At the outset I would like to place before you the main elements of tax policy that we have pursued through out our tenure.

As I mentioned in Part-I, the main objectives of tax policy were:

(1) Reduction in number of taxes, both at the federal and provincial levels;

(2) Reduction in tax rates and penalties;

(3) Simplification of assessment and collection procedures;

(4) Reforms in labor levies;

(5) Efficiency in dispute resolution;

(6) Broadening the tax base; and

(7) Honesty and efficiency in tax administration.

These remain the guiding principles for our tax policy. Our tax policy is now focused on reforms in tax administration that cover tax processes, assessment procedures, re-organization of CBR, improved compensation and training for tax officials and automation of tax operations. Details of measures taken during the year, in this regard, have been noted earlier. In the tax proposals for the year, additional steps in improving tax administration are included.

I now present the proposals within the context of each of the main taxes:

Income Tax

As I have said on many previous occasions, income tax is the tax of the future. It is capable to cater both for economic efficiency as well as social equity. The process of reforming this tax that we have initiated last year has been carried to its logical end with the promulgation of new Income Tax Ordinance 2001, which would come into effect from July 1, 2002. Truly revolutionary changes have been brought in the income tax, all aimed at simplifying its application and enabling taxpayers to comply with its provisions.

The following important features of the new income tax law are worth noting;

(1) Unlike the previous tax laws that relied on the principle that an “assessing officer” had to determine the income of the taxpayer and compute his tax liability, the new law, in a philosophical departure, places this responsibility on the taxpayer. All income tax returns for income earned from 1st July 2002 onward shall now become assessment orders on the date of filing. The income tax department will have no power to make any changes in the income or tax except that a certain percentage of the cases will be subjected to audit to verify the accuracy of the returns filed.

(2) This self-assessment procedure would be meaningful, not conditioned on declaration of higher income, or limited to certain classes of taxpayers. This will be universal in the true sense of the word, as all classes of taxpayers, irrespective of their status, location or income level, will be entitled to the use of self assessment scheme. Indeed, there will be no other method of assessment, except self assessment. Thus we have removed one of the most pervasive distortion of income tax system, the one that placed our tax system in the class of primitive system. This change alone will bring modernity and progress in our system.

(3) The new law aims to attain uniformity of tax rates and tax treatment, reduce dependence on withholding taxes, encourage voluntary compliance, minimize exemptions and ensure an effective dispute resolution.

(4) In view of the new law, the existing income tax rules require modification to bring them in line with the new law. Accordingly, new rules are being formulated and will be notified soon.

Evidently, with above changes the goal of fundamentally transform the income tax regime has been accomplished. In the days ahead, this process will be further strengthened and some of the shortcomings that may still remain will be removed.

Rationalization of personal and corporate taxes:

(1) It is proposed to reduce tax rates so as to induce greater economic activity by such taxpayers:

(a) To lessen the tax burden on low income groups, the minimum taxable income limit, which was increased to Rs.60,000 last year from 40,000, is being raised further to Rs.80,000.

(b) As a step towards reducing the tax rates, 5% surcharge applicable to the corporate sector was withdrawn last year and tax rate applicable to banking companies was reduced to 50% from 58%. In order to further rationalize the tax rates, there shall be a progressive reduction in tax rates for banking companies by 3% per year and for private companies by 2% per year for the next five years so as to reach the tax rate of 35%. This will bring the corporate tax rates to the similar level in the region and would encourage investment and capital formation.

(c) In the last budget, the government had increased the salary of its employees who were not given a pay rise for nearly a decade. Conceptually, the new income tax law provides for monetization of perquisites and withdrawal of exemptions from tax of all cash allowances. The application of new provisions will substantially increase the burden of such employees and result in a net reduction of take-home salary. In order to avoid this, it is proposed to allow the existing benefits to such persons whose salary including allowances and perquisites are up to Rs.600,000 per annum.

(d) The special tax rebate equivalent to 50% of tax payable which was available to taxpayers aged 65 years or more, and having annual income up to Rs.200,000 is being retained though it was required to be withdrawn according to original provision of law.

