IN his winding-up speech on the 2015-16 budget in the National Assembly, Finance Minister Ishaq Dar made a number of departures from his original proposals, with the financial impact exceeding Rs40bn.

The combined impact of all tax-related adjustments is said to be a negative Rs12-15bn, but the revenue target of Rs3.104tr was kept unchanged. And Federal Board of Revenue (FBR) officials played down the impact at Rs4-5bn, which they expect to recoup through administrative measures.

As a former FBR chairman explained, all doubtful revenue heads are always parked against administrative measures, which are hard to quantify when the final revenue shortfalls arise and the fiscal deficits are worked out. This also explains the repeated revenue shortfalls, which amount to hundreds of billions of rupees every year.

Another major fiscal effect would be an additional expenditure of Rs20bn arising out of the agricultural package announced in the winding-up speech. While major crops have been showing good results over the past few years thanks to robust support prices, the overall agricultural output has missed its targets consecutively over the last couple of years.

The Farmer Credit Guarantee Scheme and the Crop and Livestock Insurance Scheme were long overdue given the importance of the agriculture sector, where various kinds of distortions in areas like fertilisers, water supply, electricity etc also need to be addressed for the sector to realise its true potential in the near future.

Agriculture contributes around 21pc to GDP, absorbs around 45pc of the country’s labour force, and supports 65pc of the population one way or the other.

The finance minister has set the agricultural credit target at Rs600bn for the next financial year. Apart from other measures in the budget, fresh incentives were also introduced following demands by parliamentarians with agricultural backgrounds and farmers organisations, with the twin-targets of the upcoming local body elections and improving the sector’s overall contribution to GDP.

A Rs20bn fund would be set up to serve a host of schemes, including those for increased usage of phosphatic and potash-based fertilisers for higher productivity. And a reduced non-adjustable GST of 7pc on pesticides at one stage, instead of the 17pc VAT-mode GST, would encourage the use of pesticides.

The fund would also be used to make it easier for farmers to make loan instalments for solar tube-wells, as the repayment period would be increased from five to seven years. The solar tube-wells would also be encouraged through interest-free loans with 90pc financing.

All industrial units providing cold chain services to agri-produce and products would be exempt from income tax for three years if they are established before June 30, 2016.

In view of the hardships faced by rice producers in the wake of falling prices, rice mills have also been exempted from minimum tax for one year but perhaps a more comprehensive bailout package would be required for rice farmers.

The value of the produce index units (PIUs) for obtaining loans — raised from Rs2,000 to Rs3,000 at the time of the budget presentation — has been further increased to Rs4,000 per PIU. Likewise, the import of oilseeds for sowing would also be exempt from customs duty and sales tax.

The Pakistan Kissan Ittehad, led by Khalid Mahmood Khokhar, has welcomed the agricultural package. “Farmers had been hard pressed due to economic difficulties, and the concessions just announced would encourage them to contribute to the national economy with new zeal,” he said.

The 2015-16 budget has proposed that the exemptions on the import and supply of poultry feed, cattle feed and their ingredients (except soybean) be withdrawn and the sales tax at the rate of 5pc be imposed instead.

However, after much hue and cry by the poultry industry, and keeping in mind big PML-N players in the sector, it was decided that the sales tax exemption on the local supply of poultry feed and cattle feed will be continued. And the import and supply of their ingredients (except soybean meal) will be subjected at a 5pc sales tax. In return, the poultry industry has reduced chicken prices by almost 20pc within days.

In a fresh move towards attracting remittances to the real estate sector, some incentives were offered for special housing schemes, primarily those around the federal capital. Through the Finance Act 2014, an exemption was granted from the advance income tax on the purchase of immovable property in the case of a government scheme for expatriate Pakistanis. The Capital Development Authority is planning on introducing such a scheme soon.

The exemption from withholding tax on this scheme shall be available for expatriate Pakistanis. However, they will be required to remit the foreign exchange directly to the State Bank.

Under section 65E — commonly known as Prime Minister Nawaz Sharif’s incentive package for industry — tax credit is allowed to companies investing in the installation of plant and machinery with 100pc equity raised through the issuance of new shares between July 2011 and June 30, 2016. The scheme has now been extended till June 30, 2018.

And this credit is currently being allowed from the year of the installation of the machinery. The new finance bill envisages starting this tax credit from the date of commencement of commercial production, which effectively means that the package would be available for two further years. Since there can be a considerable time gap between the installation and the beginning of commercial production at large units, this will of much benefit to them.

Meanwhile, the setting up of halal meat plants has also been encouraged. An exemption from income tax for four years was originally proposed for companies that set up their halal meat plants and obtain ‘halal’ certification by December 31, 2016 in the finance bill; this has now been extended till June 30, 2017.

Published in Dawn, Economic & Business, June 29th, 2015

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