This leaves a gap of about Rs179 billion to be filled by internal and external borrowing, keeping the overall budgetary deficit within the IMF-fixed target of four per cent of GDP.
Describing the budget as investment inducing and employment generating, the finance minister said he was proposing no new taxes for the next year but offering a number of innovative measures including relief for government employees and pensioners.
The defence budget has been projected at Rs160.3 billion, the public sector development programme at Rs160 billion, poverty related social sector spending at Rs185 billion, and debt servicing at Rs256 billion.
The main features of the budget 2003-04 are an incentive package for the housing sector, pension and salary increases of 15 per cent, withdrawal of 20 income tax exemptions, relief to the business and industrial sector, free economic zone status to Gwadar port and a national savings scheme for the widows.
The budget deficit of Rs179 billion during the next year would be met through Rs89.4 billion external and Rs87.6 billion domestic financing. Domestic financing will comprise Rs59.7 billion non-bank financing and Rs27.9 billion bank borrowing, against Rs33 billion borrowing during the current fiscal year. A total of Rs10 billion are expected from the privatization proceeds next year.
Net revenue estimates for 2003-04 have been estimated at Rs510 billion, around 6.7 per cent higher than the Rs481.4 billion budget estimates of the current year, while current expenditure is estimated at Rs645.2 billion, showing a decline of 4.2 per cent over the Rs673.3 billion revised estimates for the current year.
As such, the share of current expenditure in the total budgetary outlay for 2003-04 is 80.1 per cent as compared to 83.6 per cent in the revised estimates for 2002-03. The expenditure on running of the civil government, including superannuation allowance and pension, is estimated at Rs100.6 billion, indicating an increase of 8.6 per cent in revised estimates 2002-03.
The provincial share in federal receipts is estimated at Rs214.8 billion next year which is 11.4 per cent higher than the revised estimates of the current year. Net capital receipts in the budget 2003-04 have been estimated at Rs36.7 billion against Rs104.9 billion in the revised estimates of 2002-03
The defence budget of Rs160.3 for next year is almost flat at the current year’s revised estimates of Rs160.1 billion but up by 9.6 per cent over the Rs146 billion budgeted for 2002-03.
Of the Rs513 billion tax revenue, indirect taxes have been estimated at Rs349 billion, direct taxes at Rs161 billion and natural gas and petroleum surcharge/levies at Rs61.1 billion. Non-tax revenue for next year has been projected at Rs157.2 billion against Rs175.8 billion revised estimates of current fiscal.
As a percentage of GDP, current expenditure will be 14.6 per cent next year against 16.8 per cent during the current year. Of this, debt servicing will be 5.8 per cent next year against 6.4 per cent of the revised estimate this year, defence will cost 3.6 per cent as against four per cent this year, running of the civil government will remain static at 1.4 per cent, development expenditure will be 3.6 per cent against 3.3 per cent this year while the total expenditure including provincial will be 18.2 per cent of GDP against 10 per cent during the current fiscal year.
The minister said the government would provide Rs53 billion as subsidy to both Wapda and KESC in 2003-04 against Rs76.5 billion during 2002-03. He said electricity rates were likely to decrease in the next two to three years because there will be a reduction in payments to IPPs, furnace oil replacement with gas, the Ghazi Barotha project coming on line and electricity production through coal from Thar.
Job Creation: The minister said that 30 per cent higher allocation for development projects and facilitations to the SME sector and provision of micro-credit would further provide job opportunities. He said both public and private investment would create more jobs.
Overseas Pakistanis: The minister said expatriates who sent remittances to the tune of Rs4 billion during the current fiscal would be given more incentives. To that end, the foreign exchange remittance card scheme was being streamlined and duty allowance for the “silver card” was being increased from $800 to $1,000 and for the” gold card” from $1,500 to $2,000. In addition, in baggage allowance, duty free imports of DVD, CD players, tape recorders, sewing machine and gas burners are being included.
Housing: The minister said there was a shortage of about 5.4 million houses in Pakistan and the need was rising every year which required provision of financing. Since this sector holds strong backward and forward linkages with other industries, the government was making arrangements with the State Bank of Pakistan to enable people to get loans to own houses.
To that end, a programme would be launched so that government employees are provided guarantees to obtain loans for housing from the House Building Finance Corporations. The government has also decided to provide 25 per cent reduction in excise duty on cement, elimination of excise duty on wires and cables, increase in limit of tax exemption on mark-up, improvement in lending rate and increase in maximum limit of loan.
Pay and Pension: The minister announced a 15 per cent increase in salaries and pensions of government servants on the recommendations of the pay and pension committee. To provide relief to the widows, a special savings scheme on the lines of pensioners is being initiated with higher rates of profit.
Gwadar port: Since Gwadar has been declared a special economic zone, all imports into the SEZ will be free of customs duty, sales tax and all other levies collected by the customs department. A seven-year tax holiday will also be available so far as income tax is concerned.
Income Tax: To encourage the housing sector, the tax credit limit of Rs100,000 or 25 per cent of income (whichever is less) for housing purposes from selected sources has been enhanced to Rs500,000 or 40 per cent, whichever is less. The facility has also been extended to loans from any bank or non-bank financial institution.
The rate of withholding tax on property income is 7.5 per cent if the annual amount of rent is Rs100,000 or more. This limit has also been enhanced to Rs200,000 and the rate of withholding tax is reduced to five per cent.
