Below are highlights of the budget speech of the minister of finance Shaukat Aziz. This is being transcribed live. We apologize in advance for any errors or omissions. The speech was to start at 17:30 PKT.
 I am happy to be presenting the budget for 2004-2005. In the last few years we have laid the foundation to accelerate the speed of growth like China and Malaysia etc. In 2003-2004 was the 1st year of PM Jamali’s government. There were fears that the process of fiscal reforms will stop under the new government. This has proved to be false. The PM had promised that he would do away with adhocism and continue the process of reform. For the first time in 8 years we have achieved an economic growth rate of 6.4%. The idea of this progress can also be gauged from the steady improvement of our credit rating. All this is not because of the events of 9/11. In any case its now been a fairly long time since 9/11. Our people need economic opportunities so they can prosper. We are not magicians. We have only done reforms. The government, business, regulators and consumers all have a role to play. In the past expenditures went unchecked and governments borrowed, placing the burden of repaying them on future generations. We have controlled expenditure. I am happy to say that we are now financially independent, and we will soon be able to say goodbye to the IMF. Our recent floatation of Euro bonds has also been very successful. Mashallah we are now in the position to pay off our expensive debts ahead of time. We need to increase our economic growth to 8%, which cannot be done without private investment and growth in agriculture. We need to restructure or sell unprofitable state enterprises. Much of our infrastructure needs improvement. Our emphasis has so far been on macro-economic matters. Now we have to redouble our efforts to achieve the higher growth rates. We need to reduce the cost of doing business in Pakistan, especially in light of the WTO. We want to grow at 8% while keeping inflation below 5%. These are not easy but if we don’t stray from the path of reform we can achieve these. The PM has asked for a 5 year economic plan for the country to be prepared. The government is now a position to invest in massive infrastructure projects worth Rs 202 billion - the highest in the country’s history. While we have enough water we need to use it wisely, drastically reduce wastage, build dams, prepare flood canals etc. Our allocation this year is 40% more than last year. We need about $5 Billion for revamping of our electrical network. We have allocated Rs21 billion for the electrical sector this year. We are looking to the private sector for a lot of investment in this sector. Now to communications… We have initiated a lot of projects in this sector. We have allocated Rs17 billion for this sector, which is one billion more than last year. We have a very good railway system but it needs to be revamped with new technology. We have allocated Rs9.3 billion for this sector. For the Gwadar deep sea port we have allocated Rs 5 billion for this year. Now to human development…. For education we have allocated Rs 13billion, compared to only Rs 6 billion. For health we have allocated Rs 5 billion. For the tamer-e-pakistan we had allocated Rs 4 billion for water, gas and related projects. This allocation has been increased to 5.7 billion. PIDC, PTCL, Sui Gas Company etc are expected to greatly increase their investment. The provincial development expenditure has been increased to Rs 54 billion. Social safety net….. The new steps we are taking for the coming year include 3 new programs…. The National Technical and Vocational Training Authority. We need to have our youth to be trained in skills which are needed by the country. The authority will be responsible for this in all its aspects. There will be incentives announced for the setting up of vocational institutes. We will be starting a pilot program for rural development. We are spending Rs 100 million for this pilot project. We are also working on expanding our cottage industries. So far they have not been helped they way they should be. We plan to give loans, technical and marketing training. We intend to focus on the women in this regard. Rs 100 million will be made available for this. Another important program is to improve the infrastructure of our cities. We are making a massive new program for urban renewal. Local governments will be given funds directly and municipal bonds will be issued. I would like to make some comments on our debt repayment strategy…. This has been a priority for us. I want to tell this august gathering that we have been very successful in this. All statistics suggest this. We have the opportunity now to make more funds available for development. All our friends have either rescheduled or written off many of our loans. We have also repaid most of expensive loans. We have presented a draft to the assembly which caps the amount the government can