Finance Minister Ishaq Dar presented the budget for the upcoming fiscal year 2016-17 on Friday, with an outlay of Rs4.394 trillion – a 7.3 per cent increase over the previous year – and a growth target set at 5.7pc.
With Dar's concession that the agriculture sector's negative growth of -0.19pc dragged the economy down, there were expectations that the budget would come up with new measures to spur growth in the sector.
Below are major targets for FY16-17:
Announcing the budgeted expenditure for the next fiscal year at Rs 4.39 trillion, Dar pointed out that it translated into a rise of over 7pc compared to fiscal year 2015-16.
The finance minister, while outlining the economy's performance in the past two years said: "In the past two years, progress went over 4pc and reached 4.7pc – the highest in eight years."
"This would have been better if the cotton crop hadn't suffered a fall in growth of 28pc," said Dar while elaborating on this year's cotton crop, a major source of revenue for Pakistan.
To counter the collapse in the agriculture sector, he also announced a decline of Rs400 in Urea prices to Rs1,400 per packet.
"We need to take out-of-the-box measures to boost the agriculture sector," Dar said after announcing the following allocations for agriculture:
- Rs700bn allocated for agricultural loans
- Markup for these loans brought down to 2pc (NBP, ADB)
- Electricity tariff for tubewells will be brought down to Rs5.35 per unit, with the govt bearing Rs27bn.
- Duty abolished on fish feed
- 10pc custom duty revoked for export of small fish
- 7pc tax on pesticides revoked
"This house has never seen such a hefty package announced for farmers. I congratulate the agricultural community," the minister said after announcing the reforms.
Know more: Focus on agriculture revival
He added that the government had targeted growth of 5.7pc for fiscal year 2016-17, with an even more ambitious target of 7pc growth for fiscal year 2017-18.
Dar said per capita income had risen to $1,561 per head, while inflation was down to 2.82pc, the lowest in ten years.
He said the government's strategy is to maintain inflation in "single digits" terming it a key feature of his government's "medium-term macroeconomic framework". In the budget document released by the ministry of finance, the government has set the inflation target for 2016-17 at 6pc – even though Dar said he was confident the figure "won't cross three percent by year end".
The finance minister stated the government is targeting to restrict the fiscal deficit at 3.8pc of the GDP next year, which he said will be further narrowed to 3.5pc of the GDP by 2017-18.
Talking about the budgeted tax revenue, Dar said: "Tax collection has increased 7pc which is historic. We will reach our target of Rs3.96tr and we want to push the tax-to-GDP ratio to over 10pc next year."
In the longer run, the minister said the government wants to push this ratio up to 14pc.
In-depth: New taxes added, some withdrawn
Announcing development expenditure plans for next year, the finance minister said a 20pc increase in the PSDP allocation had been approved with Rs1.675tr set aside under the head for FY16-17, of which the Federal PSDP makes up Rs800bn.
Know more: Allocation for PSDP increased by 10.6pc
These funds, Dar said, would be utilised for various ongoing and new development schemes.
"Gwadar will play an important role in Pakistan's development in the future, hence we have allocated a special amount in the development budgets," said the finance minister.
For roads and motorways construction, an amount of Rs188bn has been allocated, with the cost of Karachi-Lahore motorway included in the amount.
A total of Rs2bn has been set aside for the construction of a State Guest House, while Rs1.02bn has been allocated to the Climate Change Division under the PSDP.
This year, Rs115bn will be allocated to the Benazir Income Support Programme for the benefit of 350 million families until June 2016. About 300,000 more families will be inducted in the programme, with each family getting Rs18,500 monthly, he said.
Loadshedding has been regulated, Dar claimed, adding that an additional 10,000 megawatts would be inducted into the national grid by March 2018.
The finance minister announced allocation of Rs32bn for Diamer Bhasha Dam and Rs42bn for Wasoo dam. He added that other flood dispersion, small and delay dams will also be built.
For hydel-energy projects, Dar announced an allocation of Rs61bn for the 969MW Neelum-Jhelum Hydropower Project, Rs16.5bn for Tarbela dam and Rs60bn for other power related projects.
Rs11.94bn will be spent for development of IT infrastructure in rural areas, Dar said, and Rs1.9bn will be spent in IT development in all four provinces.
The minister said Pakistan Railways engines, bogies, tracks and signal systems will be improved. Rs14bn, he said, has been set aside for purchase of new bogies for railways. Rs37bn has also been set aside for railway employee salaries.
Temporary Displaced Person (TDP) and security enhancement development programme has received an allotment of Rs100bn for fiscal year 2016-17.
PUBLIC SECTOR SALARIES
A total of Rs57bn has been set aside for public sector salaries and pensions in the FY16-17 budget, Dar said.
