Featured Post

Wake up Now ! جاگو ، جاگو ، جاگو

Wake up Pakistan ! Presently the Muslim societies are in a state of ideological confusion and flux. Materialism, terrorism,...

Thursday, June 2, 2011

Govt Gives Rs167b Tax Exemptions To The Influential Class Of Society

ISLAMABAD: The government has given Rs166.8 billion tax exemptions to the influential class of society in the current fiscal year, an amount which is Rs37 billion more than what the United States promised to give under the Kerry-Lugar aid package in a year, reveals the Economic Survey of Pakistan 2010-11.

Had there been no tax exemptions, the country’s budget deficit would have been restricted to 4.8 per cent of total national income, close to the revised deficit target. The exempted amount is 11 per cent or Rs16.4 billion more than last year’s tax exemptions. During financial year 2009-10, the government had given Rs150.3 billion tax exemptions.

In the outgoing financial year, slightly over 57 per cent of the exemptions were given on customs duties, over 15 per cent on sales tax and 28 per cent on income tax, states the Economic Survey. The exempted amount is Rs47 billion more than what the government wants to collect by levying additional taxes in the new financial year.

Though the government took some corrective measures by withdrawing tax exemptions on sales of fertilisers and tractors on March 15, still it is exempting all types of pharmaceutical products. The big chunk of the sales tax exemption comes under the head of ‘others’ and sectors that fall under this category is anybody’s guess.

The government gave Rs95 billion worth of customs duty exemptions, which is Rs18.6 billion or almost 25 per cent more than last year’s exemptions. The largest amount of Rs30.3 billion came under the head of general and conditional exemptions. In addition to this, Rs19 billion customs duties were waived in favour of original equipment manufacturers of the automobile sector. Besides, Rs9.4 billion duties were waived in favour of vendors of the auto sector.

An amount of Rs13.7 billion was waived on import of machinery, equipment and apparatus. The government also gave Rs10.8 billion customs duty exemptions on imports from China. The Federal Board of Revenue said some of these exemptions were due to international contractual obligations.

On sales of fertilisers and tractors, Rs6.9 billion and Rs4.9 billion sales tax exemptions were granted respectively. The figure is for the period from July to March 14 after which the government withdrew the exemptions and hoped to collect around Rs10 billion in the remaining three and a half months of the outgoing fiscal year.

On sales of pharmaceutical products, Rs4.1 billion tax exemptions were provided. In the ‘others’ category, Rs9.5 billion taxes were waived.

Under the head of income tax, the government gave Rs46.5 billion tax exemptions. Despite levying capital gains tax on the stock market, the government allowed Rs21.8 billion income tax exemptions, which is questionable. Last year, the CGT exemptions stood at Rs21.9 billion. The second largest amount of Rs20 billion was waived in favour of enterprises.

Tax paid by finance minister

According to tax data obtained from the office of Finance Minister Dr Abdul Hafeez Shaikh, he paid Rs85,173 in income tax from July 2010 through May 31. The tax has been paid on a monthly salary of Rs57,132 that he earns as finance minister. Official data shows that by end-June he will pay a total income tax of Rs92,916.

The minister’s monthly income tax comes to around Rs7,743, which is more than what the two-time former prime minister Mian Nawaz Sharif paid for the whole year. Nawaz Sharif is reported to have paid only Rs5,000 in income tax.

“I duly pay my all taxes on salary income and agriculture property,” said Shaikh. According to his office, Shaikh also paid over Rs9,200 in tax on his agricultural land, bringing his total tax liability to Rs102,116.

The finance minister is said to have paid taxes on assets he owns abroad, which is governed under the respective state’s income tax laws. Pakistan does not have laws to cover income earned abroad.

Published in The Express Tribune, June 3rd, 2011.

Economic Survey: A Tale of Missed Targets by Zadari's Govt

The Economic Survey Pakistan for 2010-11, released by the government on Thursday, appears a tale of missed targets and financial difficulties. Although the strains on the economy were quite well known, their detailed analyses given in the pre-budget document puts an official stamp on the performance of the economy during the current year. 

The overall picture emerging from the survey points to the fact that the challenge of putting back the economy on track and controlling the yawning fiscal deficit will require enormous effort.
During the year under review, economic growth remained low, investment went down and inflation remained in the double digit. Poverty figures are yet to be finalised. So is the case with unemployment data, which should be updated. However, it must be said that the government has been forthcoming in sharing with the nation the problems it had to face in various fields of economic activity as well as details of plus points like the surge in export earnings and home remittances. The decline in total investment from 22.5 percent of GDP in 2006-07 to 13.4 percent this year should be a matter of considerable concern. The slow growth of large-scale industry, which was no more than 1.7 percent, is also quite worrisome. This trend ought to be reversed in order to spur economic growth and create employment opportunities. The growth in agriculture sector has been estimated at 1.2 percent. The fact that the country is self-sufficient in food grains should be a matter of satisfaction.
Another area of concern is the big budget deficit, which is the difference between the government’s income and its expenditure. Even though the government announced new taxation measures in March this year, which would fetch Rs53 billion. After pruning current expenditure as well slashing the development programme, this deficit still remained high. In fact, this has emerged as a formidable challenge. Efforts are expected in the budget to enhance the government’s income and control the expenditure. Still the deficit problem seems to persist requiring bold policy initiatives.
This situation led to heavy bank borrowings by the government for budgetary support. This increased to Rs614 billion this year as compared to Rs398 billion last year. The borrowing from the State Bank leads to fuelling of inflation. The one from commercial banks leads to the burden of heavy interest. It also crowds out credit to the private sector, which business circles have been describing as a constraining factor.
It also needs to be emphasised that the high burden of domestic and external debt should be reduced. The Survey puts the total debt liability at a little over Rs10 trillion. As a result of this, debt servicing reached about Rs one trillion this year. This is on the very high side and ought to be controlled. This also brings into focus the urgent need for greater domestic resource mobilisation and moving towards a self-reliant economy.
Inflation, during the year, remained at around 14 percent. The fact remains that the majority of people continue to complain of high prices, especially those of kitchen items. People expect that the government will take specific measures in the budget to reduce inflation and also provide substantial relief to them. The need to control inflation and create new job opportunities remains paramount.
The Economic Survey also talks about the government’s reform agenda, which it intends to follow. This includes restructuring of public sector enterprises, power sector reforms, debt management strategy, fiscal austerity to reduce budget deficit, tight monetary policy to check inflation, building foreign exchange reserves, promoting exports, strengthening social safety nets, promoting and rising domestic revenue, rationalising subsidy regime and tax administration and policy reform to mobilise domestic resources. “The reform agenda is comprehensive as it takes into account the major challenges that remain on horizon,” says the Survey.
As the challenges have been detailed and a reform agenda spelt out by the government, it is fair to expect that this will be implemented with greater commitment. The economy had seen the ravages of floods and the impact of high international oil prices. It should now be possible for the government to move ahead with the agenda with greater confidence and conviction.