Reduction in the number of withholding taxes:

(2) To reduce the number of withholding taxes having the character of indirect taxes, 5 types of withholding taxes, namely taxes on import of wheat, bearer certificates, sale by public auction of property, bonus shares and gas consumption bills, were withdrawn. In continuation of this policy, two more withholding taxes, namely tax on out-station checks and commission on petroleum products, are being withdrawn.;

(3) Withholding tax on telephone, mobile telephone and prepaid cards is being rationalized downwards in respect of small denomination cards. The rate of withholding tax will apply on mobile phones and prepaid cards.

(4) Withholding tax is being collected on private motor cars at the time of payment of provincial road tax. Even 10 years old private cars are being subjected to this. This withholding tax is being abolished on private cars which have been used in Pakistan for over 10 years.

Incentive for poultry industry

(5) For the encouragement of the export of “processed poultry meat” exemption from withholding tax is being allowed on live poultry supplies to the poultry processing industry. Moreover, tax rate on export of “processed poultry meat” is being reduced from 1.25% to 0.75%.

Incentives for capital markets:

(6) Withholding tax on commission and brokerage is 10% and is considered excessive. This is being reduced to 5% to make the withholding tax regime reasonable.

(7) Withholding tax on interest on securities at 30% is high and creates liquidity problems for banks. This is therefore being brought to 20%.

(8) Withholding tax at 10% on issuance of bonus shares posed problems for the withholding agents. The same was withdrawn last year. It has been represented that there is no justification of taxing the receipt of bonus shares in the hands of the shareholders, as the receipt does not amount to value addition. The tax on bonus shares is proposed to be withdrawn.

(9) At present, any distribution received by a taxpayer from NIT or a mutual fund established by ICP out of capital gain on which tax has already been paid is exempt from tax. This facility Is being extended to investment companies registered under the Investment Companies and Investment Advisors Rules, 1971 or a Unit Trust Scheme constituted by an assets management company registered under the Assets Management Companies Rules, 1995.

(10) Presently, income of Mutual Funds received by way of dividend, commission and interest is subjected to withholding tax. This withheld amount is refunded if said mutual funds distribute 90% of their income to the unit holders. It has been decided to exempt those mutual funds which are approved by the Securities and Exchange Commission of Pakistan from such deduction. This concession would also be available to those investment companies, which are registered under Investment Companies and Investment Advisors Rules 1971 or a Unit Trust Scheme constituted by an Assets Management Company registered under Assets Management Companies Rules 1995, or a Modaraba Management Company established under Modaraba Ordinance 1980.

Incentives for mergers

(11) There is a growing economic need of mergers and business reorganizations, especially in the financial sector. In order to facilitate such amalgamations, the following tax incentives are being provided for banking and non-banking financial institutions:

(a) Transfer/carry forward of losses of merged institutions;

(b) Tax admissibility of expense on merger;

(c) Continued availability of unabsorbed depreciation; and

(d) Admissibility of different tax rates for banking and non-banking operations.

Incentives for banking companies

(12) To accelerate the pace of privatization of banks, it has been decided to amend the law to extend the period of carry forward of loss from six years to ten years sustained by nationalized banks for the assessment years 1995-96 and 2000-01.

Rationalization of depreciation allowances:

(13) In order to simplify the multiple depreciation allowances, extra depreciation allowance and industrial building allowance were abolished under the new income tax law and an initial depreciation at the rate of 40% was introduced. It has been represented that the rate of initial depreciation should be enhanced to provide incentive to investment and capital formation through deferred tax liability. It has, therefore, been decided to allow initial depreciation at 50% of the cost of all depreciable assets, to all taxpayers.

(14) Depreciation on pre-commencement expenses was not provided in Income Tax Ordinance 1979 due to which there was an unending litigation between the taxpayers and income tax department. It is proposed to allow amortization of pre-commencement expenses at the rate of 20% annually.

Incentives for the housing sector:

(15) The government is committed to provide incentives for construction of Residential Houses. Last year, mark up paid on loans obtained for this purpose was allowed rebate at average rate of tax with the condition that the loan amount does not exceed Rs.600,000 with maximum ceiling of mark-up of Rs.50,000. The condition of maximum ceiling on loan amount of Rs.600,000 is withdrawn and the maximum ceiling of mark-up is raised to Rs.100,000. This will go a long way to provide relief to the self employed and salaried classes and encourage them to own a residence.