Starting July 1, there will be a 10pc ad-hoc increase in salaries for all federal government employees, he said. The finance minister announced an increase in the monthly minimum wage, bringing it to Rs14,000.
A monthly conveyance allowance of Rs1,000 has been set aside for disabled employees in this budget, he said.
Dar proposed 10pc increase in pension for federal employees, with those above 85 years of age receiving a 25pc increase. Family members of deceased pensioners will receive Rs4,000 monthly as compared to the previous budget's monthly allowance of Rs1,000.
The Pakistan Economic Survey on Thursday showed that the government had missed last year's budgeted GDP growth target by a wide margin, mostly owing to a dismal performance by the agricultural sector.
But this was compensated by the industrial sector as the construction and electricity sectors outperformed expectations.
The services sector grew at par with the set target, bolstered by an increase in salaries of government employees and defence servicing.
Design by Fahad Naveed.
The defence budget has been increased 10pc for FY16-17 to Rs860.2bn from Rs781bn last fiscal year. The following graph represents the upward trend in budgeted defence expenditure through the years.
Know more: Defence budget hiked by usual 11pc
Design by Fahad Naveed.
Ishaq Dar announced that the government has set aside Rs21.5bn for Higher Education Commission projects only, adding that over Rs79.5bn has been allocated for higher education only – "which is 11pc higher than last year and the highest ever in Pakistan's history".
The following graph explains the budget trajectory on education over the years.
Design by Fahad Naveed.
The finance minister announced that the PM National Health Insurance will continue, adding that health programs have been allocated Rs12.1 billion for the next fiscal year.
The trend line below tracks government allocations for health in the past four years.
Design by Fahad Naveed.
A total of Rs2.7tr has been allocated to General Public Services. The major portion of this amount goes to executive & legislative organs, financial, fiscal and external affairs. The main heads of expenses are Servicing of Domestic Debt, Foreign Loans Repayment and Others. Transfer payments constitute another important item.
The graph below shows budgeted expenditure on Public Services since fiscal year 2013-14.
Design by Fahad Naveed.
For Public Order and Safety Affairs, an amount of Rs103.5bn has been provided in the budget 2016-17 as compared to Rs94.9bn last year and Rs 86.5bn before that. This allocation pertains to courts, police, fire protection as well as prison administration and public order.
The diagram below charts budgeted expenditure on Public Order and Safety over the past four years.
Design by Fahad Naveed.
The allocation under the head of Economic Affairs in the budget FY16-17 has been projected at Rs63.5bn, as compared to Rs60.2bn in the previous budget. A major share of this head goes to Agriculture, Forestry and Fishing with the rest allocated to energy, mining and transport.
For new Industrial plants and expansion, a five year tax credit till June 3, 2019 was announced. To further support industries, custom duty on import of industrial raw material is being brought down to three pc.
This trend line shows government's allocations under the Economic Affairs head since FY2013-14.
Design by Fahad Naveed.
An amount of Rs1.06bn has been set aside for environment under current expenditures, as compared to the previous year’s Rs1.05 billion which was reserved primarily for Waste Water Management.
The graph below charts allocations for environment over the past four years.
Design by Fahad Naveed.
As I rise to present the 4th Budget of our Government, the Prime Minister and the Leader of the House is recovering very fast after undergoing surgery. Prayers of this House, entire nation and millions people from around the world are with him for his speedy recovery so that he can come back and take charge of the country’s leadership.
When we remember the economic challenges that were faced in June 2013, and the journey we had passed in the past three years under the leadership of Prime Minister Nawaz Sharif, we thank the blessings of Allah bestowed upon us, Alhamdolilah, the dangers faced to the economy are over, and the country is on the path to stability and growth. Those who had predicted Pakistan’s default by June 2014 have been defeated. We have not only prevented the country from economic default, but also have stabilized the economy. Today international organisations are taking Pakistan’s name with respect.
We had a well-defined response for this purpose, which we had articulated in our Manifesto before the 2013 general elections on the basis of which we won the national elections. Our challenge was to put them in action and diligently remain on course until their fruits were borne. We have done precisely this and have not only prevented default but have solidly stabilized the economy and reinvigorated growth. Today, Allah has honored us to present the 4th Budget of the country and in every budget we have done better than the previous one and all economic indicators testify to this claim.
I would like to place before this august House the following key economic indicators, based on 9 or 10 months data or projected for the full current fiscal year (2015-16) in comparison with the situation that existed in a similar period or at the close of FY2013 or at End-June 2013:
1) Economic Growth, in the past two years has remained above 4pc in the past two years, and during FY2015-16 has been provisionally recorded at 4.71pc which is highest in the previous eight years. This performance could have been better if cotton crop had not witnessed loss of 28pc due to which national economic growth was reduced by 0.5pc.
