I
rise to present budget before the House after a long
time. We presented the budget 12 years ago when it was
certainly a different budget, a different social environment,
a different House and a different Pakistan.
2. Budget was not that large but at the same time the
deficits were also not large. At that time we did not
have such a large population, but the society also did
not have so much of poverty, hunger, unemployment and
disease. The House was not so large but it did not have
such complex issues to face. It was the same Pakistan
but it did not have problems and challenges of such
magnitude.
3. We handed over the country after putting an end to
loadshedding, but today not only the country but also
destiny and hopes of the people are immersed in complete
darkness. This was an agricultural country, which has
been handed back to us with famine like conditions.
There were small law and order problems, but we were
not so helpless before the terrorists because of which
lives of innocent people have become unbearable. Every
city is a dead place and fear has gripped every house.
On top of it, with the demise of our brave leader, Shaheed
Benazir Bhutto, the hopes and aspirations of the people
were also shattered.
4. We did not have so many resources but we were not
confronted with such grave problems. We may not have
had such a large infrastructure but infrastructure was
neither hallow nor crumbling which could break into
pieces with a slight tremor. Life was not so difficult
and hopeless to make living a burden. There was democracy
and the country was not under the rule of a dictator,
which makes life oppressive.
5. History is witness to the fact whenever we were entrusted
with power we inherited a broken Pakistan, surrounded
by upheavals, dangers, poverty, hunger, terrorism and
injustice. Our leader Shaheed Zulfiqar Ali Bhutto and
Shaheed Benazir Bhutto nurtured this country and its
poor people. However, we accept the present challenge
and assure the nation that we will salvage the situation
and retrieve the country from the problems that surround
it.
6. Before I present the specific proposals of the Budget
for the consideration of this House, it will be necessary
that I present the condition of the economy that we
inherited and the budgetary conditions prevailing in
the current fiscal year. Such an appraisal will enable
my colleagues to judge for themselves the economic conditions
surrounding us and appreciate the difficult choices
we are aced with.
7. The economy we have inherited was built on the windfalls
of the aftermath of 9/11.Ecnomic progress has not proved
to be sustainable. Significant amount of capital was
withdrawn from the West and transferred to the developing
countries; informal channels of financial transfers
were blocked, thereby resulting in huge inflow of remittances
through the normal banking channels; sizeable support
was received by the country from its partners in the
war on terror. The phenomenal increase in the flow of
foreign capital helped the country build reserves as
well as sustain high demand for imports. The economy
expanded significantly and high rates of growth were
achieved. However, much of the growth was driven by
growth in consumption, such as in consumer durables
- cars, TVs, refrigerators, air-conditioners, mobile
phones and similar consumer products. Commensurate investments
in industry, infrastructure and agriculture were not
made to support high growth on a sustained basis. This
mismatch in growth and supporting infrastructure is
poignantly reflected by the fact that we have no electricity
to use such durable goods. Similarly, urban roads were
not built to accommodate the growth in the motor cars.
8. The fragile foundation of growth was exposed as the
country suffered a series of shocks since the eruption
of judicial crisis on March 9,2007. This was followed
by oil price shock and widespread food shortages. Just
as these crises were brewing the government went into
policy inaction, delaying some painful decisions needed
to face these challenges, as it was politically expedient
in view of presidential and parliamentary elections.
The current budget has taken the brunt of all ills that
were associated with these crises so much so that it
is threatening to undo much of the gains, which the
economy had achieved in the last 4 years.
9. A quick account of unfavorable developments during
the year would enable us to gauge the damage done to
the economy:
i. In 2007-08, the economy will grow at 5.8% compared
to the target of 7.2%, and the actual growth rate of
6.8% last year;
ii. Both manufacturing and agriculture sectors have
recorded very low growth of 5.4% and 1.5% respectively;
iii. Inflation is running at 11% as compared to 7.8%
last year;
iv. Budget deficit after concerted efforts of this government
is still estimated at 7.0% of GDP, against the target
of 4%;
v. There was a phenomenal build-up in subsidies in the
budget, which are largely responsible for this huge
deficit. These subsidies, totaling Rs 4.07 billion include;
petroleum Rs 175 billion; electricity Rs 133 billion;
wheat Rs 40 billion, and textiles and fertilizers Rs
48 billion, of which only Rs 114 billion were provided
in the budget;
vi. Largely due to an exceptionally high fiscal deficit,
balance of payments is facing unprecedented deficit
as well. The current account deficit is projected at
$11.9 billion or 7% of GDP;
vii. Reserves have declined from a high of $16.5 billion
in October 2007 to less than $12.3 billion as at end
April 2008. This has put pressure on the exchange rate,
which has depreciated by nearly 6.4% during July 2007
to April 2008;
viii. Much of the deficit had to be financed from borrowing
from the State Bank, which is like printing more money.
As much as Rs551 billion (up to May 2008) have been
borrowed from the central bank, which is unprecedented
in country's history. It is not difficult to imagine
what this printing of money means. With more money and
no new production, only prices are likely to increase,
which is what is happening. We have to stop this process
otherwise the inflation will be running much higher
than what it is at present, and as I noted it is already
highest in country's history.
Madam
Speaker
10. The budget for 2008-09 is part of a perspective
plan on which the new government is currently working
and will shortly be finalized. Accordingly, we are taking
a long-term perspective while announcing the budget.
It will be useful to spell out the key assumptions about
the macroeconomic conditions assumed to prevail during
the year and will affect the budget. These are:-
a) GDP growth will increase by 5.5% in the year 2008-09;
b) Inflation will be contained at 12%;
c) Gross investment to GDP ratio will be maintained
at 25%;
d) Fiscal deficit will be contained to 4.7%;
e) Current account deficit will be reduced to 6% of
GDP;
f) Foreign exchange reserves will be increased to $12
billion.