The federal budget also proposes that profit or interest on mortgage of property or other capital charge will be an allowable deduction for the purpose of income tax.
It is proposed that any amount paid or payable to a scheduled bank or DFI or a Modaraba or leasing company by a person in connection with the lease of an asset which is income of the lessor will be allowed as an expense.
The finance minister proposed to withdraw 20 further income tax exemptions from the income tax law. With the promulgation of income tax ordinance 2001, he said, it had been ensured that all classes of taxpayers will be entitled to avail self-assessment scheme without any conditions for declaration of income, G.P rate or increased payment of tax. To further improve the facility detailed guidelines are being issued for maximum ease of the taxpayers to ensure voluntary compliance.
To bring transparency and uniformity in the provision of exemption for non-profit philanthropic activity, it has been decided that Pakistan Centre for Philanthropy be assigned the initial responsibility for setting up a rating system for such organizations.
It is also proposed to repeal the wealth tax 1963 to end a lingering apprehension among taxpayers.
For investment in Defence Savings Certificates, where profit is payable on maturity or encashment of such certificates, it is proposed to tax such profit in the tax year to which it relates or accrued. The recipient of profit can give option for taxation as per new provision of law.
To encourage investment in industry, it is proposed to provide initial depreciation to plant and machinery imported second hand and used in Pakistan.
The withholding tax rate on brokerage and commission is 5 per cent which the said rate in respect of indenting commission agents is 10 per cent. This has been reduced to 5 per cent to bring them at par with other commission agents. The exemption on capital gains of public companies listed on the stock exchange will continue till 2005.
Business losses sustained by a concern during the tax holiday period are not adjustable against income of the post- exemption period. It is proposed that such businesses may also be allowed to carry forward their losses.
For the minimization of presumptive tax regime and the globalization of taxation, it is proposed that the tax withheld on import of fixed or capital assets imported by an industrial undertaking for its own use may also be made adjustable.
Advance income tax is payable in four quarterly instalments on a turnover basis by all the taxpayers. The individuals having non-business income or having share from association of persons or registered firm etc have no turnover and are, thus, not liable to pay advance tax, whereas previously they were required to pay advance tax on the basis of the last assessed income. It is proposed that advance payments of tax on turnover be restricted to companies and AOPs and individuals should pay advance tax on the basis of last assessed income.
The tax law provides tax rates for public, private and banking companies but certain other companies included in the definition of a company do not fall in these three categories. It is proposed that such companies will be subject to rates applicable to a public company or an individual, whichever is beneficial to taxpayer.
At present dividend from a non-resident company is taxed at normal rates. It is proposed to tax the dividend receipt from the non-resident companies at the same rate which are applicable to dividend receipt from a resident company.
Central Excise Duty: As part of policy to reduce excisable items, it has been decided to abolish central excise duty on paper and paperboard altogether to reduce the prices of printing, writing paper, tax books and stationery items.
The system of supervized clearance is being restored on cigarettes and cement. Last year, adjustment of CED was allowed in order to remove double taxation on certain items. This year a simplified procedure is being introduced to facilitate the adjustment of duty paid at import and local stages.
Customs: To encourage local production of oilseeds, it is proposed to replace the existing 10 per cent customs duty with 20 per cent sales tax on imported oilseeds.
As an incentive for the engineering industry, the rate of duty on heavy and light engineering, ceramics, fan industry and casting and forging is proposed to be reduced.
To preserve incentives at the present level a number of new sub-headings are proposed to be created in the custom tariff to promote local manufacturing of refrigerators, airconditioners, bulbs and tubelights, electronics and switch gears and boilers.
The maximum tariff of 25 per cent is applicable to all imports other than automobiles and spirits. The protection to the local manufacturer has helped to improve production of vehicles. With a view to providing competitive environment to local industry, the rate of duty on import of cars about 1800 cc is reduced from 200 per cent to 150 per cent.
In order to ensure availability of medical equipment and apparatus based on the use of X-rays or other radiation at a lower price, it is proposed to reduce the rate of customs duty from 10 per cent to 5 per cent.
Sales Tax: Duty drawback would now be available under DTRE on duty paid inputs purchased domestically. Consequently, inputs purchased domestically and not imported under DTRe will get a proportionate percentage of duty drawbacks admissible as per rates already notified for exports.
The finance minister announced that in future there will be only one audit per year by the sales tax department and the taxpayer will be provided a copy of the audit report besides the opportunity to explain his point of view.
It has been decided to grant relief for liabilities of sales tax before June 30, 2000. The persons who have been registered with effect from July 2000 would now be liable to pay turnover tax at the rate of 2 per cent on the basis of their declaration with income tax authorities for the financial year 2000-01 and 2001-02 without any additional tax and penalty. Moreover, all business persons who get registered up to September 30, 2003 pay a turnover tax at the rate of two per cent only for one year no question would be asked about past liabilities.
The government has also decided to provide incentives for enhanced exports of high quality products of the agriculture and livestock sectors like rice, dairy produce, graded, sorted and preserved fruits and vegetables etc. For such uses, selected machinery and equipment previously attracting sales tax will be zero rated.
To ensure that local production is not at a disadvantage, the facility of zero rating is being extended to a number of items. The list would be released separately.