2) Per Capita Income, which stood at $1,334 in FY2012-13 is projected to increase to $1,561 in FY2015-16, showing a growth of 17pc in dollar terms, while it increased by 24pc in terms of rupee.
3) Inflation, which had averaged around 12pc during the period FY2008-13 before our government, was recorded at 7.4pc in FY2012-13.
In the period Jul-May FY2016, the average inflation was recorded at 2.82pc, the lowest in a decade. This also means that the revival in growth has not been accompanied by rise in prices.
4) FBR Revenues had recorded an increase of merely 3.38pc in FY2012-13 when collections stood at Rs1,946bn. For the current FY2015-16 the target of Rs3,104bn has been fixed and considering the collections to date, Inshallah this target will be achieved. This way tax revenues will be increased by 60pc which will be a historic increase. The tax to GDP ratio for FBR taxes that was 8.5pc in FY2012-13 has been increased to 10.5pc in FY2015-16.
5) Fiscal Deficit was 8.2pc of GDP in FY2012-13 is being brought down to 4.3pc of GDP in FY2015-16;
6) Credit to Private Sector that was negative Rs19bn in FY2012-13 has reached Rs312bn till May of current fiscal year.
7) Policy Rate of SBP was 9.5pc in May 2013, which has now been brought down to 5.75pc as on May 2016 which is lowest rate in the past four decades.
8) Exports were $20.5bn during Jul-Apr FY2012-13. Against this, exports for the same period in FY2015-16 were recorded at $18.2bn showing a decline of 11pc. The main reason for this decline is global commodity prices.
9) Imports were recorded at $33bn during Jul-Apr FY2012-13 compared to $32.7bn for the same period in FY2015-16. Savings in the import bill of oil were nearly 40pc but we diverted these savings to increased imports of machinery and industrial raw materials, thus enabling more growth oriented activities. The imports of machinery over the last three years have increased by a cumulative growth of 40pc, which is again an indication of rising investment in the economy.
10) Remittances were recorded at $11.6bn during Jul-Apr FY2012-13, which have risen to $16bn for the same period in this fiscal year FY2015-16, For the current year target is $19bn for which efforts of devoted Pakistani overseas workers and professionals are admirable.
11) Exchange Rate has shown remarkable stability in the last three years. Against Rs99.66/$ in June 2013, the exchange rate is currently at Rs104.70/$. For an economy like Pakistan, exchange rate has a pivotal position, as it impacts pervasively on all other variables. The exchange rate stability we have achieved has not been witnessed in recent years and is a source of rebuilding the credibility of our economy.
12) Foreign Exchange Reserves were in a precarious level of $6bn with the SBP in June 2013, that after payment of past liabilities and swaps were reduced to worrying some level of $2.8bn. These have increased to $16.8bn by end May. Including reserves with commercial banks have $4.8bn.
Alhamdolilah, the level of $21.6bn has been achieved, which is a new historic record. And this way we have guarded the economy from frequent external fluctuations.
13) Current Account Deficit: In the last three-year, we have kept average current deficit to a very low level of 1pc of GDP.
14) Stock Exchange (KSE) Index stood at 19,916 on 11 May 2013, has now surged to above 36,000. In the same period, market capitalisation has increased from Rs5.2tr to Rs7.391tr and from $51.3bn to $70.5bn. The merger of Lahore, Karachi and Islamabad stock exchanges, that was pending for the past 15 years, was completed on 11th January 2016. It is expected that in the near future Pakistan’s stock exchange will be part of the emerging markets.
This brief review clearly demonstrates that we have not only achieved solid macroeconomic stability, but the country has been put on to a path of growth. International organisations, economic experts as well as world’s leading publications have lauded government’s performance. Therefore, with Allah’s blessings we remain committed to economic growth and this budget will reflect our commitment.
Main Elements of Budget Strategy
The main elements of our budget strategy are as follows:
1) Reduction of fiscal deficit: In FY2016-17 we will target a deficit of 3.8pc compared to 4.3pc in FY2015-16.
2) Improvement in fiscal discipline: We are furthering advantages derived from reduction of fiscal deficit. In 2016-17 the fiscal deficit will be reduced from 4.3pc to 3.8pc of GDP. Through amendment in Fiscal Responsibility and Debt Limitation Act 2005 we are about to undertake two deep-rooted reforms in our fiscal management system. First, we are putting a statutory limit on the deficit of the federal government.