Development Plan
11. Public investment remains an important engine of
growth, even though its share vis-‡-vis private
sector has declined in recent years, which is a good
thing, as we want private sector to bear an increasingly
larger burden of economic development. The National
Economic Council has approved a development plan of
Rs549.7 billon for the year 2008-09. This represents
an in crease of nearly 5 per cent over the budgetary
target of Rs520 billion for 2007-08, despite serious
resources constraint facing the economy.
12. We are setting the following key objectives for
the budget 2008-09:-
(1) Restore economic stability through:
(a) Significant reduction of fiscal deficit;
(b) Rationalization of subsidies;
(C). Reduction in current account deficit; and,
(d) Build-up of foreign exchange reserves to a minimum
of $ 12 billion.
(2) Protect the vulnerable Groups by increasing their
incomes through a targeted program of cash transfers;
(3) Focus on agriculture and manufacturing sector to
raise their productivity and competitiveness;
(4) Restore investors' confidence by declaring government's
commitment to economic growth and investment and private
sector's lead role in the process;
(5) Remove key bottlenecks in supportive infrastructure
for spurring growth;
(6) Increase social sector allocations to bring about
a meaningful change in the social indicators;
(7) Make significant additions to low cost housing to
lessen the rising gap in housing stock, especially for
the low-income groups
(13) The budget estimates for the year 2008-09 together
with a review of budgetary performance of the current
year i.e 2007-08 is presented below.
(14) Against a revised fiscal deficit of 7 per cent
of GPD for this year, the budget for 2008-09 envisages
a budget deficit of 4.7 per cent GDP. This represents
a significant fiscal adjustment and promises stability
in public finances. A combination of better revenue
collection and expenditure control measures has made
it possible for us to aim for this target.
15. FBR revenues will rise to Rs1250 billion form revised
estimates of Rs1000 billion for 2007-08, representing
an increase of about 25 per cent. A combination of natural
growth and discretionary effort proposed in the budget
will provide the necessary base for projecting this
meaningful increase in revenue collections. Current
federal expenditure has been budgeted at Rs1493, billon
against the revised estimates of Rs1516 billion for
2007-08. We will try to achieve further savings in current
expenditure on the basis of measures proposed to be
adopted for bringing fiscal discipline.
16 The government will reconstitute and convene the
meeting of National Finance Commission as soon as nominations
of members are received from the provinces. Provincial
transfers (including grants) are projected at Rs606
billion against the revised estimates of Rs490 billon
for the current year, representing an increase of 24
per cent. The projected income and expenditures indicate
that the provinces
are likely to have an improvement of about Rs79 billion
in their cash balances after catering for the local
component of their PSDP and extra expenditure.
17. Based on the above estimates, we expect that our
budget will help stabilize the economy, promote fiscal
discipline and further the process of economic revival.
Our measure of success will be reflected in averting
any further decline in market confidence and better
flow of investment both from local as well as from foreign
investors.
Impact on vulnerable groups
Madam
Speaker
18. It is widely documented that income distribution
in Pakistan has worsened during the last decade. The
wealth accrued during this period was not excitable
distributed. Even though much of the inflection is due
to foreign price increases, and while a large part of
the required price increase has yet to be passed. On
the conditions facing the vulnerable and fixed income
groups are precarious at best, and down right unbearable
at worst. We cannot afford to remain oblivious to the
plight of the poor. We still have time to act. It is
incumbent on us to react to their voices before they
are taken over by despair that state is unable to play
any meaningful role in their lives. We must insulate
these people from the vagaries of rising prices and
falling real incomes. The founding fathers of PPP had
'social justice' as the core value guiding their struggle
for democracy. Accordingly, we are determined to fulfil
our responsibility toward such groups and the current
budget will address this issue.
Infrastructure shortages
19. As I stated earlier, investment in the
infrastructure projects needed to support rising and
sustained growth were not undertaken either in public
sector or encouraged in the private sector. For instance,
in the power sector, the country is facing the most
sever load-shedding of its history. The peak demand-supply
gap was recorded at some 4500 MW. I cannot resist making
the point that this gap has occurred despite the fact
that 6500 MW of private power was added in the last
decade, all approved by the Peoples' government under
its Energy Policy of 1994. These IPPs, which are now
our saviors, were unjustifiably maligned and castigated.
Similarly, and even though significant amount of additional
gas was injected in the system again because of the
incentives offered under the Energy Policy of 1994,
yet there is a demand-supply gap of nearly 1.5 bef at
present and rising rapidly unless major sources of additional
supply are added to the system. We have to augment our
supplies both from indigenous sources as well as from
outside, both through imports and cross border pipelines,
as we are raising the priority of gas supply to power
sector to ensure that we fully utilize our existing
facilities.
20. When we took over, the nation was suffering from
localshedding and black out. WE took stock of the position
and are undertaking numerous measures in the short term,
medium term and long term to relieve the people, industry
and agriculture from the menace of electricity shortages.
These included conservation in electricity use, revamping
and efficient use of installed capacity, which will
make available 1500 MW of electricity. We assure the
nation that by taking these measures, loadshedding will
be substantially reduced. While textile industry will
have continuous round the clock supply, flour and ghee
mills will have 18 hours of supply. Agricultural tube
wells will have continuous power supply for 10 hours
at stretch every night to avail rebated tariff.
21. Water availability is now a real issue facing the
country. The need for expansion in storage capacity
has never been more pressing. However, at the same time
efficiency in water use is equally important. Thus alongside
increasing water storage capacity, we need to pay equally
serious attention to water use efficiently.
Madam
Speaker
22. Agriculture is the backbone of the economy, which
remained neglected and side lined during the last 8
years. Numerous measures and policy directions are being
put in place to ensure relief and motivation to the
farmer as well as incentives to the agriculture sector
to contribute its due share to the national economy.