Concessions for pension funds and annuities:

(16) Last year, with a view to providing incentive for pension contributions, contribution to an approved annuity scheme to the extent of 5% of income subject to maximum of Rs.50,000 was allowed as tax allowance. To further improve incentives for such contributions, the upper limit of this allowance is being enhanced to Rs.100,000.

Concessions on depreciation for purchase of cars:

(17) The deprecation of motor vehicles in the past was being restricted to a cost of Rs.600,000. Government had increased it last year to Rs.750,000 which is further increased to Rs.1 million.

Eliminating exemptions:

(18) Presence of exemptions and deduction of certain liabilities allowed to certain taxpayers creates distortions in the tax regime. Full benefits of the new law would not accrue until such distortions are removed. With this in view, the entire list of such exemptions were examined and it is proposed to remove 55 of them with immediate effect.

(19) Exemption to income from investments in national savings schemes made after 1-7-2001 was eliminated. The withholding tax on amounts exceeding Rs.300,000 was maintained at 10% of the yield. The limit of Rs.300,000 is proposed to be reduced to Rs.150,000. This shall however be effective on investments made after 1-7-2002 and shall not affect the investments already made.

(20) Entertainment allowance and Senior Post allowance provided to government servants were exempt from income tax. It is proposed to bring them into the tax net. However, the take-home salary will be protected through appropriate adjustment in allowances.

(21) Payment on account of utilities allowed to Ministers was previously exempt up to Rs.15,000. This is now made taxable.

Non-profit organizations

(22) Non-government organizations are playing an increasingly important role in pursuit of human development and poverty reduction. In order to strengthen the role of such organizations, existing income tax law and rules are being amended suitably to align the same with new development models.

Taxpayer facilitation

(23) In the case of legal disputes pending for final resolution in the higher judicial forums, the income tax department continues to make further assessments on their own version of law. In order to save taxpayers from the inconvenience of having to file appeals before superior courts in each such case, necessary legal provision is being made in the income tax law.

Central Excise

The role of central excise in country’s tax system has been made marginal, and that too for technical reasons. Yet in whatever little coverage it has, irritants remain that make compliance difficult. With a view to removing these irritants, the following steps were taken during the year:

Last year central excise duty was abolished on ten items. This year central excise duty is being withdrawn on 10 more items. These are filament yarn, polyester chips, electric batteries, metal containers, optical fibre, kraft paper, ship plates, services provided by travel agents, advertising agents and shipping agents. The revenue loss on these items is estimated at rupees one billion.

The process of equalizing central excise duty incidence on imports and local production is being completed in this budget. Henceforth, there would not be any item on which there is any disparity between central excise duty incidence on import and on local production. This will provide a level playing field to local manufacturers.

Aerated beverages are a highly taxed item attracting CED @ 15% besides duty @ 50% on concentrate. Sales tax is also leviable at each stage. Such a high tax incidence tends to increase non-compliance. As a first step, excise duty on aerated beverages is being reduced from 15% to 12% of retail price.

In view of adverse effects of cigarette on human health and to raise some revenue, it is proposed to increase the incidence of duties on cigarettes.

To facilitate taxpayers and remove irritants, central excise procedures are being further modified to bring them closer to the sales tax procedures. Manufacturers of excisable commodities registered with sales tax are being exempted from keeping separate raw material accounts and submitting quarterly returns of consumption. Condition of annual renewal of central excise licence is also being dispensed with. Two more items namely cement and cigarettes are being shifted from supervised clearance system to self-clearance system.

Customs

The overriding objective of tariff reforms undertaken during the last decade has been to create a competitive trade regime that reduces the undue protection to the local industry and removes the anti-export bias of imports.

Last year, a quantum jump was undertaken in the process of reform initiated in early 90s. Not only the maximum tariff rate was brought down from 35% to 30% but the number of duty slabs was reduced from 5 to 4. Consequently, duties on some 4000 items of custom manual were altered, which had a salutary effect on economic activity.