Starting 2017-18, in three years the federal deficit would be brought down to 4pc of GDP and thereafter to 3.5pc. Second, the Debt to GDP ratio would be brought down to 60pc of GDP in the next two years and then over a 15 years period it would be brought down to 50pc.
3) Raising Tax Revenues: Part-II of the speech will deal with tax proposals. At this stage, however, I would say that the proposed reduction in deficit will be achieved through a combination of better tax collection and tight expenditure controls.
4) Continued Focus on Energy: Energy has been our focus from the start. The country was facing a dreadful energy crisis in June 2013. We formulated short, solid policies to avert this crisis on permanent basis due to which considerable reduction in load shedding. Today, load shedding is being carried out systematically. Implementation as the plan formulated by the Cabinet committee formed by Prime Minister Nawaz Sharif will result in 10,000MW of additional electricity to be added in the national grid by March 2018. Beyond March 2018, Inshallah, Dasu, Diamer-Bhasha, Karachi Civil Nuclear Energy and many other projects will also be completed besides coal-based projects under China Pakistan Economic Corridor (CPEC).
5) Exports Promotion: In this budget, we would be announcing additional measures to incentivise exports and taking other initiatives to ease the cost of doing business and improving the overall regulatory regime to facilitate exporters.
6) Poverty and Unemployment: One major outcome of our economic policies has been the reduction in poverty and unemployment, both in the rural and urban areas. The recently published poverty report compiled with the support of World Bank, based on the Pakistan Social and Living Standard Measurement (PLSM), based on cost of basic needs, indicates that poverty has been reduced from around 64.2pc in 2001-02 to 29.5pc in 2014.
Based on food energy intake the poverty during this period has reduced from 34.6pc to 9.31pc. Similarly, unemployment has also been reduced from 6.2pc in 2012-13 to 5.9pc in 2014-15.
7) Income Support Program (BISP): This program is an effort to provide relief to the poor and weak segments of the society as a matter of our responsibility and their right. The following have been the main highlights under this program:
a) From Rs40bn in FY2012-13, we have progressively increased the size of the program to Rs102bn during the current year. We are further enhancing this allocation to Rs115bn, representing a nearly three-fold increase since 2012-13.
b) By End-June 2013, the cash transfer program was covering 3.7 million families, which will be increased to 5.3 million by the close of June 2016. By the end of next financial year the number of beneficiary families would further rise to increase to 5.6 million.
c) The stipend under the program in 2013 was a mere Rs12,000 annually, which had been set in 2008. During the last three year we have increased the stipend to Rs18,800.
d) Budget for Bait-ul-Maal has been increased from Rs2bn to Rs4bn.
8) Development and Promotion of ICT Sector: A number of initiatives were announced in the last budget for the development of promotion Information and Communication Technology (ICT). These initiatives have been operationalised with the following key features:
a) Rural Telephony and E-Services (RTEs) Program: To extend IT and telephone services to far-flung areas four new projects were started in 2016-17 under Universal Services Fund. A part of this project in Balochistan, Kharaan, Washuk, Dera Bugti, Kohistan and in FATA Waziristan areas, new lines for Rs2.43bn are being laid in these areas. For ongoing projects Rs9.52bn will be allocated. In 2016-17 for provision of telephone services in rural areas an amount of Rs11.94bn have been allocated.
b) Broadband Program: The ongoing broadband projects in Southern Telecom Region are expected to provide coverage to over 56,000 new subscribers in un-served/under-served areas in FY 2016-17. Furthermore, 125 Educational Broadband Centers (EBC’s) and 55 Community Broadband Centers (CBC’s) are to be established under these projects with subsidy of Rs482.5 million.
c) Optic Fiber Cable Program: Under this scheme in FY2016-17 Rs63.4 million have been allocated for on-going projects in Balochistan and Rs1.9bn for three new projects in Khyber Pakhtunkhwa, Balochistan, Sindh and Punjab.
d) Other than the above, work on establishment of computer labs under Pakistan Bait-ul-Maal women empowerment centres, Prime Minister’s Information and Communication Technology scholarship, Prime Minister’s scholarship program for talented students of Balochistan and Prime Minister’s National ICT internship program, is underway. For the current year 2016-17 around Rs1bn will be spent on these schemes.
e) Construction of Cross-Border Optic Fiber System between China and Pakistan: Only recently the Prime Minister has inaugurated the establishment of cross-border optic fiber project which will further open relations between the two countries.
Medium-term macroeconomic framework
As always, our budget strategy is embedded in a three year medium term macroeconomic framework spanning the period 2016-19, the main features of which are as follows:
1) GDP growth to gradually rise to 7.0pc by FY2018-19.
2) Inflation will be contained to single digit.