These include:-
a) Increase of support price of wheat from Rs510 to
Rs625 per 40 KG.
b) Review of the support price for the next year's wheat
crop in August-September i.e. before the next sowing
season keeping in view the input cost and prevailing
international prices.
c) Provision of Rs75 billion in the PSDP to improve
the availability and efficient use of water resources
through construction of dams, rehabilitation of irrigation,
improve drainage system, lining of canals and water
courses throughout the country.
d) To ensure that agriculture produce retains its value
and quality and to facilitate its export. Cold chains
will be set up in the country.
e) Arrangements for import of bulldozers through foreign
collaboration to increase and improve the cultivable
area.
f) DAP fertilizer is an essential input that enhances
crop yields. The step increase in its international
prices is discouraging the use of this important fertilizer
and thereby adversely affecting productivity. Our government
will more than double the subsidy on DP from Rs470 per
bag to Rs1000 per bag. Subsidy on other fertilizers
will also continue. A total allocation for subsidy on
fertilizers has been increased from Rs25 billion to
Rs32 billion.
Complete exemption from sales tax and other duties on
imported and local supply of fertilizers and pesticides,
so that the farmers can get these at much cheaper prices.
The effect of exemption form duties in respect of both
fertilizers and pesticides is Rs6 billion.
g) Availability of credit to agriculture sector has
been limited as compared to industry and other sectors.
During the year an additional amount of Rs30 billion
will be made available in addition to total credit to
agriculture sector amounting to Rs130 billion disbursed
this year.
h) We are also revamping ZTBL and will broaden its outreach.
Madam Speaker
23. In addition to above measures, agriculture sector
will also be provided more incentives and facilities
through fiscal measures as well, which are:-
a) Exemption from 10 per cent custom duty on import
of rice seeds to ensure healthy and quality production
of rice in the country.
b) Duty free import of machinery and equipment for grain
handling and storage facilities to be de-linked from
the conditionality of local manufacture. This will largely
help in improving the grain handling and storage facilities
in the country.
c) It is also proposed to waive off the levy of 5 per
cent Federal Excise Duty on premium of crop insurance
policy also. These measures shall yield higher productivity
and substantial raise in the income levels of the common
man.
Livestock and Dairy
24.a)
Livestock and dairy is a major source of income and
livelihood for the rural population. Pakistan is the
fifth largest producer of milk. However, this potential
has not been optimally leveraged. In order to encourage
this sector, the prime minister's under his Special
Initiative for "White Revolution", an allocation
of Rs1.5 billion is proposed for the projects through
the PSDP in this sub-sector. These include livestock
processing and dairy production and development program,
establishment of an integrated national animal and plant
health inspection services facility and up-gradation
of animal health laboratories at NARC for poultry diseases.
b) In the fisheries sector such important projects like
aqua culture and shrimp farming, stock assessment survey
program in EEZ of Pakistan and fisheries training centre
in Gwadar are being undertaken for which an allocation
of Rs1.1 billion is proposed in the budget.
25. To enhance supply of quality seed to farmers, a
National Commercial Seed Production Program is being
prepared. Negotiations have been started for fast track,
formal release of Bt cotton varieties in Pakistan. This
would help in making our farmers more competitive in
production of cotton.
26. Foreign investment in agriculture sector will be
encouraged to increase our productivity and develop
cultivable areas. Large tracts of land will be made
available to foreign investors to induct capital and
technology in our local farming sector.
Industry and Manufacturing
Madam Speaker
27. Our industry is losing its competitive edge, which
is most notably reflected in slow-down in all categories
of textiles, which is the mainstay of our exports. There
are procedural irritants that add to the cost of doing
business in Pakistan. Similarly, a number of inefficiencies
inherent in the provision of infrastructure services,
such as electricity, have led to increased cost of production,
thereby adversely affecting our competitive edge. A
number of fiscal measures are being undertaken to incentivize
local manufacturing, which are:-
i) Customs duty on import of sewing machines in CKD/SKD
condition is therefore being increased from the existing
5 per cent to 20 per cent to promote and protect the
local manufacture of sewing machine parts and components,
ii) Import duties on raw materials, parts and components
of the industries are proposed to be reduced to the
lower slabs of zero, 5 per cent and 10 per cent respectively
depending on their nature and requirements,
iii) Tariff based system of the auto industry is being
improved further. For this purpose various additions,
deletions, mergers and creation of new tariff lines
in Schedule-1 of the Customs Act, 1969 have been proposed.
The new tariff lines will continue to attract additional
duty at the rate of 15 per cent as the respective items
are being manufactured locally,
iv) PTA is very important chemical for production of
Polyester Staple Fibre (PSF). It is proposed that new
rate of customs duty on PTA may be reduced from 15 per
cent to 7.5 per cent and duty on Polyester Staple Fibre
(PSF) may be reduced from 6.5 per cent to 4.5 per cent.
It is expected that this proposal will not only benefit
the textile industry in general but fabrics and garments,
in particular,
v) In order to maintain the prices of medicines at the
present levels and to provide relief to the local industry,
it has been proposed to reduce the rates of customs
duties on respective chemicals, active pharmaceutical
ingredients and packaging materials from the existing
10 per cent down to 5 per cent. Similarly as many as
18 more life saving drugs and medicines, as are used
for treatment of cancer and other terminal diseases,
are being completely exempted from import duties.
vi) The import duty on calcium carbide is proposed to
be reduced from the existing 15 per cent down to 5 per
cent.
vii) The import duty on caustic soda is proposed for
reduction from the existing rate of Rs5000 per metric
tonne to Rs4000 per metric tonne, being the industrial
input.
