June 11, 2008	Wednesday	Jamadi-us-Sani 06, 1429

RAWALPINDI, June 10: Def-ence expenditure went up by 10 per cent during the current fiscal year, from Rs250 billion in 2006-07 to Rs275 billion in 2007-08, says the Pakistan Economic Survey.

The survey, released on Tuesday, said the average growth of defence expenditure at constant prices had been relatively sluggish at 4.5 per cent owing to the government’s consistent efforts to minimise it and increase development and social sector expenditures.Contrary to the general perception, defence spending in real terms grew at an average rate of 4.5 per cent a year as opposed to 15.2 per cent for the social sector and poverty-related expenditures and 20.8 per cent for development spending.

In other words, development spending has grown at a much faster pace than the social sector and poverty-related expenditures, its pace being thrice the speed of growth in defence spending.

Total real expenditure grew at an average modest pace of 7.7 per cent per annum in the 1980s owing to sharp acceleration of 10.5 per cent in real current expenditure.

Development expenditure grew by a modest 2.7 per cent on average in real terms but interest payments grew by 18.1 per cent, reflecting a tremendous pace of accumulation of public debt.

Interestingly, the survey said, real defence spending followed a higher growth path and grew by 8.9 per cent on average.

Such a level of fiscal indiscipline forced the country to undergo a painful period of structural adjustments in the 1990s.

The rate of growth of real expenditure slowed in the first half of the 1990s but at the expense of development expenditures which witnessed a contraction of 1.7 per cent, on average, to contribute 2.4 per cent growth in real expenditure in the period.

Current expenditure, however, grew by 3.9 per cent, thanks to only 0.7 per cent growth in defence spending and a relatively slow growth of 4.2 per cent witnessed in interest payments.

Non-defence-non-interest expenditure also grew by a modest 3.0 per cent in real terms.

Even the sharp fall in real development expenditure which contracted sharply by 3.5 per cent in the second half of the 1990s could not restrict current expenditure to grow at a faster pace of 5.0 per cent, mainly because of a massive 13.7 per cent average growth in interest payments.

Resultantly, total expenditure grew by 3.1 per cent per annum in the period; however, non-interest non-defence expenditure registered a negative growth of 1.2 per cent per annum.

The second major item, defence spending, inched up marginally by 0.1 per cent per annum.

The survey said the total revenue collected during the current year stood at Rs1,545.5 billion, higher than the targeted level of Rs1,476 billion.

The increase of Rs69.5 billion from the budgeted revenues was mainly due to higher than targeted non-tax collections.

Tax revenues, however, exhibited a disappointing performance. Political disturbances and a less than satisfactory law and order situation seriously hampered the revenue collection efforts of the FBR.

The FBR may fall short of its targeted level, and the year is most likely to end with tax collection amounting to Rs1.0 trillion—Rs25 billion less than the original target.Notwithstanding the shortfall, the government has made an extraordinary effort to collect more resources from the non-tax revenue side.

It is expected that the government may collect an additional Rs103 billion in non-tax revenues which may reach Rs483 billion.

Slippages in provincial tax revenues amount to Rs8 billion.

The FBR was assigned an ambitious revenue target of Rs1,025 billion for FY 2007-08, and to reach this target a reasonably high growth of 21 per cent was required over last year’s collection of Rs847 billion.

With a booming economy, the possibility of achieving the target was bright.

However, revenue collection efforts were seriously hampered due to political unrest in the country during most of 2007-08. The chaotic incidents of Dec 2007, accompanied with a severe energy crisis and long hours of loadshedding, adversely affected industrial production. Resultantly, the FBR suffered a revenue loss of Rs35 billion.

At the end of April 2008, the net collections had reached Rs763.6 billion, higher by 16.3 per cent over the net collection of past fiscal year (PFY), but short of the assigned target of Rs787.7 billion.

Thus, revenue collection has so far achieved 97.0 per cent of its target, which was Rs1,025 billion at the beginning of the year.

A detailed analysis reveals that the gross and net collection increased by 12.3 per cent and 16.3 per cent, respectively.

In absolute terms, the gross and net collections went up by Rs89.9 billion and Rs107.1 billion, respectively.

The overall refund/rebate payments during the first ten months of the current fiscal year (CFY) amounted to Rs55.8 billion, relative to Rs73.0 billion paid back during the corresponding period of the PFY.

Among the four federal taxes, the highest growth of 28.9 per cent was recorded in the case of federal excise receipts, followed by sales tax (19.5 per cent), direct taxes (12.5 per cent) and customs (11.4 per cent).