Tariff Reforms

This year the process of reforms has been carried forward to its conclusions in the medium term. The following are notable changes proposed in the Customs regime to simplify and enable it to meet the needs of a international competitive environment:

(1) The maximum customs tariff rate of 30% is being reduced to 25%. There will be only 4 rates i.e. 25, 20, 10 and 5%. In addition, some further rationalization has also been undertaken in order to strengthen the competitiveness of local industries.

(2) Duty rates on over 2500 tariff lines have been reduced. These include the tariff reductions introduced on account of arrangements with the European Union who have provided greater market access to Pakistani exports. Simultaneously, the customs tariff has been made consistent with the Harmonized System of WCO 2002 version.

(3) The duties on import of plant and machinery for development of grain handling and storage facilities and aircraft and their spares are being reduced.

(4) The government’s conscious policy of providing cheaper inputs for our industries has been continued. Last year’s concessions given to the TV industry and the electric fans industry have given rich dividends as the production of these items has increased substantially. The production of TV units estimated during the current year is 450,000 as against 350,000 in the previous year. The export of electric fans during the current year is estimated at 900,000 as against 500,000 in the previous year.

(5) This year the rate of customs duty on stainless and alloy steel has been reduced from 10% to 5% which will provide a boost to our surgical and cutlery industries which mostly fall in the small and medium category.

(6) Some other items which will help industry substantially are titanium dioxide on which duty has been decreased from 20 to 10% and waste paper on which the duty has been decreased from 10 to 5%.

(7) Customs duty on compressors has been reduced from 20 to 10% and 5%. Glass fiber mats from 20 to 10%, ethylene and propylene from 10 to 5%, hand tools from 20 to 10% and electronic calculators from 20 to 10%.

(8) C.T scans will now attract 5% customs duty as against the previous rate of 10%.

(9) The items presently attracting zero percent customs duty have also been reviewed in order to curb the inherent tendency of over-invoicing in zero duty items.

Reducing SROs

One of the major irritants for the manufacturers was the difficulties which the widespread SRO regime used to pose for the manufacturers. On the other hand, the SRO regimes used to provide incentives for misdeclaration by unscrupulous importers in collusion with errant tax officials. The government has continued its policy of removing the irritants inherent in the SROs.

An experts committee on investment has pointed out that the concessional regime regulated through Form `S’ entails cumbersome procedure of industrial survey, fixation of capacity, opaque procedures for bringing amendments therein, etc. Moreover, there are complaints of harassment by officials. It is, therefore, proposed to move out of the concessionary tariff regime to the extent possible at present. In the case of 254 items the statutory rates have been brought closer to the erstwhile concessional rates. Consequently, irritant to the industries through the Form `S’ regime would be diminished to the extent of these 254 items. The expectation of the government is that the scheme of Form `S’ should be altogether abolished in the next two years.

The investment driven SRO.439(I)2001 and SRO 28(I)/98, which carried a concessionary rate of 5% and 10% for manufacturers and service sector respectively entailed bureaucratic hurdles of its own such as approval by various government agencies, submission of indemnity bonds, etc. In order to remove an irritant to the investors, the SRO has been rescinded and the rates of machinery covered therein have been transposed to the tariff without any variation in rates.

With these changes, the number of SROs which were reduced from 120 to 56 in 2001-2002 will stand reduced to about 30 this year. The remaining SROs mostly cover GOP’s commitments to foreign investors and to cover various policy commitments such as those for shipping, petroleum and agriculture sectors.

The duties on import of vehicles are extremely high and thus there is no import of vehicles. The sense of lack of competition tempts the local manufacturers to be costly and less quality conscious thus jeopardizing the legitimate interests of consumer. In order to create an environment of efficiency and competition, the duties on import of cars are being reduced as under:

From To

Cars up to 1000cc 100% 75%

Cars up to 1500cc 120% 100%

Cars up to 1800cc 150% 125%

Cars over 1800cc 250% 200%

Motorcycles 105% 75%

Discouraging under-invoicing

Despite substantial reduction in rates of customs duty, there are still persistent complaints of under invoicing. To combat this menace, all dry ports are being linked electronically for sharing of valuation data at Custom House Karachi and at other dry ports. Lahore and Sambrial dry ports are already on line while the remaining dry ports will be connected soon. A Task Force will be set-up in the CBR to monitor the progress work in this area.