3) Investment to GDP ratio will rise to 21pc at the end of medium term.
4) Fiscal deficit would be brought to down to 3.5pc of GDP.
5) Tax to GDP ratio will be increased to 13.9pc.
6) Foreign exchange reserves would reach $30bn.
- In our view, this is a realistic macroeconomic framework given the performance we have rendered in the last three years.
The past history of adjustments and reforms in Pakistan is replete with the common phenomenon of cutting the development expenditures to control fiscal deficit. Our Government has succeeded in breaking out from this cycle, as the fiscal discipline we have achieved is without sacrificing development spending.
At the close of the third year of our government, the development expenditure would increase from Rs348bn to Rs661bn and in FY2016-17 the target is Rs800bn.
The development plan is geared towards developing human and social capital of the country by enabling universal access to education and health facilities, empowering women and eradicating poverty; thereby capitalising the demographic dividend and increasing the total factor productivity.
For development process Public Private Partnership policy has been prepared. For this purpose, transport, communications, financial, and industries and services have been identified. To enhance their share in the GDP a comprehensive strategy has been formulated.
In addition to increasing the public Investment, concerted efforts are being made to entice the private investment through a variety of mechanisms such as promoting public private partnerships, FDI, creating special economic zones with fiscal incentives.
I would now present some highlights of the development budget, focusing mainly on the sectors that will contribute most to economic development.
As usual, one of the key sectors claiming significant resources is the water sector, where we are investing Rs32bn for projects in various parts of the country. Other than these allocations, a project that will be the future lifeline of Pakistan is the Diamir Bhasha Dam, which will store 4.7 MAF of water and generate electricity of 4500MW. We have provided Rs32bn for the project. Another important hydropower project is Dasu, which will have the capacity to generate 2160MW in phase 1. We have allocated Rs42 billion for phase 1 of Dasu Hydro Power Project.
Water projects in Balochistan are the second most important focus of water sector investments comprising construction of delay action dams, flood dispersal structures, canals and small storage dams. Main focus will be on the existing projects that can be completed within the next 2 years. In this regard, work is in advanced stages on projects such as Kachhi Canal (Dera Bugti and Nasirabad), Naulong Storage Dam (Jhal Magsi), extension of Pat Feeder Canal to Dera Bugti and Shadi Kaur Dam (Gawadar). Recently work on Basool Dam in Gawadar has also started. This year an amount of Rs300 million has been allocated for further advancing the project of construction of 100 small dams.
Similarly, in Sindh, projects that are advancing gradually are Rainee Canal (Ghotki and Sukkur), extension of Right Bank Outfall Drain from Sehwan to sea, and Darwat Dam. In Punjab construction of Papin Dam in Rawalpindi will commence. In Khyber Pakhtunkhwa, other than Dasu, funds will be provided for construction of small dams in district Mansehra, and a sizeable project of Chashma Right Bank Canal – 1st Life Cum Gravity will begin. In FATA funding for Kurram Tangi in North Waziristan, and Gomal Zam Dam in South Waziristan will continue.
Besides, numerous schemes of lining of water-courses will be undertaken in Khyber Pakhtunkhwa, Sindh and Punjab to reduce water wastage together with flood protection and drainage schemes all over the country.
I have already explained how intensely we are committed to alleviate the problems of the energy sector. We have taken a number of steps to address structural problems of the sector including reduction in system losses, improvement in recoveries, elimination of theft and settlement of inter corporate circular debt. However, our real focus is on developing additional resources of energy so as to permanently overcome energy shortages.
As in the past, we have allocated the largest amount of resources to add new and economical capacity in the national grid. During the current year a sum of Rs380bn will be invested in this sector up from Rs287bn allocated in last year’s budget. Of this, Rs130bn will come from the PSDP this year as compared to Rs112bn allocated last year.
Large projects, other than Dasu and Diamir-Bhasha, that are part of this year’s allocation include:
a) Rs61bn have been allocated for Neelum Jhelum Hydro Power Project having a capacity of 969MW.
b) Rs16.5bn have been allocated for completion of Tarbela-IV Extension Hydro Power Project with a capacity of 1410MW.
(c) Two LNG power plants in Baloki and Haveli Bahadurshah will be allocated Rs60bn. Combined, the two power plants will produce 2400MW of electricity.
In addition, a number of other projects such as two Karachi Nuclear Coastal Power Projects (2200MW) with Chinese assistance; Chashma Civil Nuclear Power project (600MW); Golan Gol Hydro Power Project (106MW).
Evacuation of power from wind power projects at Jhimpir and Gharo Wind Clusters, interconnection of Chashma Nuclear Power Plants III and IV are also included in the plan.
