ECONOMY WATCH

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Selected by Zeeshan Ahmed Khan
(economistzeeshan@hotmail.com)

Aug 15 - 21, 2005
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PUBLIC FINANCE

Public finance is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. Government, like any other legal entity, can take out loans, issue securities and invest. Based on the taxing authority of the entity, they issue bonds such as tax increment bonds or revenue bonds. A "public bond" or security may give tax advantages to its owners.

The most recent statistical bulletin, issued by State Bank of Pakistan, has shown a healthy trend in public finance. This paper will discuss the facts and figures issued by State Bank in this regard.

FEDERAL GOVERNMENT REVENUE RECEIPTS:

The Federal government revenue receipts (including tax revenue and non-tax revenue) were amounted to Rs.535091 million in 2000-01. While for 2004-05, the budget estimates are amounted to be Rs.796323 million, showing an increase of Rs.261232 million. The direct and the indirect taxes for the year 2000-01 were Rs.124585 million and Rs. 267693 million, respectively. The amount of direct and indirect taxes have grown to Rs.181900 million and Rs.398100 million in the budget estimate of 2004-05, respectively. After deducting provinces shares, the net federal government revenue receipts are estimated to be Rs.557166 million in 2004-05 in comparison with Rs.371960 million in 2000-01, recording a growth of Rs. 185206.

FEDERAL GOVERNMENT EXPENDITURES:

Reviewing 2000-01, the government had spent Rs.593604 million on current expenditures and Rs.19076 million on development expenditures. For current expenditures, the defense affairs & services received Rs.131128 million, debt servicing Rs.312721 million, general administration Rs.50779 million, social services Rs.9938 million, law & order 10058 million and subsidies Rs.20404 million.

In comparison, analyzing budget estimates for 2004-05, the spending on current expenditures is Rs.700770 million and Rs.85478 million on development expenditures. For current expenditures, defense affairs & services received Rs.193926 million and debt servicing Rs.265330 million.

FINANCING OF FEDERAL GOVERNMENT EXPENDITURES:

The government is estimated to get net revenue receipt of Rs.908378 million in 2004-05 in contrast with net revenue receipt of Rs.708057 million in 2000-01.

If we take a look at sources of financing, the share of internal resources was Rs.135029 million and external resources was Rs. 209278 million in 2000-01. The share changed to Rs.103157 million (internal resources) and Rs.156355 million (external resources) in 2004-05.

Grants and Loans: In 2000-01 total loans of Rs.123549million and grants of Rs. 46779 million was acquired to finance government expenditures. While in FY2004-05, total loans of Rs. 133105 million and grants of Rs.23250 million were obtained from external sources to finance the expenditures.

TAX COLLECTION OF CBR

Huge increase in tax collection has been registered in 2004-05. Total tax collected in 2000-01 was Rs.392.3 billion. This figure rose to Rs. 622.1 billion for May 2004-May 2005. The break-up for FY2000-01 is: direct taxes Rs.124.6 billion, Sales tax Rs.153.6 billion, Excise tax Rs. 49.1 billion and customs Rs.65 billion. While for May2004-May2005, this break-up is: direct taxes Rs.193.1 billion, Sales tax Rs.253.8 billion, Excise tax Rs.56.2 billion and customs Rs.119.3 billion.

The above study proves an expansion in public finance profile. The government efforts to increase the tax net are reflected in the lights of increasing revenue receipts.

While the significant growth of development expenditures reflects that government is giving preferences to social sector and trying to reduce poverty.

The expenditures on development purposes have also recorded a growth which reflects the government strong inclination towards the betterment of people and reduction in poverty. Hence, one hopes that with the continuity of these policies, Pakistan would achieve its long term economic targets.

FEDERAL GOVERNMENT REVENUE RECEIPTS

(MILLIONS RUPEES)

 

2000-01

2004-05*

Total revenue receipts(Tax & Non tax revenue)

535091

796323

Direct taxes

124585

181900

Indirect taxes

267693

398100

Tax revenue (other than CBR)

30503

74806

Non-tax revenue

112310

141517

Less transfers to provinces

163131

239157

Net Revenue receipts

371960

557166

* Budget estimates

FEDERAL GOVERNMENT EXPENDITURES

(MILLIONS RUPEES)

 

2000-01

2004-05*

Revenue expenditures(A+B)

612680

786248

A.Current Expenditures

593604

700770

B.Development expenditures

19076

85478

Capital Disbursements (C+D)

95376

122130

A.Current Expenditures

30849

38718

B.Development expenditures

64527

83412

Total Expenditures

708057

908378

* Budget estimates

FINANCING OF FEDERAL GOVERNMENT EXPENDITURES:

(MILLIONS RUPEES)

 

2000-01

2004-05*

Net revenue receipts

371960

557166

Internal Resources

135029

103157

External Resources

209278

156355

Total receipts

716267

816676

Change in provincial cash balance

24748

31551

Privatization proceeds

N/A

15000

Credit from banking system

-32957

45150

Total Resources

708057

908378

* Budget estimates

CBR TAX COLLECTION

(BILLION RUPEES)

 

2000-01

May2004- May05

Direct taxes

124.6

193.1

Indirect taxes

267.7

429.2

Total

392.3

622.1