Customs General Orders

Conscious to the needs of public in general and trade in particular and for the resolution of their problems in complying with revenue related issues, several hundred Customs General Orders issued over the past three decades have been amalgamated into an easily understandable single document. In the process almost 500 redundant General Orders have been weeded out. It may be recalled that a similar exercise was done last year regarding custom rules.

The Government is considering to establish a large Free Trade Zone at Gawadar in the close vicinity of Gawadar Deep Water Port Project. The overall plan under preparation for the development of this region is giving this aspect full consideration. A special package to encourage large scale investments and particularly in the industrial, mineral and petroleum sectors in Gawadar Export Free Trade Zone will be decided shortly in consultation with the Provincial Government of Balochistan.

Baggage Rules:

In order to provide additional incentives to Overseas Pakistanis who remit foreign exchange, it is proposed to increase their duty free allowances from $700 to $800 for those remitting over $2500 and from $1200 to $1500 for those remitting over $10,000. It is also proposed to allow them to purchase locally manufactured electrical and electronic items (free of sales tax) from duty free shops within their allowances. This facility will also be allowed to those availing Transfer of Residence facility within their allowances.

Anomalies:

Large scale restructuring of tariff regime can give rise to some tariff anomalies. In order to facilitate those who may be affected because of such anomalies, it has been decided to constitute a committee headed by Secretary General Finance and comprising Secretaries of Commerce, Revenue and Industries to review any complaints in this regard and dispose them by the end of July.

Single Customs Declaration Document

At present 5 different forms for customs declaration are in use. There are home consumption bill of entry, into bond bill of entry, transit bill of entry, shipping bill and baggage declaration form. The emerging practice worldwoide is to consolidate all these declarations into single document covering all purposes. We will also be introducing a single document in Pakistan at some selected customs stations in the near future. Hopefully, the coverage of this document will be extended to the entire country within a few months.

Exports

You all know that exports from Pakistan received a serious setback due to events of 11th September. Taking immediate cognizance of the situation, the Government offered a major fiscal relief to exporters by freezing duty drawback rates at the level of 1st October, 2001. The third and fourth revisions in duty drawback rates due on 1st January and 1st April, 2002, respectively were put-off. These two corrections in DDB rates would now be effected from 1st July, 2002.

To further alleviate the difficulties of exporters, the backlog of duty drawback which accumulated during the second half of last fiscal year was cleared by 31st January, 2002 in addition to the current payments of duty drawback. In the process, CBR paid Rs. 26.1 billion of duty drawback in eleven months which is 59% more than 16.4 billion paid in the whole financial year 2000-2001.

One of the major irritants mentioned by the GoP’s Committee on Investment is regarding the inadequate arrangement for timely and transparent payment of duty drawback and refunds of sales tax. In acceptance of the recommendations of the Committee, it has been decided that customs duty drawbacks repayments will be made through bank branches directly. I will talk about the sales tax refunds a little later.

Traditionally, exports for Afghanistan were not entitled to exemption of duty and taxes due to fear of smuggling. However, because of recent events, it was necessary to promote exports to Afghanistan. Thus, permission of zero-rating and duty drawback were allowed on exports to Afghanistan via land route. Moreover, Pakistani made goods purchased by UN agencies for relief supplies to Afghanistan were also deemed as exports for the purpose of zero-rating. Permission has also been given for duty and tax-free “Export Warehouses” at Chaman and Peshawar for storage and ready availability of construction materials for export to Afghanistan.

Some other noteworthy measures of facilitation for exporters include round the clock export facility at all customs stations, waiving of prior permission for late examination of export cargo, reduction of time from 10 days to 3 days generally for laboratory tests reports and where required introduction of evening shifts for speedier disposal of duty draw-back claims.