borrow. This is the first time in our history. We appreciate that while overall inflation has been low, we realize that there have been increase in prices of some commodities which effect the poorest among us. A lot of this is a direct result of the global increase in oil prices. You will be happy to hear that we are reducing electrical tariff. For domestic users this reduction is Rs 0.05 per unit, for commercial users Rs 0.25/unit and Rs 0.58 per unit for the industrical consumer. We are also planning for a gradual decrease in the price of wheat. The people below the poverty line have reduced by 4.2% over the past year. The importance of agriculture is obvious. Apart from being 26% of our GDP it also provides employment to the majority of our population. To reduce the shortage of tractors we are giving incentives. We are also allowing import of certain tractors at only 10% duty, and they will not be subject to withholding tax and GST. This will not effect our local industry, since these are not manufactured in the country. We are self sufficient in Urea fertilizer at prices below the world standard. To give agricultural sector another boost the markup is being reduced from 14% to 9%. This is for loans for tube wells and other agricultural inputs. The agricultural development bank will no longer have the right to arrest defaulting farmers. They will be treated like other loan defaulters. The package for corporate farming is in the final stages of preperation and we expect to announce this soon. Similarly a package for co-operative farming is also close to finalization. Banks will also be issuing agricultural credit cards and leasing companies will be announcing packages to enable farmers to lease tractors and farming equipment. Our industrial sector has shown massive growth this year. We intend to support the industrial sector even more. We have instructed government functionaries to not bother the industries unneccesarily. We are also reforming the sales tax system. Under the WATO we are reducing duties, increasing the rates allowed for depreciation. A textile city will be made in Karachi and soon replicated in other cities. We are looking to generate one million new jobs in this sector. We are particulary focusing on SMEs, Housing and Construction and the IT sector for new jobs. For SMEs the limit for sales tax is being raised tenfold. This will bring a large numbers of SMEs out of the sales tax regime. Housing and Construction is an important driver of growth. It effects 40 other industries. We had already given a lot of incentives to this sector last year. This has resulted in 8% growth this year. There is a potential of 2 or 3 times this growth with positive policies for this sector. We believe some other steps will help as well. This includes fast approval of plans and completion certificates. We are also eliminating excise on paint and varnishes. Banks have started giving loans to this sector and also that cases in courts be decided in timely manner. Our overseas Pakistanis are a great assett. They remitted $3.8 billion this year, against a target of $3.4 billion. We are giving duty reduction for returning Pakistanis. I urge overseas Pakistanis to use official channels to remit their money to Pakistan. We also intend to make it easy for small investors to access the capital markets at fixed and variable rate instruments. On Pension reforms….. The SEC will be announcing pension funds policy. We intend to have Islamic Insurance products like we already have Islamic banking institutions. The Budget…… Our budget deficit in the current year was 3.9% which was below target. Next year we are aiming for 6.6% growth and therefore we are aiming for a budget deficit of 4%. This shows that we have reduced non-development expenditure and increased development expenses. On the defence budget.... Last year we had allocated Rs 160 billion for defence, which was revised to Rs 181 billion. In the coming year we have allocated Rs194 billion for defence. Now to relief measures for the certain sectors of our society.... A new pay and pension committe is being formed which will present its report in 6 months. But as an interim measure all government servants will be given a 15% increase as a cost of living allowance. Those who have defaulted on loans it has been decided that their dues be frozen as of 1st July 2004, and they will be able to pay by post dated cheques. (the speaker has adjourned the session for 20 minutes) Now to taxes.... We have made reforms in tax administration. We are slowly reducing withholding tax, introduced the self assesment scheme. The universal tax assement scheme has included us in the front ranks of the nations of the world. This is the maximum tax that has been collected under the sales tax regime. However sales tax refunds continues to be a problematic area. We are taking measures to correct this. The sales tax system is being consolidated and automated. In customs we are also