On June 05, the federal minister for finance, Mr Ishaq Dar, presented the federal budget for the fiscal year 2015-16 with a total outlay of 4,451 billion. This size is 3.5% higher than that of budget estimates 2014-15. According to the official budget document, the resource availability has been estimated at Rs. 4.168 trillion against Rs.4,073.8 billion in the budget estimates of 2014-15, showing an increase of nearly 2.32%. Out of these resources, net revenue receipts have been estimated at Rs. 2,463 billion thus showing a 10.7% increase over the budget estimate of the outgoing fiscal year. The government has estimated that the net capital receipts will reach Rs. 606 billion whereas privatization proceeds are expected to be Rs. 50 billion. It has also been expected that the provinces will generate a budget surplus of Rs.297 billion while revenue to the tune of Rs.310 billion will be generated through fuel taxes.
On the expense side, a current expenditure of Rs.3,482 billion has been estimated for the upcoming fiscal. Defence budget has been jacked up to Rs.781.162 billion, showing an increase of Rs.61.2 billion (11.4%). The total layout of defence budget has been earmarked at Rs.813 billion as an additional Rs.32 billion would be spent on the security-related expenses associated with China-Pakistan Economic Corridor (CPEC).
The debt servicing head has been given Rs.1.3 trillion and total development expenditure has been estimated at Rs.969 billion of which Rs.700 billion will be for the federal public sector development programme (PSDP). Reliance on borrowing from banks in the budget document has been stated as Rs.282.94 billion.
In addition, the finance minister has aimed to reduce the fiscal deficit to 4.3% along with raising revenue and increasing investment-to-GDP ratio. He has also vowed to address the energy deficit and promote exports besides consolidating and streamlining a host of other activities such as public debt management and the Benazir Income Support Programme (BISP).
However, a notable omission in the stated objectives of the budget 2015-16 is the stress on widening of the tax net as the basic instrument of raising the tax revenues rather than the tax rates. The reliance on an all-encompassing tax withholding regime to collect revenue persists and the discriminatory rates of withholding for tax-filers and non-filers, that has been further accentuated in the budget proposals for FY16, is expected to force non-filers to become compliant in order to reduce their high cost of doing business.
The revenue measures of the budget relate to mostly increasing rates of existing taxes and, in some instances reducing the rate of certain taxes. Notable among these proposals is one-time tax of 4% of income for banking companies and 3% for the rest, if the income is Rs.500 million or more. The proceeds from this tax are to be utilized for temporary displaced persons and are expected to be around Rs.24 billion. In order to coerce public companies except modarabas and banks to declare cash dividends, their reserves in excess of 100% of their paid up shall be taxed at 10%. The tax rate for companies has been reduced from 33% to 32% in compliance with the stated goal of reducing the tax rate by 1% every year till it reaches 30%. Tax credit has been allowed for enlistment on the bourse and investment in IPOs. This would also make privatization of state assets more attractive. Salaried class, in the lowest bracket, has been provided a much-needed relief. The rate of capital gain tax and holding period have been amended with an increase of 2.5% in each category and the holding period for a tax-free sale enhanced from 2 to 4 years. Banks would be subject to a 35% rate of tax on all incomes. Advance income tax has been imposed on all banking instruments and modes of transfers for non-filers. Tax on dividend income has been increased by 2.5% to 12.5%.
To mitigate the hardships of government employees, a 7.5% ad hoc relief allowance on running basic pay has been proposed. This would create pressure for the provinces and loss-making PSEs to accord a similar increase to their employees. Minimum wage for Islamabad, Azad Kashmir, Gilgit-Baltistan and Fata has been raised to Rs.13000 per month and this is bound to have an effect in the provinces and the private businesses that would follow suit.
