BUDGET IN THE MAKING

Reduction in tariffs and number of taxes may feature in the budget

By AMANULLAH BASHAR
May 17 - 23, 2004

Federal Minister for Finance Shaukat Aziz has indicated that the forthcoming federal budget would be in continuation of the economic policies introduced by the present regime. This would be paying more focus on investment in infrastructure and social development project aimed at reducing poverty level in Pakistan.

Knowledgeable sources told PAGE that currently there is an army of taxes which is one of the major irritants in industrial growth and a discouraging factor in investment. They were confident that the number of federal taxes may be reduced which would ultimately reduce the tax collecting agencies. With the expansion of Sales Tax regime, there are strong possibilities that the Central Excise Duty may be done away with from the taxation regime in the forthcoming federal budget which is likely to be announced on June 5 by the Finance Minister Shaukat Aziz.

In the budget making exercise, which is currently in full swing, some radical changes are possible especially in view of the implementation of the WTO rules from January next which calls for effective measures to enable the local industry to combat the onslaught of the foreign trade which is in the store.

Unlike other countries like China and India, Pakistan was comparatively in a comfortable position because the economy does not carry much of the subsidies. The economic managers have already done away with a large number of subsidies which is a pre-requisite for implementation of the WTO rules while its implementation has been delayed for two years in China because it has not yet removed subsidies it has made available to various industrial and agriculture sectors. By and large, similar conditions exist in India, which is strongly opposing the withdrawal of exemptions on agriculture and other sectors of the economy.

Such exemptions would have to be withdrawn to provide level playing conditions to all the stake holders in the economy.

A major change is likely in tariff rationalization of policy in the coming budget. Tariff cuts would be industry-oriented rather than revenue-oriented which had been the guide line principle in budget making so far.

In the pre-budget meetings it has been proposed that tariffs should be further reduced to accelerate industrial growth, especially in the engineering goods and textile sectors.

Other proposals seek further simplification of procedures and removal of irritants to facilitate potential growth in the industrial sector. Industries had been complaining of certain irritants which constrained the industrial growth.

The continuation of the previous policies to reduce interaction between the taxpayer and the tax collectors and reduction in the latter's discretionary powers are proposed to minus chances of harassment to the taxpayer.

Reduction in duties on raw materials and machinery whose import would support growth in exports is also being examined by the CBR. In the light of this exercise, the tariff cuts would be finalized during this month as the budget is to be presented tentatively on June 5, 2004.

Tariff rationalization has been among exercise for past several years but more specifically in the past three to four years, which positively impact industrial growth, exports and revenue generation.

During the past three years, the tariff has been generally reduced from 45 percent to 25 percent which though reduced the revenue collection from 17.5 to 14.2 percent yet it helped tremendously in industrial growth, exports and investment in the country.

OUTLOOK

The government as well as the people of this country looks with a sense of pride and achievement at the strong economic indicators, the economy has achieved during last 3-4 years. It is proudly mentioned that the country has an impressive foreign exchange reserve of over $12.5 billion, the revenue, the exports; the agriculture targets have been achieved. Both manufacturing and agriculture sectors have produced tremendous results. It is however amazing that despite all these impressive economic achievements, the situation does not reflect in the living condition of the common man. Rather their sufferings being aggravated due to higher inflation and higher prices of essential items like wheat, electricity, and petroleum which have their own multiplier effects on general prices. It is the time that the people at the helm of affairs should take steps which give a sense of participation among the worst hit segment of the society.