The broad-based configuration of pipeline projects based as it is on a number of hydel, coal, wind energy and nuclear fuels will correct the energy mix to provide cheap electricity to the people of Pakistan, while improvement of the transmission and distribution system will reduce the system losses. Steps against electricity theft will reduce burden on the common citizens.
Pakistan’s location is such that it can play a central role in regional connectivity. In order to maximally exploit the natural advantage of its geography and to translate it into economic gains, there is an imperative need to invest in communication infrastructure. Accordingly, we have allocated Rs188bn for construction of roads, highways and bridges which is an increase of about 18pc as compared to last year.
An area of our priority in the highways sector is the completion of Lahore-Karachi Motorway. We firmly believe that this highway will change the fate of this country. It will provide jobs, farm-to-road connectivity and economic growth in Pakistan.
In the Budget 2016-17, we have allocated Rs34bn for Lahore-Abdul Hakeem Section, which is about 230 kilometers long. Similarly, an allocation of Rs19bn has been provided for Multan-Sukkar Section (387 kilometers), whereas in order to complete the Sukkur-Hyderabad Section (296 kilometers), a provision of Rs2.5bn has been made in the PSDP. This project is being executed in collaboration with private sector.
Apart from completion of various segments of Karachi-Lahore Motorway, we have made allocations to start work on other section of China Pakistan Economic Corridor. Furthermore, work on 118 KM Thakot-Havelian link is underway, and this year we will allocate Rs16.5bn. For the construction of Burhan-Hakla on M-1 to Dera Ismail Khan, a total of Rs22bn will be allocated.
We have earmarked resources for numerous projects in Highways sector in this budget. Some of them are: Faisalabad-Khanewal Expressway, Lowari Tunnel and Access Roads, Qila Saifullah Lora Lai Waigum Road, and Zhob Mughal Kot Road.
Railway is supposed to provide cheaper, faster and convenient mode of passenger and freight transport. Accordingly, its development is one of our important priorities.
Newly launched Green Line train express between Islamabad and Karachi is the result of efforts of the Railways Ministry. However, this is the beginning of a bright future. Pakistan Railways will target its investments around locomotives, bogies, tracks, signaling systems, and improvement of existing railway stations.
For the current year’s budget the following projects will be our key priority:
a) Track rehabilitation project between Khanpur and Lodhran is progressing. This year we aim to start work on doubling improvement of existing track from Port Qasim to Bin Qasim Station. This is an important CPEC project.
b) Pakistan Railways faces shortage of locomotives and for this reason, we have allocated Rs.14 billion for the procurement /manufacture of new locomotive engines. In addition, rehabilitation of rolling stock will also continue.
c) Repair work on around 800 coaches and 2000 wagons will be completed by this year.
In this budget, we have allocated Rs78bn, of which Rs41bn are in PSDP for 40 development schemes and Rs37bn for pay and pensions of railway employees. Private and international investments are expected during the course of the financial year in this sector, as well.
People are the most precious resources of any nation. Therefore we consider the expenditures on human development as investments as they lay the foundation of future growth at an accelerated pace.
Initiatives that will be undertaken for the promotion of this sector are as follows:
a) A allocation of Rs21.5bn has been made for 122 projects of the Higher Education Commission, which will support development plans of different universities all over the country. It may be noted that on the current side also a hefty allocation of Rs58bn is made for HEC. Thus a combined outlay of Rs79.5bn will be made for higher education. The combined allocation represents about 11pc increase.
b) Health sector service delivery has been fully devolved to the provincial governments. As per the decision taken by the Council of Common Interests in 2010, the Federal Government continued to support the provincial Governments till this year for the national health and population welfare programs.
This year the Federal Govt will allocate Rs22.4bn for the vertical health programs. Implementation of Prime Minister’s National Health Insurance Program will continue.
Temporary Displaced Persons (TDPs) and Security Enhancement:
Operation Zarb-i-Azb has been successful and highly effective in stemming the continuing threat to country’s peace and integrity. Consequently, the law and order situation in the country has improved and investors’ confidence, both domestic and foreign, is gradually rising.
This has been made possible through self-less devotion of our valiant armed forces, who have made great sacrifices in eradicating terrorists sanctuaries. They deserve the gratitude of the nation.
The Temporary Displaced People (TDPs) from the areas of operation were hosted in the mainland. Now their transfer and rehabilitation is underway. However, this process would take some time before completion.
To cater for the needs of hosting, rehabilitation and the return of TDPs and security enhancement a Special Development Program of Rs.100 billion has been provided in the budget FY2015-16.
China-Pak Economic Corridor (CPEC)
CPEC is a historic scheme that will start a new age between Pakistan and China and will enable both of the countries to extended connectivity with various other countries of the world.
