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Progressive taxation of farm incomes

June 23, 2014

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The Rs404.8bn Khyber Pakhtunkhwa balanced budget for 2014-15, with a Rs139.8bn annual development programme, is aimed at addressing economic, social and industrial woes of the impoverished province, but falls short of business expectations.

“It is a status-quo budget devoid of any change, vision and reform agenda, and neglects the potential sectors. KP is beset with flight of capital, rising unemployment, terrorism and energy shortage. Joblessness is on the rise — there is 14.8pc unemployment in Khyber Pakhtunkhwa.

“Emergency steps are needed for economic growth, industrial revival, infrastructure development, energy supply, revival of sick industrial units and improvement in law and order and technical and IT education. But there is no proper roadmap for these areas.

“The government has failed to give new mineral, industrial, hydro, oil/gas and tourism policies reflective of its agenda for change,” says KP Chamber of Commerce and Industry President Zahidullah Shinwari.

The new budget is bigger by Rs69bn than the current budget of Rs344bn, while the ADP is higher by Rs21bn over this fiscal’s Rs118bn.

Major revenue receipts include Rs227.12bn from federal tax assignments, Rs12bn in net hydro profit, Rs32.27bn as NHP arrears, Rs29.26bn from oil/gas royalty, Rs27.29bn as war on terror grant and Rs35.35bn as foreign assistance etc.

KP’s own revenue receipts are estimated at Rs29bn (up by 70 per cent against the current year) and include Rs19.45bn in tax receipts and non-tax revenue of Rs9.3bn. This includes Rs12bn as GST on services. The province also earns Rs2.85bn from its own power plants.

The budget suggests insufficient measures to check the current expenditure which has reached around 70 per cent of the total budgeted outlay.

The finance minister promised to provide 15,000 more jobs in the public sector, but admitted that joblessness cannot be eliminated by the government alone. Without support of the private sector, and for that matter, economic growth, the problem cannot be solved.

There seems to be a genuine attempt to raise provincial revenues. The PTI-led KP government has proposed a progressive tax on agriculture income, as well as land tax and property tax. The KP revenue authority will conduct a proper survey to determine the property tax.

It intends to raise fees on stamp duty, professionals and professional institutions, business establishments etc. Strangely, a PTI-led government is to tax educational institutions, including medical, engineering and law colleges.

The finance minister says the province is replete with abundant human and natural resources, but its population is living in poverty and backwardness owing to unfair distribution of resources, flawed planning, joblessness, illiteracy, corruption, nepotism, weak accountability system and lack of good governance. He vowed to root out these evils.

Prepared under the ‘Integrated Development Strategy’, the budget aims at good governance, responsive social services delivery, economic prosperity, peace, economic growth and job creation, improved transparency and accountability, enhanced fiscal space and gender equity.

The minister said the private sector would be involved in the construction and maintenance of public sector development projects in partnership with the public sector.

However, important sectors have been allocated higher but yet paltry sums: Rs3.4bn for power sector against Rs1.4bn in the current year; Rs4.7bn against Rs3.28bn for irrigation and Rs1.58bn against Rs1.53bn for agriculture. Agriculture is the backbone of the economy as 70 per cent people in KP are dependent on it for their survival.

A Board of Investment and Trade has been formed to ensure an investment- friendly environment and for economic revival. The KP oil and gas authority has been constituted for better use of existing resources and for exploring new ones. But the impact of the two bodies is still not yet visible.

The finance minister says KP’s industrial sector is hit by lawlessness, energy crisis, limited market, high cost of production, dilapidated infrastructure and inadequate technical knowhow.

For this, technical education is to be promoted and has been allocated Rs3.7bn.

A self-reliance scheme with a Rs2.7bn rolling fund has been proposed to give interest- free loans of Rs50,000-200,000 to jobless youth.

He said the mineral sector could be used for poverty alleviation but earmarked only Rs0.62cbn for the sector.

The government intends to set up a stock exchange in Peshawar and is seeking support of the federal government in this regard.

Several austerity measures have been proposed to bring down expenditure. No treatment/training abroad, no new cars and no new posts are to be allowed unless approved by the chief minister. The construction of houses for officials and ministers on 20 marlas and 110 per cent raise in salaries of ministers, advisors etc. This is, however, being resented.

A sum of Rs7.9bn has been allocated for a pro-poor initiative under which various welfare programmes such as health insurance and provincial youth technical education etc will be launched. A Rs6bn special relief package programme for giving subsidised edible items to the poor has been proposed in the budget.

Various hydro and alternate energy projects being launched include the construction of 350 small dams.

Published in Dawn, Economic & Business, June 23rd, 2014