viii) Reduction of customs duty on import of printing
screens from the present rate of 15 per cent to the
lower slab of 10 per cent whereas its raw materials
are proposed for complete exemption of duty in order
to promote their local manufacture,
ix) Reduction in customs duty on import of buckram from
the higher slab of 25 per cent to the lower slab of
10 per cent for value addition to textile industry,
x) Extension of duty free import facility of samples
of no commercial value, to all manufacturers irrespective
of the fact whether they are direct or indirect exporters,
xi) Bitumen is presently charged to a concessionary
rate of 5 per cent duty, which is proposed to be exempted,
xii) The existing 20 per cent duty on import of base
oil for lubricating oil is proposed to be reduced to
the lower slab of 10 per cent,
xiii) Under the existing tariff regime, equipment used
in the telephone call centres are chargeable to 5 per
cent duty with complete exemption from sales tax. Two
of the major components namely voice cards and "vast
terminals" which are meant for use in the telephone
call centres are however chargeable to 10 per cent customs
duty whereas the "other digital call recorders"
attract 20 per cent duty on import. It is proposed to
reduce customs duty on the said category of equipment
and components to the lower slab of 5 per cent with
exemption from sales tax,
xiv) The rate of duty for polyester films is proposed
to bring at par with other items of the same category
and it will also become liable to 20 per cent duty,
xv) In order to encourage import of dedicated CNG buses,
15 per cent customs duty on their import will be abolished.
xvi) It is proposed to allow the import of dredgers
free of customs duty in order to reduce the costs of
port operations,
xvii) Energy saving incentives
In order to achieve the objective, the customs duty
on import of energy saver bulbs is proposed for complete
exemption. Two components namely "Generators"
and Deep Cycle Batteries", which are meant for
dedicated use in the solar energy equipment, are also
proposed for exemption from the customs duty.
xviii) It is further proposed that Wapda and its generation
companies be allowed temporary import of power generation
plants free of customs duty as against the existing
rate of 5 per cent duty. The local manufacturers' production
will be purchased by Wapda for distribution,
xix) In order to deal effectively with the energy crisis
in the country and to keep the prices as low as possible
so as to encourage its use, it is being proposed that
energy saver lamps may be exempted from sales tax. This
measure would not only ensure the availability of energy
saving lamps on cheaper prices but also save energy
up to 1000 Mega Watt,
xx) In order to give incentives to the investment in
domestic manufacturing industry, the government allows
import of raw materials, parts and components etc, either
at zero or reduced rate of duty provided these are not
manufactured locally. It has been observed that the
conditionality of local manufacture as envisaged in
respective notification SRO No. 565(1)/2006 unnecessarily
rate of duty under SRO 565(1)2006 is proposed to be
deleted,
xxi) It is proposed that any plant, machinery, equipment
and capital goods which is worth $50 million (C&F)
or more, being imported for setting up a new industrial
projects may be de-linked from the conditionality of
local manufacture. This will curtail the discretionary
powers of the administrative authorities and will provide
for the hassle free investment environment,
xxii) Tax incentives like time-bound tax holidays and
creation of tax-free zones/ industrial estates etc for
industrial development in the past ignored rural and
under developed areas. It is proposed that 90 per cent
First Year Allowance and 10 per cent normal depreciation
be allowed to the industries established in specified
rural and under developed areas duly notified by the
government. It will generate economic activity and employment
in such areas besides eradication of poverty and illiteracy.
Linked with this is providing enabling environment for
future Direct Foreign Investment (DFI) and stabilizing
economic growth by extending further already available
exemption to "Capital Gain" on sale of shares
of companies listed on stock exchange for a period another
two years.
xxiii) It is being proposed that caustic soda/flakes,
cotton linter and sequins should be zero-rated so that
financial liquidity in the Textile sector is increased
and the textile producers are free from the hassles
of delays in getting refunds on this account,
xxiv) It is, proposed that sales tax paid by non-resident
entrepreneurs/ traders arriving in Pakistan on trade
fairs may be exempted by inserting suitable provision
in the Sales Tax Act, 1990. This exemption will be available
to foreign entrepreneurs on reciprocal basis,
xxv) The government has strong desire to provide health
facilities on cheaper rates to the people of Pakistan.
For this purpose, the import of medical equipment, apparatus,
reagents, disposables, spares and donations supplied
to Government hospitals and charitable institutions
are exempt from sales tax. However, such good are taxable
if produced locally, which increases the cost of health
facilities. It is proposed that the local supply of
medical equipment, apparatus, reagents, disposables
and spares to the Government hospitals and charitable
hospitals having more than 50 beds and proceeds to the
exempted from Sales tax,
xxvi) The Government of Azad Jammu and Kashmir does
not allow its registered persons to get refund of input
tax paid in Pakistan because of paucity of funds with
the Government of Azad Jammu and Kashmir. The business
community of Azad Jammu and Kashmir has been demanding
since long that it should be given refund of input paid
in Pakistan. To resolve this long standing issue, it
is being proposed that registered persons in Azad Jammu
and Kashmir may be allowed to claim refund on supplies
of inputs from Pakistan. Accordingly, a new section
is being added in the Sales Tax Act, 1990 to authorize
FBR authorities to pay such refunds/repayments.
28. Expansion in communication links -roads, railways,
ports and terminals is an equally pressing need. Gwadar
port has yet to take-off for lack of supportive road
links to transport cargo up-country. We have to guard
against such occurrences because huge development funds
were invested, yet the economy has so far reaped no
benefits from such a gigantic project.
29. All the above factors, particularly infrastructure
shortages, are stunning our growth. We have undertaken
a detailed review of the current pipeline of approved
projects for development budget. We have deiced to prune
projects as we saw little benefit to the economy from
such projects. Details of this review will be provided
separately. However, I would like to state that the
development plan we are giving to the nation reflects
our priorities, which are based on economic realities
as well as people's aspirations.
30. Pakistan has to make important strategic choices
to ensure sustainable growth in the manufacturing sector
in rapidly changing and challenging international competitive
environment. This requires massive structural changes
rather than a marginal change, a shift in the production
paradigm to technology and knowledge-base industrialization
with a focus on the quantitative and qualitative growth
of an integrated and competitive industry in private
sector. The in-efficiencies of import substitution must
give way to export-led strategy.
