• Property transactions to be taxed
• Enhanced WHT to hit shopkeepers
• Relief for agriculture sector

ISLAMABAD: An almost vacant parliament heard the last full year budget of the government in a lethargic atmosphere. Finance Minister Ishaq Dar turned to the treasury benches on a couple of occasions to plead for applause.

The budget contains new revenue measures of almost Rs150 billion, while bowing to populist sentiment and fanning growth with incentives for exports, agriculture and increased salaries and pensions.

In a more than 90-minute speech, the minister claimed a series of macroeconomic successes over the last three years that put the country on a path to economic progress, saying the performance of the government in every budget was better than the previous one.

In the sights were non-filers of returns, who will face additional penal taxes, as well as the property market bubble and an enhanced withholding tax on commercial establishments that have an electricity bill greater than Rs20,000. The last measure is likely to attract more protests from the trader lobby that has already been agitating in the outgoing financial year. The reaction of the property market to an enhanced withholding tax is difficult to gauge at this time.

As per his commitment on Thursday, the finance minister tried to highlight those aspects of the budget that are designed to accelerate the momentum of economic growth, continue reducing the budget deficit, maintain focus on energy, export promotion, infrastructure development and poverty reduction while increasing resources through tax reforms.

Majority of the incentives in the shape of tax relief or subsidies appeared to revolve around industry and agriculture that dragged GDP growth rate down by 0.5 per cent. On the other hand, capital gains in the real estate, capital markets and non-tax filers seemed to be the target of increased tax measures.

Agriculture

The minister announced continuation of Rs15bn worth of tax and duty concessions announced last year, as well as a cut in fertilizer prices by 22pc to Rs1,400 per bag with effect from July 1, 2016. This will cost the exchequer Rs36bn, which will be equally shared by the federal and provincial governments. Last year a similar scheme ran into snags when the Sindh government refused to participate.

On the same pattern, DAP price would also be cut to Rs2,500 per bag instead of Rs2,800 with a fiscal impact of Rs10bn.

He said the target for agriculture credit was being enhanced to Rs700bn for next year from Rs600bn this year while the mark-up on these loans would be cut by 2pc.

Another major relief for agriculture was a flat rate of electricity for tubewells which would be cut to Rs5.35 per unit from existing rate of Rs8.85 at off-peak hours. This too will cost Rs27 billion.

Mr Dar also announced reducing customs duty to 2pc from existing 5pc on import of machinery for dairy, livestock and poultry and fish farming. The 7pc sales tax on pesticides was also abolished.

Exports

The minister announced continuation of drawback of local taxes (DLTL) for next year and reduction in mark-up on export refinance facility to 3 per cent from existing 9.5pc. A technology upgradation fund will be set up for small and medium enterprises and revived zero rating for five export oriented sectors like textile, leather, sports, surgical instruments and carpets.

Likewise, the withholding tax was increased to 12pc from existing 10pc on commercial electricity bills exceeding Rs20,000 per month.

The minister also proposed imposing 10pc capital gains tax on disposal of immovable properties if sold within five years of acquisition. Likewise, he proposed extending maximum taxable holding period for capital gain tax on securities from four to five and years and called for a higher tax rate of 18 pc, 16 pc and 11 pc for holding period of up to one year, two years and five years respectively for non filers.

He announced continuation of super tax for another year to meet expenses of war on terror saying the circumstances had not changed. He also proposed increasing the withholding tax rates in case of sale of immoveable property from 0.5pc to 1pc and from 1pc to 2pc for filers and non-filers respectively. The said rate in case of purchase of property was increased form 1 to 2pc and from 2 to 4 per cent for files and non-filers.

Salaries and pensions

Two ad hoc allowances in the pay scales of government employees will be merged, in addition to another 10pc ad hoc relief allowance for all federal government employees including civil and uniformed on running basic pay. The finance minister also increased special area compensatory allowance to Rs300 from Rs50 per month for civil armed forces in border areas.

Likewise, the special conveyance allowance for the disabled employees at the rate of Rs1,000 per month and increased an allowance for quasid and Naib quasids to Rs450 per month instead of Rs300. The minister also increased outfit allowance for army officers for secondment to civil positions from Rs800 to Rs2,500 per month and from Rs500 to Rs2,000 for their return to army.

He announced increase in minimum wage to Rs14,000 from Rs13,000 per month. Also, a 10pc increase was allowed for all pensioners while ex-gratia pension to former Ex-Pakistan pensioners from Rs2000 to Rs6000 and from Rs1000 to Rs4,500 per month for their family.

The limit of investment in pensioner schemes of national savings for senior citizens and widows was increased from Rs4 million to Rs5 million. The minister said the salaries and pay-related relief package would cost an additional Rs57 billion.

The minister appeared responding to dismal performance of exports and agriculture during the outgoing year when he announced special initiatives in the budget 2016-17 but the government’s previous Kissan package of Rs341 billion, containing similar measures had failed to arrest the collapse in agriculture.

Published in Dawn, June 4th, 2016