ISALAMABAD (The News): The newly sworn-in finance minister Dr Hafeez Sheikh on Saturday presented the consolidated budget of the country with an outlay of Rs3.25 trillion, which is 10.7 per cent higher than the current fiscal, and a revenue of Rs2.574 trillion, showing a massive budget deficit of four per cent of the GDP (Rs 685 billion).
He said the federal revenues that include tax and non-tax have been targeted at Rs2.411 trillion while tax collection has been estimated at Rs1.667 trillion depicting a yawning gap of over Rs700 billion between government income and expenses.
The suave and smooth talking doctor-minister charged with fixing the ailing economy seems to have unleashed a deadly wave of inflation by increasing the general sales tax by one per cent from 16 to 17 per cent and reducing subsidies by over 80 per cent to 126.6 per cent when compared with the revised volume of subsidy of Rs228.9 billion of the outgoing fiscal. The economic czar, while announcing other interim measures, announced that 15 per cent Value Added Tax (VAT) will be enforced by October 1.
The government visibly succumbed to the pressure of the influential trade, textile, traders, surgical lobbies on the issue of implementation of Value Added Tax system, as it also did not withdraw the GST exemptions from the said lobbies. However, it instead opted to further increase the GST by another one per cent on such sectors and those elements which are already playing by the book and paying GST.
The minister first spoke passionately about the poor masses of the country, describing them as ‘the forgotten people’ who needed to be protected and then announced the ending of critical subsidy on Atta and, pulses, rice and tea at utility stores. In other words, no more ‘affordable’ basic food items for the needy poor who would line the stores to save every precious rupee. Maybe they were better off as long they had remained forgotten, to quote the minister.
According to economic experts, the increase in GST will further fatten the already killing domestic electricity and gas bills. Meanwhile, the government has reduced the income tax collected along with the electricity monthly bill from the industrial and commercial consumers from 10 to five per cent, a move aimed more at benefiting the relatively affluent segment of the society. In another surprise move, the government has also doubled the federal excise duty (FED) on gas from five per cent to 10 per cent. This translates into a Rs10 per MMBTU increase in FED. This too would have an adverse inflationary impact on gas bills across the country, according to economic experts.
In a welcome move, the minister announced a 10 per cent cut in the salaries of cabinet members and a 50 per cent special allowance increment in the salary of all federal government employees. According to experts, this increase being an allowance and not applicable on the take home package but on the basic salary package would in real terms come to about an increase in the range of the twenties.
The minister also announced to increase income tax exemption limit for salaried taxpayers from Rs200,000 to Rs300,000 benefiting approximately 430,000 taxpayers. “The exemption limit for non-salary income has been raised from Rs 100,000 to Rs 300,000 per year, benefiting about 350,000 tax payers.” Under the prime minister’s fiscal relief package to Khyber-Pakhtunkhwa, Fata and PTAT, addition tax relief of about Rs2 billion has been provided to benefit 300,000 taxpayers of the province. He said the taxation on interest-free or concessionary interest loans by employers has also been waived.
The minister announced that the subsidy under the head of inter-disco tariff deferential has been reduced from Rs70 billion to Rs30 billion. According to experts, this withdrawal of Rs 40 billion will also have adverse impact on electricity bills. The government has imposed a first-time ever 10% levy of FED on air conditioners and deep freezers adding to their consumer price.
The minister said that in order to reduce the vegetables ghee and oil, reduction in duty on import of Crude Palm Oil is proposed from Rs 9000 metric tomes to Rs 8000 metric tones. He claimed that this will provide relief to the general public. He also unveiled that that the import of X-ray film is also proposed to be exempted from customs duty. The minister also announced a five per cent concessionary import duty on the items which will be used for increasing the renewal energy resources. The government has already allowed duty free import of Energy Saving Lamps. For this purpose, five more items used in their production have been exempted from customs duty and this will encourage local manufacturers.
The duty rates have also been reduced by five per cent from 15 to 10 per cent raw material, coconut acid oil and sodium sulphate to reduce the manufacturing cost of the soap and detergent.
The processing machines have also been exempted from customs duty to encourage value addition and export of rice. The road sweeping lorries imported by civic bodies will also be allowed the concessionary rate of five per cent.
The government also increased the income tax for the association of persons (AOPs) at a flat rate of 25 per cent against the existing progressive rate averaging up to 20 per cent. “This step will encourage corpratization.”
Tax on short-term capital gains on stocks or shares will be charged at 10 per cent where shares are held for a period less than six months and at 7.5 per cent where they are held for more than six months and less than 12 months. However stocks held for every one year will not be subject to Capital gain tax.
The withholding tax rate (WHT) payable by commercial importers has increased from four to five per cent. In addition, the minister also announced to increase the withholding tax on banking transactions including withdrawal through demand draft, pay order, RTCs, CDR will be charged at 0.3 per cent where such transaction exceeds Rs 25000 in a day. Withholding Tax (WHT) rate on domestic air travel has also been imposed at 5b% per cent on gross value of the ticket.
The minister also announced to increase WHT on loss making companies and Association of Persons (Ops) from 0.5 per cent to 1 percent.
He also announced a number of steps for improvement with a view to facilitating the taxpayers and incentivizing foreign investment which include that the reduction in the final rate of withholding tax on non-specified payments to non residents; Tax free payments to non-residents on profits on debt has been allowed: 10 per cent tax credit for balancing, modernization and replacement to all companies and 5 percent tax credit has been allowed to a company in the tax year of its enlistment.
In addition 10 per cent withholding tax, as final charge, has been imposed on profit on debt (in debt instruments) and also for the investment in government securities (treasury bills) to allow hassle free compliance by non-residents.
On the relief side, the government has doubled the medical allowance for the employees in BS-1 to 15. For employees working in BPS-16 to 22, medical allowance will be allowed at 15 percent of the monthly basic pay.
Pensioners who retired after 2001 will also be allowed 15 per cent increase and those who retired prior to 2001 will be 20 percent increased.
The pensioners who retired in BS-1 to 15 will be allowed medical allowance at 25 per cent of pension drawn while those retired in BS scale 16 to 22 will be allowed medical allowance at 20 per cent of pension drawn. The minimum monthly pension has been raised from Rs 2000 to Rs 3000. The rate of family pension has enhanced from 50 to 75 per cent. The other minor allowances for employees in BS-1 to 16 namely night duty allowance, conveyance allowance for late sitting staff, daily allowance and special pay have also increased substantially.
The minister also announced the Rs 5 billion scheme for employment generation for rural unskilled workers. Under this scheme, he said, unskilled workers would be guaranteed employment for one hundred days in a year. To this effect a pilot scheme will be launched in 120 union councils in twelve of the least developed districts and others that have suffered the most due to the security situation. He said that the government has allocated Rs 50 billion to benefit four million people.
A massive amount of Rs 1.003 trillion will be transferred to the provinces under the 7th NFC Award compared to the Rs 655 billion estimated during the current financial year.
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