31. The Government is crating a synergy between public
and private sectors to benefit from the respective strength
of each. A policy and operational framework for fostering
public private partnership is gradually evolving. Ministry
of Industries and Production also decided to "re-position"
it to play a leadership role in formulation and implementation
of a comprehensive strategy for rapid industrialization
of Pakistan which aims at maximizing job creation and
enhancing Pakistan's International competitiveness.
32. Government is taking a number of initiatives to
facilitate investors. The most effective support in
this regard is the establishment of industrial estates
with relevant infrastructure facilities. An allocation
of Rs. 1.0 billion is proposed for establishment of
Export Processing Zones (EPZ) in Balochistan to support
the growth and development activities around the Gwadar
port. China-Pak Economic Zone in Hattar, industrial
estate for Reconstruction Opportunity Zones (ROZs) in
Khushal Garh, NWFP and improvement, rehabilitation and
modernization of industrial development needs acceleration.
Specialized zones such as textiles city, garments city
and Marble and Granite City are also inhand through
public private partnership.
33. As I said earlier, significant shortages are emerging
in such critical sectors like power, gas, railways and
highways, which are now exacting a toll in form of slow
down in growth. Before any further damage is suffered
it is necessary to add to the stocks of such key infrastructural
resources. Accordingly, adequate funds have been provided
to meet this challenge:
(1) Power Sectors: Government is attaching highest priority
to reduce the demand supply gap for power, which is
crippling the economy.
The larger burden of this responsibility will fall on
the private sector as under the regime introduced by
the Energy Policy of 1994. It was to restrict the public
sector to only provide supportive infrastructure, policy
making and regulatory responsibilities. However, in
view of the urgency of the situation, limited temporary
- term investments have been allowed in the public sector
on the understanding that these will be disinvested
at the earliest possible opportunity.
An allocation of Rs66 billion is proposed to be made
of a number of power sector projects. The projects included
cover all the sub-sectors, power generation, transmission,
distribution and alternate energy. It is estimated that
2,200 MW of power will be brought on stream by the early
next year and we will not face the same situation as
during this year.
(2) Roads and Highways:
Communication links are central to economic development.
To give a significant impetus to the growth of road
network in the country, an allocation of Rs. 37 billion
is proposed to be made in the budget. This will cover
more than 60 schemes covering such important projects
like Makran coastal highway, Islamabad-Peshawar motorway
(M-1), Karachi Nothern By-pass, Indus Highway Phase-III
project, Noshki-Dalbandin road, Mansehra-Naran-Jhalkhad-Chilas
road, Lowari Tunnel access roads, rehabilitation, improvement
and widening of KKH, Hasanabdal-Abbottabad-Mansehra
expressway and
Faisalabad-Khanewal expressway.
(3) Roads and Highways:
Special Areas development program: It is proposed to
increase the allocation of for Special Areas Development
Programs for AJK, NA and FATA from Rs. 21.2 billion
to Rs 26.2 billion, which represents an increase of
24 %. This program will ensure equitable progress in
less developed regions of the country.
Human Development and Poverty Reduction
Madam Speaker
34. The main plank of democratic government's economic
policy will be human development and poverty reduction.
To this end, we are adopting a multi-pronged strategy.
First, allocations for expenditures related to poverty
reduction will be enhanced. Second, Special programs
will be initiated to enhance the incomes of low-income
groups. Third, a regionally diversified program of low
cost housing will be started that would aim to significantly
enhance availability of housing for low-income group.
35.The main features of development program and other
measures we plan to take in this budget to close the
social gap are as follows:
i. Education:
In the development plan we have proposed to allocate
Rs. 24.6 billion for education. It may be noted that
of the total federal PSDP for ministries, the funds
allocated to education sector constitute about 10 %
which is a very good allocation. It may also be stated
that larger expenditure on education and health is done
by the provincial governments and federal government
does basically a supportive role in these areas.
(2) Health:
An allocation of Rs19 billion is made in the development
plan for the health sector programs. The main vehicle
for implementing preventive health care is the lady
Health Workers (LHWs). This was a program, which Shaheed
Mohtarma Benazir Bhutto started back in 1994. Presently,
100,000 LHWs are in the field, but the desired coverage
of population is incomplete. To further broaden this
program, government will be recruiting 100,000 more
LHWs during the year. I may point out that we will be
doubling the number of LHWs in one year as compared
to the number recruited in 14 years. A number of preventive
health programs such as the Expanded program of Immunization
(EPI), enhanced HIV/AIDS control program, national TV
control program, national program for control of blindness,
control of hepatitis, maternal and new-natal and child
health program will be strengthened.
(3) Critical curative infrastructure is also planned
which includes such projects as a 400 bedded hospital
for chest disease for women, national plan for disease
surveillance, strengthening of district hospital and
up-gradation of BHUs.
(4) Clean drinking water: To improve the equality of
life for the poor of the country, government is launching
the clean drinking water initiative. An allocation of
Rs 2.2 billion is proposed for this program, under which
filtration plants will be installed throughout the country,
eventually at the village level. This is a participatory
program between federal and provincial government, on
the one hand, and between provincial and local government,
on the other. This project will mean a lot for the health
of our nation as the majority of our population is afflicted
by water borne diseases. Access to clean drinking water
will greatly reduce the risk of such diseases.
Benazir Income Support Program:
36. As I said, protecting the vulnerable from the vagaries
of price hike is the main objective of this budget.
For this purpose, government is launching a new program
to be known as "Benazir Income Support Program".
