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| June 8, 2005 | Wednesday | Rabi-us-Sani 30, 1426 |
Highlights of Budget Speech 2005-2006
Below are the highlights of the budget speech of the Minister of State for Finance and Revenue, Mr. Omar Ayub Khan. This was transcribed LIVE. We apologize in advance for any errors or omissions.
This budget is historic in many ways. The global structure makes it necessary that Pakistan takes up the challenge within the minimum period and makes us stronger to face every challenge.
Freedom from IMF dictation and 8.4 % GDP growth are part of our struggle. The days of Pakistan being branded as a “failed state” or going in default of its debts are over.
Pakistan is now among the 5 most impressive economies of Asia and second fastest growing economy in the continent.
Agriculture: Government has raised the minimum prices of wheat and cotton. Imported 238,000 tons of fertilizer and granted a subsidy of Rs. 3.8 bn. to the farmers in various forms.
Farming community’s income increased by Rs. 147 bn. This is also evident by the fact that in 2004-05 Rs. 100 bn loans were provided to the farming sector. We manufactured 41,653 tractors, and we are now allowing duty free import of 2500 tractors but only to factories which are manufacturing tractor or which would setup plants for this purpose. Out of these 2500 tractors we will gift 200 to Baluchistan and 100 to NWFP.
Development Budget for irrigation system has been increased by 64%. For agriculture and food budgetary allocation has been increased from Rs. 7 bn to Rs. 9.1bn.
For WAPDA resource projects Rs. 21 bn were spent in 2004-05 this has been increased to Rs.43 bn
Army has done a commendable job of reconstruction of Sukkar barrage.
Services sector has played satisfactory role in achieving GDP growth during the year.
Number of mobile phone users increased by 125%.
According to an estimate investment in telecom sector has reached up to US $3 bn. In telecom sector alone government revenues has increased from Rs. 3.7 bn to Rs. 15.6 bn.
Phone activation charges are being reduced from Rs. 2000 to Rs. 500 for the benefit of people.
Service sector accounts for 52% of country's economy. During the year banking and insurance sector have registered growth rate of 21.76%.
In the service sector whole sale and retail trade have registered growth of 12%.
We are making efforts to shift the focus of limited income group towards small business enterprises. Khushal bank shall extend 563,000 small loans by year 2007.
Under Khushal Pakistan program Rs 7.5 bn shall be spent in the next year, under this program projects for clean water, sewerage, electrification and construction of farms to market roads are being completed.
Government is establishing an institution under the name of NTEVTA to provide vocational and technical training to youth.
To support SME sector the Government will establish the Business support fund.
Under the pay & pension committee, the government has announced the following relief for the government employees.
15 % increase in pay scale
10 % increase in pensions
Total increase of 23 % to 29 %.
New scales will be enforced from July 2005.
The minimum wage has been increased from Rs. 2500/- to Rs. 3000/- similarly the lowest pension limit has been increased from Rs. 700/- to Rs. 1000/-.
For widows and orphans HBFC Loan upto Rs. 100,000/- has been written-off.
Rs.12.4 bn will be spent on health sector next year.
Pakistan Railways will be provided Rs. 9.8 bn to complete 12 development projects.
In the annual development program NHA has been allocated Rs. 20 bn.
The construction sector has improved by 6.2 %.
In the past one year air-conditioners production has increased by 462 %, deep-freezers by 55 %, Refrigerators by 19.79 % and detergents by 21.86 %.
To provide relief to people of Pakistan government is providing subsidy of Rs. 7.74 per liter of diesel. Likewise on Kerosene oil government is providing subsidy of Rs 8.24 per liter. To maintain oil prices at minimum possible level Government has suffered loss of revenue by Rs. 52 bn. During the year Government has provided 250,000 new gas connections to domestic users, whereas gas has been provided to additional 270 towns and villages.
In the previous financial year 9300 villages were provided electricity connection in the next year additional 13000 villages shall be provided electricity connections.
In the annual development plan Rs. 15.58 bn have been allocated for water related projects. We will generate 700 megawatts energy through alternate resources by the year 2010.
