills Association (APTMA)
has termed the overall budget as growth-oriented. However the budget
document lacked direction for industry preparedness under post-2005 era
under WTO regime. The industry was expecting level playing field, to
remain competitive in the local as well as foreign markets especially
for man-made fibers and its products. The rationalization of tariff for
these materials has not been considered in the budget.
The proposed rationalization of Tariffs had the
potential to propel the industry towards the goals set in the textile
vision 2005. However, the measures to amend the DTRE constitute an
extremely positive step. APTMA specially applauded the inclusion of
Polyester Staple Fiber in the DTRE regime.
Submission of Section 73 of Sales tax Act 1990 is
rightly made, it should not be misinterpreted again to use against the
organized sector for netting un-organized sector.
Regarding amendment made in the sales tax refund
rules, the APTMA expressed the hope that manufacturer-cum-exporters
would not suffer again in the hands of implementers. There is further
need of amendment to allow refunds on stocks, which has been ignored in
the budget. APTMA also lauded the amendments introduced with regard to
single audit in a year.
The industry was expecting measures in the budget to
achieve the preparedness and fully compliance by 2005. Cost of doing
business in Pakistan is still high particularly the cost of utilities
which is on the rise instead of rationalization for the industry to
complete internationally. APTMA urged the government to review the
energy policy for the industry in order to attract further investment,
increase and sustainable comparative advantages.
APTMA also expressed his concern on the amendment
introduced in SRO 554(1)/98 disallowing import of consumable spares and
accessories under the said SRO. It may be added that the said SRO has
helped attract substantial investment during the last five years, helped
industry sourcing quality spares under the incentive terms of the said
SRO. Disallowing accessories and spares would mean that unorganized
sector would crop up to meet industry's requirement thus exchequer would
not benefit by disallowing spares and accessories.
Anjum Saleem, Chairman APTMA has urged the government
to review this in the larger interest of industry and exports of the
Commenting on the federal budget, Sheikh Javaid,
Chairman Export Processing and Free Zones Committee of the FPCCI
observed that the budget does reflect promise to the common.
He said that duty relief should have been more
significant on smaller cars since a small car is a necessity and not a
luxury. Besides, increase in duty on used computer monitors should be
withdrawn in the interest of IT literacy in the country.
Regarding establishment of Free Zones in the country,
Javaid suggested that such zones should be established separately by
respective ministries e.g. ministries of finance, commerce,
communication, investment and privatization on different patterns with
the active participation of the private sector. The old pattern under
which EPZA was established should be abandoned due to its complete
failure. This will create a healthy competition among various zones with
different package of investment incentives studded with organizational
and operational mechanism. These zones should be named as free economic
zone, free export zone, free processing and manufacturing zone and sea
port special zone etc.
He reiterated that successful economic activity at
Gwadar can only be achieved if private sector is induced in various
administrative and regulatory bodies constituted so as to play its due
role. It might receive the same fate as that of the industrial estates
in Pakistan such as Nooriabad, Hattar, Gadoon Amazai and Karachi Export
Processing Zone, he warned.
Sheikh Javaid was of the opinion that investors in
the area of packaging of fruit and fish, shipping, construction,
warehousing etc are taken into confidence by allowing incentives to
their respective fields in order to ensure rapid growth of the national