Under the program we are initially providing an amount
of Rs. 34 billion to be raised to Rs 50 billion to be
given tot eh poorest of poor. The salient features of
the program are:-
a) Cash grant of Rs 1000 per month will be given to
each qualifying household.
b) Selection will be done through the computerized NADRA
database under set criteria.
c) Computerized National Identity Card (CNIC) will be
used as well as their thumb impression.
d) The disbursement will be to the head of the household
from the nearest bank or post office.
e) Those who do not have CNIC will be encouraged to
apply for a card free of cost.
f) Data will be continuously updated to include eligible
households.
g) The beneficiaries of Benazir Card will also be provided,
in due course other welfare facilities like employment,
skill development training for family youth, medical
insurance, food subsidy.
h) In addition to the above welfare measures, the poor
will be supported through the existing program of Baitul
Mal, food items at subsidized rates will continue to
be provided through the Utility Stores whose network
will be expended to 6000 stores.
37. People's Works Program: Improving access of low
income groups to basic necessities of life will play
an important role in reducing poverty and improving
the quality of life. Thus we are reviving the erstwhile
People's Works Program of small development schemes
that would cover such basic areas like provision of
electricity, gas, farm to market roads and water supply.
I propose to allocate an amount of Rs. 28.4 billion
in the development plan for this purpose. The schemes
to be undertaken will be identified by the elected representatives.
This program will also create sizeable employment opportunities
and therefore add to the increased income of our people.
38. Human Resources Development Commission: Government
is setting up a Commission which will review the state
of unemployed people in the country regularly monitor
the unemployment rate and suggest measures for its control.
It will coordinate all programs aimed at providing employment,
imparting skills to the unemployed, broadening the opportunities
for technical training and vocational education and
encouraging work for food programs. Adequate resources
will be provided to find the activities of the Commission.
39. National Internship program: This program was started
last year for the benefit of those who have completed
16 years of education. It is proposed to continue this
program It is estimated that a minimum of 30,000 post-graduate
students will take benefit of this program during 2008-09.
An allocation of Rs. 1.6 billion is proposed to be made
in the budget for funding the internship program.
40. People's Rozgar Program: Creation of self-employment
opportunities has to form art of any program for employment
generation. For this purpose, we have to make arrangements
so that the unemployed can have access to credit to
enable him to start a useful business. Credit will be
provided to unemployed persons to start own small businesses.
The current self-employment scheme being undertaken
through National Bank will be augmented and new businesses
made eligible.
41. Women Development: No nation can progress by ignoring
half of its population. We believe in the social and
economic role of the women in particular women's contribution
to the economic growth of the country. A ten percent
quota for women across the board in all government departments
has been approved by the government, thus increasing
their role in the decision making process. Mohtarma
Benazir Bhutto had established the First Women Bank.
We will continue to support it. In addition, Khushhali
Bank, Zarai Taraqiati Bank will be encouraged to provide
credit for women for promoting women entrepreneurship.
In line with its commitment to remove gender imbalances
in society, the
government, through its Poverty Reduction Strategy Paper
and Medium Term Development Framework, has initiated
the process of gender responsive budgeting for mainstreaming
gender dimension in the budgetary process at the federal
level.
42. Microfinance: Microfinance plays a critical role
in the lives of the poor. The potential client base
of microfinance sector is around 25-30 million borrowers.
It is noteworthy the female clients make up 45% of the
total micro finance users. Government will strive to
increase the outreach of micro finance services to 3
million borrowers by 2010 including increase in rural
micro-finance.
43. Low cost housing: Shaheed Zulfikar Ali Bhutt had
given the slogan of roti, kapra and makan to Pakistan's
people. In keeping with this commitment, the Prime Minister,
in his 100 days program had announced that 1 million
housing units will be added to country's housing stock,
for low income groups and government employees. It is
proposed to allocate Rs.2 billion as a revolving fund
which will be further expanded through innovative financing
during the year to initiate these projects, so that
the execution of thee projects is not dependent on the
availability of budgetary resources.
Restoring fiscal discipline
Madam Speaker
44. Controlling fiscal deficit is the foremost need
for stablilizing the economy. We are moving in a number
of directions for this purpose. Many of the measures
proposed for this purpose, have been included in the
Finance Bill which I will be placing before the house
for its consideration.
(1) Freezing of non-development, non-salary expenditure:
As a first major step of economy, it is proposed that
government's non-development and non-salary expenditures
may be frozen at the revised level of the last year.
This measure has been adopted after realizing the grimness
of the budgetary situation and seeking the cooperation
of key institutions. However, the pink book had to be
published much earlier and, therefore, is not reflected
there. However, it is understood that all budgets in
excess of this limit will be slashed to adhere to this
principle.
(2) Ban on purchase of physical assets: With a view
to further economizing on public resources, it has been
decided to place a ban on the purchase of motorcars,
air-conditioners and other office equipment.
(3) Budgetary cuts for the Prime Minister Secretariat,
National Assembly and Senate: Prime Minister has offered
this sacrifice at the outset. The budget of his office
has been curtailed from rs.329.8 million to Rs.230.9
million. Also both National Assembly and Senate have
agreed to freeze their non-development non-salary expenditure
at the level of the last year.
(4) Budgetary cut of NAB: The Prime Minister, in his
opening speech to the National Assembly, had announced
that appropriate measures will be taken to wind-down
the National Accountability Bureau (NAB). In view of
this decision, there is no justification for NAB to
carry a budget that is not commensurate with its future
status. Since legal and procedural requirements have
to be met before it is decided to wind-up NAB, it will
function with a truncated mandate. Accordingly, a 30%
cut is proposed in the budget of NAB.
(5) Disclosure of details of defense budget: In a major
policy move government has decided to do away with the
past practice of presenting a single line budget for
defense. All the relevant details of the defense expenditure
are available for the review and debate of the Parliament.
This will go a long way to bring greater fiscal discipline
by inducing more economical use of available resources.
(6) Phasing out of subsidies: There is an unbearable
burden of subsidies currently carried by the budget.
