Flexibility in budget-making

Published June 29, 2015
Finance Minister Ishaq Dar addressing the National Assembly in Islamabad on June 23. PPP Senator Salim Mandwiwala, who chairs the Senate’s finance committee, was reasonably satisfied with the flexibility shown by the government. “Out of the 90 changes we had proposed, the government incorporated about 50,” he said.
Finance Minister Ishaq Dar addressing the National Assembly in Islamabad on June 23. PPP Senator Salim Mandwiwala, who chairs the Senate’s finance committee, was reasonably satisfied with the flexibility shown by the government. “Out of the 90 changes we had proposed, the government incorporated about 50,” he said.

THE amended FY16 budget passed by the National Assembly at the end of a 19-day session on June 23 accommodated many recommendations of the opposition-led Senate Standing Committee on Finance.

But the government’s indecent haste in getting the finance bill endorsed by the assembly during the opposition’s token walkout from the lower house was unnecessary.

The business community and independent experts, on the basis of media reports, found the parliamentary debate on the key policy document insufficient and substandard.

“Most followers of the budget proposals were dismayed by media reports of the lacklustre parliamentary debate on the path-setting document,” Atif Bajwa, president of the Overseas Investors Chamber of Commerce and Industry (OICCI), said in an e-mailed response to a query on the process.

Pakistan Peoples Party Senator Salim Mandwiwala, who chairs the Senate’s finance committee, was reasonably satisfied with the flexibility shown by the government and the adjustments made in the original budget proposals on the recommendations of his committee.

“Out of the 90 changes we had proposed, the government incorporated about 50. It is a victory of democracy, which offers forums to reach negotiated settlements. A lot of hard work had gone in the process, including intense engagement with the budget-makers for doable measures that did not tinker with the overall framework and the macro targets set by the ruling party,” he said over telephone from Islamabad.

On the quality of debate in the National Assembly, he believed it would be unrealistic to expect a meaningful discussion in a 364-member house.

“That platform is more for political positioning on issues. Besides, the treasury member heads the NA’s finance committee, so the critical review of the proposals of the ruling party at that forum is unlikely,” he made a point, hinting at the value of contribution made by the Senate committee he chairs.

The full text of the finance bill is yet to be published and circulated, but the reports made public so far include the following amendments:

• A 5pc cut in the sales tax on oil seeds and the removal of customs duty on the import of oil seeds;

• Withdrawal of 5pc GST on poultry feed supplies, cattle feed, sunflower seed meal, rape seed meal and canola seed meal;

• GST on pesticides has been reduced from 17pc to 7pc;

• The repayment period of loans for solar tube-wells has been extended from five to seven years;

• The value of produce index units for obtaining bank credit has been raised to Rs4,000 from Rs3,000;

• The salaries of government employees have been increased from 7.5 to 11pc;

• Extension of capital gain on disposal of securities for tax year 2015 and 2016 where the holding period is more than four years. Where the holding period is 12-24 months, the tax rate is 12.5pc; where the holding period is two to four years, the tax rate is 7.5pc for the tax year 2016;

• The federal excise duty on beverages has been cut to 10.5pc from the 12pc proposed earlier;

• A tax incentive package has been introduced for local manufacturers of cell phones, which includes income tax exemption for five years; a 90pc depreciation allowance for plants, machinery and equipment duly certified by the PTA during the first year; and customs duty and sales tax exemption on the import of plants and equipments

• The investment incentives announced for KP have been extended to Balochistan as well.

Responding to the criticism over the rush in the passage of the budget, Finance Minister Ishaq Dar argued that the outcome would hardly be any different had the opposition been in attendance in the closing sessions. “There was no chance of acceding to any cut motion even if the opposition tried,” he was quoted as saying.

“The budget fell short of expectation as it did not provide an instant economic relief to the people or a friendlier business environment to companies,” a Karachi business leader said.

At many post-budget business and civil forums over the last fortnight, people questioned the wisdom of the trade-offs that the current team of economic managers have made.

“The Nawaz Sharif government’s obsession with big ticket mega projects at the cost of immediate basic needs of the people has repeatedly been criticised. Besides, the budget is clearly Punjab-centric. Most projects are located in Punjab, while only promises have been made for the other provinces,” an expert commented.

“We still await the final version of the Finance Act 2015-16, but from the OICCI’s perspective, this year’s experience of the process was different as there was no direct interactive session of the FBR chairman or the finance minister prior to the budget with the representative body of foreign investors, who contribute over one-third of the total tax collection in the country,” Bajwa remarked.

“The budget fell short of our expectations as it did not include incentives to attract foreign direct investment, nor were there action plans to broaden the tax net through documentation of the economy; whereas legitimate taxpayers are further burdened with a ‘super tax’. The proposal to tax accumulated free reserves is detrimental for capital formation,” he added.

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

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