Under this scheme, $46bn investment will be made under various schemes that include building of roads and rail networks and telecommunications, development of Gwadar Port and major projects for additional power and improvement in power transmission sub-sector. This will result in economic improvement of economies of the four provinces and special areas of Pakistan.
Development of Gawadar
Keeping in view the significant role Gawadar has to play for strengthening the economy of Pakistan in the coming days, the government takes the development of this area very seriously. Accordingly, we are allocating significant resources for a host of development projects aimed at uplift of this area.
After achieving macro-economic stability in past three years, it is our duty that we must further consolidate the achievements and accelerate the reforms in sectors that have been left behind. For this I announce the following measures:
Pakistan’s export potential has not been fully realised due to depressed commodity prices and slowdown in major export markets. In order to strengthen exports and remove bottlenecks faced by our exporters, I announced a number of measures in my previous budget speech. These included:
a) Approval of strategic medium-term trade policy framework.
a) Establishment of Export-Import Bank – also known as the Exim Bank.
c) Drawback on local taxes and levies to the tune of Rs.1.4 billion.
d) Reduction of mark-up rates on Export Refinance Facility and LongTerm Finance Facility.
In order to increase exports the following measures are being made this year:
a) To operationalise the trade policy, a total of Rs6bn have been allocated in the budget.
b) The existing scheme on Drawback of Local Taxes (DLTL) will continue in the FY2016-17.
c) The mark-up rates on Export Refinance Facility, which was 9.5pc in June 2013 will be brought down to 3.0pc from 1st July 2016.
d) To encourage Small and Medium Enterprises (SMEs) to invest in new technologies especially in non-traditional exports, a Technology Upgradation Fund (TUF) is being established.
e) Zero-rating of Export Oriented Sectors: The export of manufactured goods in Pakistan comes from five main sectors - textile, leather, sports goods, surgical goods and carpets. For encouragement of these five sectors, from 1st July 2016 they will be made part of zerorated tax regime.
f) The zero-rating facility will be available on purchase of raw materials, intermediate goods and the purchase of energy i.e.electricity, gas, furnace oil and coal. The retail sales of locally manufactured finished goods of these sectors will continue to be subjected to sales tax @5pc.
g) All the pending sales tax refunds till 30th April whose RPOs have been approved, will be paid by 31st August 2016.
Textile sector is the primary manufacturing sector of Pakistan. In order to further enhance the export competitiveness of this sector the following measures are proposed in Budget FY2016-17:
a) The existing scheme on Drawback of Local Taxes (DLTL) will continue in the FY2016-17.
b) Technology Up-gradation Fund: Technology Up-gradation Fund (TUF) Scheme for the textile sector has been formulated which will be implemented from July 1st, 2016. This scheme will particularly benefit the SMEs to invest in new technologies to make Pakistan’s exports globally competitive.
c) Duty Free Import of Machinery: The benefit of SRO 809, through which textile machinery can be imported duty free, will continue for FY2016-17 and scope would be widened to include more garment specific machinery. This incentive, along with LTFF and TUF, would encourage new investment in textile sector to increase exports.
d) Withdrawal of Customs Duty on Manmade Fibers: Concessionary customs duty on the man-made fibers that are not manufactured locally will continue.
e) Plant Breeders Right Act: One of the top priorities of the government is to ensure provision of quality seeds to growers. For this purpose, it is important to honor scientists with intellectual property rights of varieties they develop. The draft law is ready which will be implemented after approval of the Parliament.
Revival of agriculture sector
Agriculture is the backbone of Pakistan’s economy as it provides direct employment to 44pc of the labor force and contributes 21pc in the GDP.
Agriculture also provides 70pc of the raw material for textile industry. National food security is also dependent on agriculture. Therefore, enhancing agriculture sector performance is central to increasing GDP, enhancing industrial productivity and income of rural population.
Due to higher inventories, declining commodity prices and unfavourable weather conditions, agriculture sector has suffered very badly.
All of this has resulted in significant erosion of farm incomes. To enhance agriculture productivity, Prime Minister Nawaz Sharif announced a historic package in September 2015 for Rs341 for less expensive fertilizer, seeds, loans and availability of water. Key features of the package included:
a) Direct cash support to the tune of Rs40bn.
b) Subsidy of Rs20bn on urea – which reduced the prices of DAP by Rs500 per bag;
c) Subsidy on import of urea to keep the prices low.
d) Concessional electricity tariff for agriculture Tubewells.