Prime Minister has been very careful with reference to the NFC award and in consultation with chief minister of all the four provinces most of the details have been finalized. President Pervaiz Musharaf shall soon announce the award which will help in justifiable distribution of national resources.
The NFC has approved an ADP of Rs. 306 bn for 2005 – 2006 and this will ensure completion of 353 on going projects, besides taking up new schemes. There will be an increase in all sectors, Water 66.5 %, Health 68.6 %, Education and Training 49.5 %, Higher Education 28.6 %, IT 35.8 % and Science Technology 60.8%
Infra-structure will consume Rs 92.2 bn. Social Sector 73.1 bn, IT, Science & Technology, Tourism, Environment, Judiciary and Law , etc Rs. 38.7 bn.
It is proposed to setup Khushal Pakistan fund.
Expenditure on defence will be curtailed to 3.1 % of GNP.
Federal grants to provinces goes up from Rs 239 bn to Rs 284 bn. ( up 19 % )
Poverty alleviation allocation will go up from Rs. 278 bn to Rs. 324 bn next year.
Reforms process has taken its roots in tax culture. This is based on self assessment scheme and has full support of tax payers. At customs the old and complicated process of clearance from 34 stages and 62 other steps is being completely replaced with random and automatic system.
As a matter of reforms LTUs, MTUs have already been established and new tax facilitation centers will be established.
Proposal for custom: Agricultural related items will be given relief by reducing the duties but the protection available to fisheries, poultry and dairy will be considered.
5% duty is proposed to be abolished on Urea.
Duty on tractors is reduced to 15% from 20%.
Duty on cotton ginning machinery to be abolished; so also on the pressing units in this sector.
Duty also to be abolished on Bulldozers, levelers, graders etc, this will particularly benefit the rain-fed areas.
Inputs of the Poultry Industry to be duty free, similarly poultry feed and wheat processing machinery to be duty free.
55 items of plastic industries are proposed for reduction in duty.
Raw material used for textile, pharmaceuticals are being exempted from duty or will get substantial relief.
Components and sub components of home appliances like TVs, Refrigerator etc, will enjoy duty reduction.
Spares and components used for replacement, modernization, and balancing of machinery not produced within the country, will be subject to 5% duty while investment in plant manufacturing sector will enjoy substantial cut in duty.
Similarly lead and chromium raw material will be duty free.
Tourism & hotel industry will pay only 5% duty on machinery and equipment used by them but aviation sector will pay no duty on the machinery.
For imported cars duty will be paid in three slabs: 50% on cars upto 1500cc, 65% on cars of 1501cc upto 1800cc and 75% on cars of more than 1800cc.
For tyres imported for small trucks, duty will be 20% but 10% on construction vehicles.
Duty on cycle parts is being reduced.
Penalty / additional tax will not be changed provided the overdue principal amount of sales tax is paid. The import & supply of CNG buses, Euro 2 buses will be exempted from sales tax.
Tax on mobile connection presently at Rs. 2,000/- shall be reduced to Rs. 500/-
Withdrawal of sales tax on laundry, dry cleaners and marriage halls is proposed.
Services provided by banks and leasing companies such as L/C’s guarantees and on sale / purchase of foreign currency and fee on commission received by the banks will be subjected to 7.5 % excise duty.
In addition to above the lease related services such as lease management fees, documentation fees, processing fees paid at the time of lease agreement shall be subject to 7.5% excise duty. However the lease amount and mark –up will be exempted from this levy.
The annual retail sale of clothes and garment, carpets, sport goods in excess of Rs. 5 million will be subjected to 3% tax inclusive of 1% income tax. and it will be considered as final tax.
It is proposed to levy 15% Excise duty on the sale of pay phone and pre-paid calling cards instead of on the billed amount of PTCL.
It is proposed to levy 15% Excise Duty on Wireless Local Loop.
The retail prices of cigarettes is proposed to be increased by cigarette manufacturers, accordingly threshold of excise duty is proposed to be increased by 7% to 8%.
Exemption of duty on CKD Kits for CNG and Euro-2 buses (CNG Kits for cars are already duty-free).
CNG Dispensers: Duty reduced to 10%.
