BUDGET FY13

AROOJ ASGHAR
(feedback@pgeconomist.com)

June 4 - 10, 20
12

Finance Minister Dr. Abdul Hafeez Sheikh unfolded the budget of Pakistan for the fiscal 2012-13 on 1st June. The main debating point in budget 2012-13 is how the government handles the huge fiscal deficit and what measures are taken to boost the economy.

According to the estimates, the budget total volume is set at Rs2,960 billion i.e. seven per cent greater than last year whereas budget deficit is likely to remain at Rs1,185 billion and Rs1,459 billion will be transferred to provinces under the NFC Award.

Economic survey 2011-12 has estimated 3.7 per cent GDP growth against the target of 4.2 per cent and actual growth of three per cent in 2010-11. The agriculture sector is estimated to grow by 3.1 per cent as against the target of 3.4 per cent as floods and rains badly affected the crop of Sindh, which is offset by good harvest in Punjab.

Industrial sector particularly remained confronted with gas and electricity outages and is expected to grow by 3.4 per cent whereas the services sector grew by four per cent, which is below the targeted growth of five per cent.

Foreign direct investment (FDI) has touched its lowest ebb in almost one decade during the first nine months (July-March 2011-12), which constrained economic activity in the country. FDI fell by 48.2 per cent during July-March 2011-12 and stood at $599 million as against $1,157 million in the comparable period of last year.

Resource mobilization for implementing the proposed national budget for fiscal 2012-13 will be a major risk. Due to massive dwindling of foreign direct investment, economic managers have faced with the difficult choice of relying heavily on domestic borrowing to bridge the fiscal deficit in the next fiscal 2012-13. For some reason, the budget is silent on specific poverty figures, but low GDP growth, decrease in income, and rise in unemployment are clear indicators that poverty has swelled to an unmanageable level.

According to the budget document, the government would have to make heavy borrowings to bridge the budget deficit that would lead to increase in rendering all Pakistani goods uncompetitive in the global marketplace due to high input cost.

Tax revenue target is set at Rs2,381 billion for the fiscal year 2012-13 against last year's target of Rs1,952 billion. Tax target of Rs2,381 billion includes direct taxes of Rs932 billion and indirect taxes i.e. customs duty, sales tax, and federal excise duty, of Rs1,571 billion. There is a need to increase the tax net and efforts should be made to add more taxpayers. It is the responsibility of every citizen to pay tax.

Government generates funds through imposition of different surcharge and taxes on petroleum products, which is one of the biggest sources of income for the government. It is estimated that government will generate non-tax revenue of Rs730.3 billion in 2012-13, which is mainly coming from different surcharges including gas development infrastructure cess (GDIC), petroleum levy (PL) on petroleum, oil and lubricants (POL).

Country is facing serious shortage of electricity and gas. In a country where power cuts have become a national frustration, there is an exceedingly likelihood that the protest can go violent in coming days. Spontaneous and sometimes planned protests by citizens fed up with power blackouts have become an almost daily occurrence in cities and towns across the country. Television channels regularly show pictures of people setting tyres on fire and shouting slogans to vent their anger at the authorities. There is no two opinion that power cuts have slowed Pakistan's already struggling economy even further, forcing factory closures and putting thousands out of work. Electricity crisis can best be explained as a problem of infrastructure, inefficiency, and decades of mismanagement. No serious effort has been made to address the shortage of electricity and gas in the country. Government has allocated Rs192 billion to enhance installed power generation capacity of PEPCO by adding 1,104 MW in the national power system during the upcoming fiscal 2012-13. Sixty-seven ongoing schemes of water sector for FY 2012-13 have been approved in the budget, including mega and small hydro projects.

Allocation for Benazir Income Support Program (BISP) has increased from Rs50bn in FY12 to Rs70bn in FY13. Instead of giving stipend to poor people, government should take measures to provide them a source of earnings and livelihood.

Government has reduced the sales tax rate from 17 per cent to a uniform rate of 16 per cent. This is being viewed as a positive step towards the implementation of VAT. For the benefit of small traders, the withholding tax ceiling on cash withdrawals from banks has increased from Rs25,000 to Rs50,000. Turnover tax is reduced from one per cent to 0.5 per cent, which is being viewed as positive measure and will help in increasing exports of the country. Custom duty is also reduced from existing 35 per cent to 30 per cent. In addition, federal excise duty on 10 items has been abolished which will increase the business activity in the country. The current budget is no different from previous budgets presented during the last three years.

Federal Minister's in his short budget speech highlighted the same old trade deficits, the same old missed export targets, and the same old difficult economic conditions. Enhancing revenues to minimize dependence on external finances, cutting down the government expenditures, enhancing growth through a new growth strategy, and job creation have not been properly featured in the budget.

Proposed budget continues years-old practice of collecting tax from the poor and providing fiscal relief to poor. Rich once again remains inadequately taxed or untaxed. Unfortunately, level of inflation remains high in last fiscal year and the trend will continue in next fiscal year.

The government should explore new avenues of earning to boost the national economy, which is not possible without bringing everyone into the tax net. The government should also focus on cutting non-development expenditures and bringing transparency in public spending and efficiency of service delivery in order to promote confidence among taxpayers. Privatization of loss-making public sector enterprises (PSEs) like PIA, Pakistan Steel Mills, Pakistan Railways, etc. will stop leakages of public finances.

However, under the prevailing economic situation, budget seems irrelevant and is merely an annual exercise. Next year is going to be the toughest years in the recent history of Pakistan. As a matter of fact, we couldn't properly identify our source of revenue. There is a huge gap, which we expect to be filled by IMF and other donor agencies including aid from USA. The current electricity crisis will continue for the next 5 to 6 year even if we start work today. Though budget is allocated for different power projects, none of the project will start producing electricity before 2018. The only quick solution is gas from Iran, which seems not possible due to US pressure. Without resolving energy crisis, forget about GDP growth rate, reduction in imports, increase in exports, business environment etc.

In all fairness, economic condition needs serious consideration. Everyone should and must contribute towards economic revival. Solution of this economic problem is simple but the question is how to implement.