Much of it is unintended and benefiting such groups
who are neither needy nor should they be subsidized.
It is estimated that at present more than Rs.400 billion
are provided in subsidies of all kinds from the budget.
A detailed pruning of subsidies is, therefore, necessary
ad inevitable to preserve country's finances.
(7) Limiting borrowing from the State Bank: Borrowings
from central bank have reached an unacceptable level.
This is a major source of inflationary pressures and
should be contained. Partly it is the result of fewer
choices available to attract non-bank resources and
relatively underdeveloped capital market. We are taking
a number of measures to address this problem. A new
borrowing instrument to be called Government Commercial
Paper has been designed and will be launched shortly.
This will be available on tap from all authorized commercial
banks for maturities of 3 months and 6 months and 1
year. New products of shorter maturities will also be
introduced in the National Savings Schemes. More importantly,
pricing on all government borrowing instruments will
be made attractive and competitive with market rates.
With these changes, dependence on central bank borrowing
will likely decline considerably. Amendments in Foreign
Exchange Regulatory Act are being undertaken to make
SBP more effective against irregular foreign exchange
operations. Similarly, SECP is also being empowered
through introduction of legislation to protect the investors
from insider trading and malpractices.
Relief Measures
Madam Speaker
45. As I noted earlier, fixed income groups have been
hardest hit by the price hike. The largest segment of
such people is in the service of the government. Accordingly,
it is imperative that immediate relief should be provided
to this group. Similarly, pensioners also fall within
this group and they also need some relief. Finally,
individuals investing in government savings schemes
need relief as real returns have fallen considerably
in face of rising prices.
46. Keeping these needs in view, government has decided
to provide following relief to the above groups:-
(a) A 20% increase in basic pay is proposed to all Federal
Government employees. The similar increase will also
be allowed to defence services.
(b) A 20% increase in net pension is proposed for all
civilian and defence pensioners.
(c) Minimum Pension increased from Rs.300 to Rs.2000.
(d) 100 per cent increase in Conveyance Allowance, for
government employees form bS-1 to BS-19, which is currently
at a very low level.
(e) Medical Allowance for BS-1 to 16 is being increased
from Rs.425/- to Rs.500 p.m
(f) Increase in minimum wages level from rs.4600/- to
rs.6000/- per month.
(g) Profit rates of National Savings Schemes (NSS) are
being increased by 2%. The rates will be revised quarterly
instead of biannually so as to minimize the gap between
NSS and market rates.
(h) Those government employees who are unable to work
due to illness, accident, earthquake and terrorism will
get complete pension benefits. The condition of 10 years
service is abolished.
(i) Regularization of contract staff from BS-1 to 15
is proposed.
(j) A pay and Pension Commission to be set up to review
pay and pension of government employees.
(k) No of posts of Judges of the Supreme Court is being
increased from 16 to 29.
Taxation Proposals
Madam Speaker:
47. I now turn to the Revenue proposals for the year
2008-09. Most of the Fiscal incentives for Agriculture
Growth, Industrial and Energy sector have already been
presented. As we all know that we are facing a very
challenging economy. Our foremost need is to be stabilize
the fast deteriorating economic conditions. A number
of far reaching steps have been taken to control the
expenditures so that the burden on budget is reduced.
However, such measures are not enough to meet the ambitious
target for deficit reduction, which we have set in the
budget. Accordingly, the rest of the burden will have
to be shared by carrying out a more diligent and concerted
effort on revenue mobilization.
Madam Speaker
48. There is a realization that our Tax Administration
revenue effort and service standard need drastic improvements.
Accordingly Reform of Tax Administration would be a
continuous commitment of the Political Government with
the objective to convert Tax Administration into a modern,
progressive effective and credible organization and
thereby enhancing the capability of the tax system for
optimizing revenue, increasing the tax to GDP ratio,
broadening the tax base, strengthening audit and enforcement
procedures, fair and equitable application of tax laws
though modern techniques, quality service and promoting
compliance with tax laws.
49. Before I place the taxation proposals before the
House, let me spell out that despite all odds, the net
collection during this year is expected to be around
Rs. One trillion. The heavy dependence on indirect taxes
is being now shifted to direct taxes which has gone
up to 39%. There is marked improvement in the tax return
filers. Due to low tax/GDP ratio, there is ample scope
to further improve revenue collection by FBR.
Customs.
50.
There is compelling need to curtail the widening gap
in Pakistan's international trade by discouraging imports
of the non-essential and luxury items.
It has therefore been proposed to enhance import duties
on about 300 non-essential and luxury items from the
existing 15%, 20% and 25% slabs of import duties to
the higher slabs of 30% and 35% respectively. These
items generally include perfumery, cosmetics, crockery,
ceramics, bath room fittings, kitchen utensils, furniture,
sporting arms and domestic appliances such as air conditions,
refrigerators, deep freezer, cooking range, ovens and
other such equipment. The list also include confectionary
items like biscuits, chocolates and cookies besides
cigarettes, cigars and some of the food preparations.
51. Similarly, the customs duty on the luxury vehicles
of 18cc engine capacity and above is being increased
from the existing 90% to 100%. Used motorcars and jeeps
of below 1800cc engine capacity are presently being
charged to the fixed amounts of duty and taxes. Respective
fixed amounts of duty and taxes are proposed to be enhanced
by 10 per cent. Specific customs duty of Rs500 per set
is being proposed on the import of mobile cellular phones.
Import duty on betel leaves is proposed to be enhanced
from Rs.150/- per kg to Rs. 200/- per kg.
Sales Tax & Federal Excise Duty (FED)
Madam Speaker
52. Following are some Sales Tax and Federal Excise
measures for the industrial growth:
53. To achieve sustained economic growth, it is essential
that sufficient revenues may be available with the Government
to spend on the socio-economic well-being of the people.