Artificial silk industry: (all items in the chain) to get duty relief
Un-recovered custom duties have grown substantially and problems are arising in its recovery on account of penalty and fines. Law is being amended so that defaulters who cleared their liabilities by July 31, 2005 shall be exempted from such penalties and fines.
Exporters who were allowed duty free import of machinery if they opened LCs by June 12th 2004 will now be allowed this concession if they import the said machinery by June 30, 2005
Last year the government abolished the requirement of indemnity bond for entitlement of duty and relief. However many cases are still pending and it is therefore proposed to abolish the requirement of Installation Certificate in all such cases.
Necessary amendments are proposed in DTRE scheme for the facility of Exporters. Similarly Importation Scheme under SRO 410 is proposed to be extended till June 30, 2006.
Duty paid in respect of export of textile, leather, carpets and sports goods is refunded as duty drawback. This is a problem area and it is proposed to abolish levy of duty altogether.
Pending enactment of Gawadar Port Authority law it is necessary to grant Provisional exemption from the payment of duty on import of plants and machinery for projects like hotel, power generation water purification etc.
1% monthly penal surcharge shall not be levied on importers who have not taken out their cargo from the godown provided they pay their duties and taxes by June 30, 2005 and also remove their cargo from the warehouses.
The Government is introducing the new federal excise act replacing existing Central Excise Act, 1944.
Cotton, yarn, clothing are major export items. It is therefore proposed to introduce zero rate for import of all items used in textile industry; so also the carpet, leather, surgical instruments and sports goods industry.
Abolition of sales tax on spares and components for plants and machinery as well as raw materials, spares and components used for manufacture of plants and machinery.
Abolition of excise duty on soap and detergents.
Proposal on Income Tax: Tax rates slabs are proposed to be re-constituted.
Revised rates shall range from 3.5% to 30%. instead of 7.5% to 35%.
It is proposed that where the employee’s only source of income is salary and the employer had filed the tax deduction statement in such cases employees are not required to file the tax return and the employer certificate.
Tax reduction allowed to teachers and researchers presently available at 50% is proposed to be increased to 75% .
50 % tax rebate is available to senior citizens whose income does not exceed Rs. 300,000/-. Now this limit is proposed to be increased to Rs. 400,000/-
For the purpose of tax credit the limit of contribution in approved pension fund is proposed to increase from Rs.200,000 to Rs.500,000.
Donation made to approved institutions is proposed to be deductible directly from income.
Withholding tax on profits on TFC will be exempt up to Rs. 150,000/- likewise for tax credit limit of investment in IPO’s is increased from Rs. 100,000/- to Rs. 150,000/-
Tax rates in cases of corporate sector is reduced for the year 2006 as under:
Banking Company 38 %
Public Company 35 %
Private Company 37 %
Capital gain of insurance companies are proposed to be exempted.
Tax on listing on stock exchange will be reduced by 1 %.
The facility of group relief is also to be exempted to service oriented concerns in addition to industrial undertakings and the facility of merger is also extended.
Tax rate for SMEs if converted into companies will be reduced to 20% and they will not be required to pay minimum tax .
The limit of depreciation on motor vehicles not plying for hire is presently fixed at Rs. 1,000,000/- this limit is proposed to be abolished.
The WHT on shipping industry presently @ 3% is proposed to be reduced to 1%. It is proposed to exempt large scale business enterprise from presumptive tax regime.
To extend/enlarge the tax net, it is proposed to lumpsump withdrawal from banks of amount exceeding Rs, 25,000 will be subject to WHT @ 0.1% which will be adjustable
WHT @ 6% on the purchase of locally manufactured vehicles will be an adjustable tax
All the textile, carpets, leather, surgical instruments, and the components used in manufacture/production of sports goods have been made zero rated; hence tax on export of same will be enhanced by 0.25%
As a matter of policy and facilitation, the tax payers will be allowed to file their tax returns and various statements through computerized system. The power to set aside a case altogether to the appellate commissioner will be withdrawn.
Minimum wages of unskilled worker raised from Rs 2500/ to Rs 3000/ per month w.e.f January 1, 2005.
Pention under old age benefit (EOBI) scheme increased from Rs 700/ to Rs 1000/ per month from January 1, 2005.
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