THE Khyber Pakhtunkhwa coalition government’s third budget offers a limited development agenda, except for a fresh approach to grass-root development.

The budget allocates Rs30bn for raising the capacity of local bodies and Rs18bn for their uplift spending.

Like the previous ambitious projections, this budget also reflects that the KP government did not go for any serious fiscal reforms. The reliance on federal resource transfers has increased as no serious effort was made to broaden the provincial tax base.

KP Finance Minister Muzafar Said said the budget for the fiscal year 2015-16 will be balanced as both provisional revenue receipts and expenditures have been estimated at Rs487.9bn.

There is no mega project under the provincial development programme except for a Rs1bn uplift project for Peshawar

The breakup of the revenue receipts shows that Rs250.89bn will come from the federal divisible pool, followed by another Rs30.146bn as war subvension, Rs19.41bn as royalty on oil and gas, and Rs44bn as general sales tax. Of the remaining, a chunk of Rs33bn will come from foreign aid. And development expenditures have been set at a low Rs174.884bn.

The documents show that the projected resource transfer also includes an amount of Rs68.873bn under the head of net profit from hydro power generation and its past arrears from the federal government.

But there is a question mark about this amount as the federal government has not been paying it. This shows that there may be a big gap of over Rs68bn that the government is not admitting. However, the provincial finance secretary is hopeful that the matter will be resolved by the end of the year.

So the total increase of 21pc in the budgetary outlay over the last year is not coupled with any fiscal proposals. The province cannot bank on the Federal Board of Revenue’s initial tax revenue projections, as the actual collection generally falls short of the target.

The budget documents also show that 71pc of the provincial budget will be spent on salaries, leaving little room for development expenditure. But the higher allocation for the social sector is another distinguishing feature in the budget.

Meanwhile, the federal government has announced a tax-free package for the revival of industrialisation and business activities in the province. But the provincial government has not responded to this move. No allocations were made for the establishment of new industrial zones and no incentives were offered to jump-start closed zones. The finance minister’s budget speech just mentioned the idea of an economic zone development company.

The development budget has been increased to Rs174.884bn for 2015-16 against Rs139.8bn in the outgoing fiscal year. While the total development outlay has risen in the past three years, the utilisation of the funds has remained unsatisfactory. In his post-budget press conference, Said claimed that over 93pc of the outgoing fiscal’s development budget will be utilised by the end of June 30, and around 72pc had been utilised by June 15.

This under-spending in the second consecutive year reflects a lack of capacity and the sluggish implementation of development schemes.

Moreover, there is no mega project under the provincial development programme except for a Rs1bn uplift project for Peshawar. The foreign donor assistance for development projects is also projected to fall to Rs33bn in 2015-16 from Rs40bn in the outgoing fiscal year.

But the provincial finance secretary claims that KP has lesser debt than the other provinces. He quoted a figure of Rs121bn, of which Rs5bn is federal debt and the rest is foreign loans.

According to the provincial budget documents, the capacity utilisation problem is not just limited to KP.

All provincial governments are slow in utilising their development funds, with the PTI-led KP government topping the list. The Sindh government is the second-slowest in spending its development allocation, while Punjab and Balochistan are relatively better off in this area.

KP also does not appear to be serious about generating new revenues for development. Few taxation measures have been taken, like the imposition of a one-time levy of Rs10,000 on commercial and high-power engine vehicles. The tax on licences of ‘spirit’ and the sales tax on services have also gone up.

Similarly, the tax on CNG stations, petrol pumps and service stations has been increased. It was also suggested that taxes coming under the transport department, such as parking and route permit fees and others be raised.

The total tax and non-tax receipts from provincial resources are estimated at Rs51.124bn for the year 2015-16, against Rs27.555bn in the outgoing fiscal year. This amount also includes the general sales tax on services.

The low tax performance is attributable to weak tax administration, low taxable capacity, huge informal sector, limited revenue base and political unwillingness to exploit the potential because of the pressure exerted by various interest groups.

Published in Dawn, Economic & Business, June 22nd, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play