Keeping the view difficulties faced by the agriculture sector the Government has decided to take further special steps in the current financial year. Details are as under:
a) Concessions of taxes and duties: Tax and duty concessions announced in Budget 2015-16 will continue in 2016-17. These concessions amount to Rs15bn and are expected to promote agriculture sector development.
b) Reduction in prices of fertilizer: Fertilizer is a major input cost in the agriculture sector. In the past few months, through the provision of gas to fertilizer industry, the Government reduced prices of urea fertilizer from Rs.2050 to Rs.1800 per bag.
Consultations of Government with fertilizer industry have resulted in further decrease of Rs50 per bag.
From 1st July 2016, the Government has decided that the price of urea is further reduced to Rs1400 per bag. In this instance, just as in the past, the Federal and Provincial Governments will pay the cost of the subsidy, which will be Rs36bn, in equal shares.
Similarly, use of DAP is very important for improving agriculture productivity. The current price of DAP is Rs2800 per bag.
Consultations of government with fertilizer industry have resulted in further decrease of Rs50 per bag. In this instance, the Government has decided that with effect from 1st July 2016, the price per bag of DAP will be Rs2500. In this instance, just as in the past, the Federal and Provincial Governments will pay the cost of the subsidy, which will be Rs10bn, in equal shares.
Enhancement in the target of agriculture credit: Availability of credit facilities to farmers especially the small farmers is one of the priority areas of this Government. Over the last three years volume of agriculture credit is being increased from Rs336bn to Rs600bn. For 2016-17 volume of agriculture credit target is being increased to Rs700bn.
Reduction of cost of credit: The Government through SBP has developed a framework to reduce mark-up rates of ZTBL, NBP, Bank of Punjab and Punjab Co-operative by 2pc.
Credit Guarantee Scheme: Under this scheme, the Federal Government is sharing risk of non-payment of credit by small farmers by guaranteeing up to 50pc of the financing by participating financial institutions. The small farmers have shown overwhelming interest in this scheme. Accordingly, the Government is allocating Rs1bn in 2016-17.
c) Concessional electricity tariff for Agriculture Tube Wells:
From 1st July 2016, current rate of off-peak rate of Rs8.85 per unit for Agriculture Tube Wells is being reduced to Rs5.35 per unit. For this special concession, the Government will bear expenses of around Rs27bn.
d) Concession of customs duty for Dairy, Livestock & Poultry Sectors: To encourage further investment and development of dairy, livestock and poultry sectors, it is proposed that:
The rate of 5pc for import of machinery for the dairy, livestock and poultry sectors is proposed to be reduced to 2%.
Incubators and brooders and machinery for animal feed stuffs presently subject to 5pc customs duty in Tariff is proposed to be reduced to 2pc.
Concessions of Customs Duty for Fish Farming: To promote fish farming, the following relief measures are proposed:-
Customs duty on import of fish feed pellet machines and water-aerators, be reduced from 5pc to 2pc
Fish feed is subject to 10pc customs duty whereas shrimp feed is at 20pc. The duty on import of fish and shrimp feed is proposed to be exempted;
Similarly, customs duty on live baby fish that is subject to 10pc is proposed to be removed.
Relief on Cool Chain Machinery: For processing of food, customs duty on cold chain storage and in related capital goods will be exempt.
Exemption of Sales Tax on Pesticides: Pesticides and its ingredients are chargeable to sales tax at reduced rate of 7pc.
This 7pc sales tax rate is proposed to be abolished.
Exemption to Silos: Exemption to machinery and equipment for the development of grain handling and storage facilities is proposed to extend to silos.
Our industrial sector has shown good performance during the current year as it has registered a growth rate of 6.8pc, while Large Scale Manufacturing (LSM) has registered a growth of 4.6pc in FY2015-16. It is important that the process of industrial investment should be further accelerated in the country for which the following concessions are announced for the industry:-
a) Enhancing Tax Credit on Employment Generation: In order to promote industrial growth and employment generation tax credit @ 1pc of the tax payable for a period of ten years that is allowed for every 50 employees in an industrial undertaking to be set up by June 2018, is proposed to be increased to 2pc. This concession will be made available for 10 years to the industrial undertakings set up by June 2019.
b) Tax Credit for Making Sales to Registered Persons: At present a manufacturer registered under sales tax who is making over 90pc sales to registered sales tax persons is entitled to a tax credit of 2.5pc of tax payable. The tax credit is proposed to be enhanced from 2.5pc to 3pc of tax payable.
c) Tax Credit for Balancing, Modernization and Replacement (BMR) of Plant and Machinery: At present, tax credit on BMR is allowable at the rate of 10pc of investment against tax payable for two years. In case of investment through 100pc new equity, tax credit on BMR is allowable at the rate of 20pc of investment against tax payable for five years. The period is proposed to be extended to 30th June 2019.
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