SOME FOOD FOR THOUGHT

Principal, Hailey College of Banking and Finance, University of the Punjab, Lahore.

BY PROF. DR. KHAWAJA AMJAD SAEED
May 29 - June 04, 2006

The Federal Budget 2006-07, WHICH is ensuing fast, stress and tension continues to mount on various segments of the society. The salaried persons, suffering from the onslaught of inflation, are expecting increase in their salaries. Business community is eagerly awaiting announcement of incentives, rebates and other benefits. Expecting raise in taxes on luxury items, some people, having belief in hoarding, are thinking of business malpractice. Small farmers, small business people, small shop-keepers are also expecting a package of incentives from financial institutions. Chambers of Commerce and Industry are hoping for a favourable treatment to their suggestions by the Government. Stock Markets desire the luxury of enjoyment of no capital gain on income tax front. Real Estate dealers wish to continue to be untaxed. Indeed all types of stakeholders have different desires and perceptions.

BUDGET CHALLENGES

Some strategic challenges facing preparation of Federal Budget 2006-07 are as under :

A: REVENUE BUDGET

1. Unlike a deficit of Rs.184 billion in Federal Budget 2005-06, the forthcoming budget (2006-07) must generate a surplus so that sufficient amount is available for financing ADP 2006-07.

2. In indirect taxes, as announced earlier, Federal Excise was to be merged into sales-tax. The sales-tax net be expanded and the standard sales-tax rate be reduced.

3. The current number of income tax payees is around 1.4 million. CBR, with support from Federal Government, should endeavour to expand it to at least 2.0 million now with increasing targets of 2.5 and 3.00 million in the forthcoming two years. Except for pensioners, all exemptions at present available under the Second Schedule of the Income-tax Ordinance, 2001, be withdrawn immediately.

The foregoing suggestions will boost domestic resource mobilization and develop a sense of confidence on self reliant basis and result in not resorting to debt.

4. Current expenditure needs substantial review. This should be cut down to 25%-30% against 37% of Federal Budget 2005-2006.

5. As nuclear deterrent exists in Pakistan, around 200,000 army-men be channelized to civil work assignments namely, establishing cottage and small industries near the border areas, construction of farm to main roads and undertaking physical infrastructure jobs. This concept is known as "Productive Army".

B: ADP

1. As against 50% allocated to departments of Federal Government in ADP 2005-06, this should be restricted to a maximum of 35% in 2006-07 budget.

2. Provincial ADPs were allocated 25% in ADP 2005-06. This amount is suggested to be increased as under:

2006-07 30%
2007-08 35%
2008-09 40%

Provincial harmony is likely to follow with financial autonomy- thus strengthening federation.

3. No amount be allocated to autonomous bodies in ADP 2006-07. These should be asked to enjoy the autonomy of raising funds from other sources like capital market rather than be a burden on the ADP.

4. The practice of allocating appropriate amount to special programs and special areas must continue till such time sound planning at grass root takes firm root.

5. Dependence on external assistance and bank borrowings be discouraged and be replaced by a determined will to raise resources from domestic front by trying all strategic moves including a crackdown on tax evasion, withdrawal of exemptions and expanding tax base.

CONSTITUTIONAL ASPECTS

The Federal Budget must address issues identified in the 1973 Constitution of Pakistan. Selected articles requiring urgent attention of the Parliament and affecting the forthcoming federal budget are listed below:

ARTICLE

FOCUS

3

Elimination of exploitation.

8

Freedom of trade, business or profession.

37

Promotion of social justice and eradication of social evils.

8

Promotion of social and economic well-being of the people.

Common man is in search of solutions to their basic needs. The earlier these are addressed, the better. Social tensions are mounting and need attention of the Federal Government.

SUPPLY SIDE

Production shortages in agriculture, vegetables, meat, large scale industrial units products, energy, food and other aspects be carefully addressed. Hoarding should be eliminated. Self confidence can only be achieved through supply side of economics.

CONCLUSION

It is high time that strategic initiative are undertaken to ensure that the fruits of prosperity are shared by common man and sense of confidence is assured in Pakistan and her constituents.