Presently, 15% rate of sales tax is comparatively low
in the region. In some cases, it is even 20%. In order
to meet the increased requirements of grater revenue
generation, it is being proposed that the rate of sales
tax may be increased from 15% to16%. To facilitate cross
subsidization of PDC, an enabling amendment is being
made in the relevant law for the government to levy
PDL on transport fuels like CNG, LPD whenever considered
necessary.
54.It is also being proposed to increase the rate of
federal excise duty on telecommunication services from
15% to 21 per cent, which is collected in VAT mode.
55. It is, proposed that 5 per cent FED may be imposed
on the imports as well as on the local supply of cars
having engine capacity exceeding 850cc.
56. To keep our rates of FED in line with the neighboring
countries and to increase tax to GDP ratio, it is being
proposed that rate of FED on banking, insurance and
franchise services may be increased from 5% to 10%.
57. The fixed rate of Federal excise duty on cement
is being proposed to be incased from Rs. 750 PMT to
Rs. 900 PMT on account of indexation of inflation.
Income Tax
Madam Speaker
58.Now, I highlight some of the important measures proposed
for Direct Taxes:-
59. Despite 20% annual increase in the number of taxpayers
during the last three years 2.2 million taxpayers in
a population of 160 million people is still very low
in the region. Like-wise tax to GDP ratio having remained
static at about 11% for the last so many years does
not reflect any appreciable performance. Your government
proposes to take two steps to improve the tax base:
a) Withdrawal of 35 income tax exemptions which would
be a landmark achievement and bold initiative compared
with the past governments.
b) Launching of a liberal "Investment Tax Scheme"
whereby taxpayers are proposed to declare past business,
capital formation and assets acquired, by paying just
2% on their market value and come forward to play their
constructive role in the advancement of documented economy.
The declarents would not have any fear of investigation
in their tax affairs for the past. A massive campaign
would be undertaken to make the scheme a success so
that there is a fair improvement in tax to GDP ratio
and number of taxpayers.
Madam Speaker
60.Following are the Tax Reliefs through Direct
Taxes:-
a) Minimum tax @ 0.5% on declared turnover is levied
on loss making
companies or companies whose income is not chargeable
to tax due to specific exemption provided in law. This
tax is obviously paid out of equity in the absence of
income for the year and is also regressive. It is proposed
to abolish levy of minimum tax to improve economic growth
and incentivize the taxpayers to grow in business.
b) Basic exemption of Rs. 150,000 for salaried taxpayers
is being raised to Rs. 180,000 and for Rs. 200,000/-
to Rs. 230,000/- for the women taxpayer. This measure
would provide relief to more than 75,000 taxpayers.
c) Taxation of salaried persons was rationalized to
provide 21 income slabs fro levying income tax starting
from 0.25% to 20%. However, hardship has been caused
in the shaps of higher tax incidence when income crosses
a slab to next higher slab and tax rate. This may happen
frequently due to incremental changes in salary income.
To provide relief to salaried class, it is proposed
to allow marginal relief in tax at every incremental
slab of income.
Madam Speaker
61. Following are the Direct Tax Revenue Measures:-
62. Advance income tax is collected on import of goods
@ 1% to 5% on individual and commercial importers. Instead
of a facilitation measure it has caused dichotomy where
manufacturers statedly misuse low rate of tax and possibility
of maneuvering tax payment at import stage by applying
incorrect withholding tax rates in connivance with the
state functionaries cannot be ruled out. To make the
tax payment transparent a uniform tax rate of 2% in
proposed for commercial as well as industrial importers.
This tax has also been made adjustable in the case of
companies who are engaged in manufacturing activities.
63. Industrial as well as commercial consumers of electricity
are proposed to pay advance tax @ 10% on their electricity
bills exceeding Rs. 20,000 per month, which would be
adjustable against their final tax liability. It will
help to discharge their tax liability in 12 installments.
Madam Speaker
64.A couple of years back income tax on property income
was levied @ 5% of the gross rent where the rent amount,
being only income of an individual or association of
persons, was above Rs. 150,000. It was a clear favour
to the higher income group and disincentive for the
lower income bracket. To make it equitable on the principle
"the more you earn the more you pay", it is
proposed to provide progressive withholding tax rates
for higher income brackets, ranging from 5% to 15% on
different income slabs.
65. The most lucrative investment in recent past has
been investment in real estate which has really retarded
industrial growth in the country. Development of land
into housing schemes, construction of high-rise residential
and commercial building attract huge profits but the
tax contribution in this field is very low, it is therefore
proposed that the developers and builders should pay
Rs. 100 per sq. yard on developed plots sold during
the year and Rs. 50 per sq. ft. on the sale of constructed
property as minimum tax.
Concluding Remarks
Madam Speaker
66. This a budget that will herald a new era of economic
stability, social justice and prosperity to all sections
of the society. This vision of Pakistan is that one
which was given by Shaheed Zulfiqar Ali Bhutto on that
historic day of 14th April, 1972 as President of Pakistan,
when he addressed the National Assembly which first
met to frame a constitution for Pakistan. He said:
Apart from the obvious requirement of justice and equity
between man and man and between regions, there is a
fundamental philosophy governing (our) approach. Our
economic muscle and national cohesion can grow only
with just economic and social order. It is only when
every peasant and every worker and the entire population
of all the regions are convinced in their own mind that
each one of them is striving and struggling for the
good of all, that the creative energies of the entire
nation will be fully harnessed. Otherwise, we shall
not overcome our national crisis.
67. This budget is for all the people of Pakistan. It
is seeking sacrifices from all sections who can afford
it. It is protecting the poor and the weak. It gives
an inclusive message, a sense of sharing. The crises
we are facing are daunting but this nation has been
tested in the past and we will prove that we are worthy
of successfully facing and overcoming these challenges.
Pakistan
Paindabad.
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