introducing 24hrs clearing of imported and exported goods. Only a small fraction of shipments will be physically examined, based on a risk profile. We are also preparing information for tax payers to make it easy for them to understand the tax regime. All this is part of our aim to greatly reduce the cost of doing business in Pakistan. We are also aiming to reduce import duties especially on items and machinery which are not manufactured in Pakistan. In this regard machinery which are not made in pakistan are being reduced to 5% and there will be no sales and witholding taxes on these items. This will result in a net decrease in earnings for the government but these steps will have a positive effect in the long term. We are eliminating sales tax on tractors and other agricultural equipment. Imported raw materials for pestisides will now be exempt from duty. Locally produced agricultural equiment will also now be exempt from sales tax. Now incentives for the housing and construction sector... In addition to what I announced earlier we have also simplified the sales tax regime for this sector. There will no longer be the 20% sales tax slab. Also the 18% sales tax slab is being eliminated. So now there will be only a single sales tax rate of 15%. We are also eliminating the further tax regime. This is another far reaching step, especially for our exporters. With the elimination of quotas, this will give our exporters a competitive edge in the world market. For the SMEs turnover tax is being eliminated and the limit of turnover tax for traders is being raised to Rs 5 million. Activation charges on mobile phones are being reduced from Rs2000 to Rs 1000. Other Proposals...... Some vegetable oils will now be subjected to 15% sales tax. But this will not apply to oil-cake. Excise duty will now be applicable on ads on Cable and closed circuit TV systems. Simpler sales tax forms are being introduced by the CBR. Income tax.... The 1st slab will now apply to those earning Rs 100 thousand, from Rs 80,000 last year. We are also reducing withholding tax for retirees on their behbud certificates. A 5 year tax holiday for vocational institutions is being proposed. However they will have to be registered with the authority I announced earlier. New mechanisms to resolve tax disputes in a timely manner are being proposed. For the shares of listed companies the tax free status will now be extended to 2008. DAP fertilizer import withholding tax to be reduced to 1% from 6%. Properties worth Rs 200,000 or more are currently subject to tax from the income. This is being raised to Rs 300,000. Foreign TV channels which accept ads from pakistan is becoming an increasing phenomenon. These ads will now be taxed. For commissions earned by travel agents, advertising agents etc will now be subject to an advance tax of 10%. This will be their final tax liability. To reduce unemployment we need to improve sick industrial units in the country. A new form is being introduced which was needed under the universal self assesment scheme. Wealth statements will now be required for those earning Rs 500,000 or more. Previously this was Rs 200,000. We reduced duties on 5,000 items last year. We are reducing duties on raw material imports. We have identified 469 more items to be added to this list. We are reducing duties on importing of cars and their parts. We are reducing duties on tires for trucks and busses. The same for CNG kits for busses and trucks. To reduce under and over invoicing we are giving the authorities the right to seize items which have been imported at 20% over or under invoiced shipments. IT items will now be subjected to 5% duty. Cars are in short supply and there is no need for further incentives for the local industry. Upto 1300cc cars will be subject to 50% duty. Upto 1600cc 70% duty, and upto 1800cc 80% duty and beyond 1800% will be subjected to 100% duty. Gwadar will be declared a special economic zone. We are eliminating central excise duty on paints and varnishes. Fruit juices and drinks will no longer be subject to exice duty. The duty on cigarettes will be increased. We have decided to say Khuda hafiz to IMF this year. We still have a long way to go. We must keep our path. We are open to criticism. We have tried to identify the path which will lead us to 2nd generation reforms and we should now be on a high growth path. We must keep up this momentum. We have been blessed with a unique opportunity to join the ranks of rapidly progressing nations of the world. We need a bi-partisan approach. Our policies need consistency, since the absence of this will result in a loss of confidence of investors both local and foreign. If we waste this opportunity the generations which follow us will never forgive us. A shining future awaits us. We have the same right to progress and prosperity as the rest of the world. Let us all pray to Allah that He helps us achieve our goal of becoming a progressive Pakistan. Pakistan Paindabad ! |