The net revenue impact of taxation measures would be Rs.41.950 billion in Customs Duties, Rs.54 billion in Sales Tax and Federal Excise Duties and Rs.142.250 in Income tax. The proposed budgetary changes would therefore yield Rs.238.220 billion while the government proposes to raise Rs.15 billion through unspecified administrative measures, making a grand total of Rs.253.200 billion.
A hallmark of this budget is the acceptance of nearly all proposals that the PTI government in KP had suggested to spur economic activity in the province that has borne the brunt of the war on terror. The five-year tax holiday proposed for industries that are set up in KP, if handled deftly and prudently by PTI, and investors are offered a one-window operation, may well result in a beeline of investors and prove to be a game-changer for the province. Insofar as an 11.4% raise in defence budget is concerned, this increase has been warranted by country’s extraordinary security situation.
The 1973 Constitution & Budget
Articles of the constitution of Pakistan relating to the budget are:
Procedure with respect to Money Bill.
(1) Notwithstanding anything contained in Article 70, a Money Bill shall originate in the National Assembly:
Provided that simultaneously when a Money Bill, including the Finance Bill containing the Annual Budget Statement, is presented in the National Assembly, a copy thereof shall be transmitted to the Senate which may, within fourteen days, make recommendations thereon to the National Assembly.
(1A) The National Assembly shall consider the recommendations of the Senate and after the Bill has been passed by the Assembly with or without incorporating the recommendations of the Senate, it shall be presented to the President for assent.
This Article is about annual budget statement. It reads:
“The federal government shall, in respect of every financial year, cause to be laid before the National Assembly a statement of the estimated receipts and expenditure of the Federal Government for that year, in this Part referred to as the Annual Budget Statement.
The Annual Budget Statement shall show separately-
(a) the sums required to meet expenditure described by the Constitution as expenditure charged upon the Federal Consolidated Fund; and
(b) the sums required to meet other expenditure proposed to be made from the Federal Consolidated Fund; and shall distinguish expenditure on revenue account from other expenditure.”
It tells us about the expenditure charged upon Federal Consolidated Fund.
This Article is about procedure relating to Annual Budget Statement. It reads:
(1) So much of the Annual Budget Statement as relates to expenditure charged upon the Federal Consolidated Fund may be discussed in, but shall not be submitted to the vote of, the National Assembly.
(2) So much of the Annual Budget Statement as relates to other expenditure shall be submitted to the National Assembly in the form of demands for grants, and the Assembly shall have power to assent to, or to refuse to assent to, any demand, or to assent to any demand subject to a reduction of the amount specified therein;
It is about Authentication of schedule of authorised expenditure by the Prime Minister
It is about the Supplementary and Excess and the procedure of it to be laid down before National Assembly for approval.
The financial year in Pakistan starts on July 1 and ends on June 30. All the budget-related activities are done in between these two dates. The budget preparation starts as early as October when Budget Call Circular is sent to various ministries and divisions asking them to submit their tentative budgets for the upcoming financial year by the Ministry of Finance and Planning Commission. The whole process is carried out in the following phases:
1. From November to February, ministries and divisions submit their budget proposals to the concerned quarters.
2. In March and April, these proposals are thoroughly scrutinised by the Finance Ministry. After the scrutiny, the formulation of budget proposal starts.
3. During the months of May and June, consideration and approval of these budget proposals take place, which after the finalisation become the part of Annual Budget Plan. The budget after approval of Cabinet is presented in the National Assembly and a copy of it is transmitted to the Senate which may, within fourteen days, make recommendations thereon to the National Assembly. These recommendations, however, are not binding upon the federal government to be accepted. The budget is then debated on by the Parliament and is finally passed by the National Assembly.
The annual budget is generally presented before the National Assembly during the 2nd week of June and is passed by the beginning of the last week of June. This process generally takes 12 to 17 working days for the various stages in budget debates.
Budget once passed by the National Assembly is transmitted to the President for approval. The President must give his approval within 30 days. Once it receives presidential approval, it becomes an Act of Majlis-e-Shoora (Parliament).