One major initiative made in the previous budget was about the DTRE regime under which the exporters were to be freed from the hassle of paying any duties & taxes on import and to subsequently undergo the rigours of claiming duty drawbacks and refunds. While 317 manufacturers have availed the DTRE Rules and are operating under the same, the response has been less than satisfactory. The industry felt that the DTRE Rules were not adequate. I am happy to announce that in consultation with the stake holders, the CBR has modified the DTRE Rules. Provision has been made for the admissibility of GST paid on utilities and the users of polyester staple fibre will be entitled either to avail the option of importing the same under the DTRE or to obtain duty drawback on locally purchased PSF on deemed import basis. Issues of disposal of wastages as well as the local disposal in distress situations have been addressed.

Since the DTRE rules will be finalized within a few weeks, the other temporary import SROs which were to have lapsed on 31.12.2001 but were allowed to remain operative, shall stand rescinded on 31.12.2002.

The validity of SRO 260 of 2002 meant for duty drawback on polyester staple fibre on deemed import basis is being extended for one year.

Sales Tax

Being admittedly the tax of the future, the government continued to pursue the policy of expansion of the sales tax net but also remained alive to the resolution of genuine difficulties of taxpayers. During the year, sales tax was imposed on pharmaceutical products but substantial relief was provided to the public by exempting 256 essential medicines constituting 40-50% of the total value of sales by the industry.

You are aware that GST is already leviable on imported edible oils used for production of ghee and cooking oil. Consequently, the consumers are already paying for the impact of GST on imported edible oils, packing material and utilities. It is now proposed to complete the tax chain to ghee and cooking oil, which will extend documentation in this sector. The impact on consumer prices will be only 5% or so because of input credit. It is also proposed to enhance customs duty on imported oilseeds from 5 to 10%. This will give an encouragement to the local farmers to grow more oilseeds locally. This measure will bring some saving in huge spending of foreign exchange which is estimated at Rs.26 billion for the current year.

Last year the government had experimented with a withholding sales tax @ 20% on specified raw materials. The objective was to promote documentation and to provide some edge to the honest taxpayer manufacturers. 190 items were covered initially while some more were added during the year. It is now proposed to add 6 more items to this list. These are edible oils, talc, solvent oil, calcium carbonate, maleic anhydride and acrylic tops. This measure has no impact whatsoever on the price of the end product.

In order to place the local manufacturers on equal footing against imported machinery, an arrangement is being provided for zero-rated supply by local manufacturers to such oil and gas exploration companies who are entitled to import similar machinery free of sales tax.

The government has been extending its coverage while improving the legal and administrative aspects. However, in keeping with the difficulties encountered in other countries which adopted sales tax as their main revenue earner, we have also had our share. One major reason of resistance is the initial difficulties which the GST regime poses to individuals as well as classes of taxpayers. In order to alleviate the genuine difficulties of those in transition to fully conforming with the GST regime, it is proposed to provide an alternate dispute resolution mechanism in the sales tax law. The committees to be set up on need basis for addressing specific difficulties of individual as well as classes of taxpayers will include representatives from the private sector including chartered accountants, lawyers, academicians and prominent taxpayers. The recommendations of these committees will be given due weightage in settling such disputes. This measure will not only help in expansion of the tax net but also alleviate unnecessary suffering. This initiative is being taken on account of the success of a similar ad-hoc experiment in a few cases during the current year. This arrangement is, therefore, being institutionalized.

In acceptance of the demand of the taxpayers, 72 more branches of National Bank are being designated to receive sales tax returns and payment of tax.

Sales Tax Refunds

The government is committed to further reform the GST refund system. We have got the malaise of flying invoices, the profile of wrongdoers and all other attendant factors studied carefully in consultation with all stakeholders. As a result, proposals for further reform in the GST refund regime have been prepared. Besides increased use of automation, the number of those entitle to speedier refunds on basis of their profile will be substantially enlarged. This low risk category will receive their due refunds immediately. It will also be ensured that exporters in the other categories also receive their share without being made to wait unduly. In order to devise the new refund rules, a committee under the Chairman of Export Promotion Bureau is being set up today to finalize the reform package within the next 4 weeks for implementation by end of August. It is also proposed that new rules will be issued in supersession of SRO.417 whose very name has come to signify undue discomfort for the exporters.

As know, in 2002 the government had decided to clear the backlog. As a result, by March this year an amount of Rs.15 billion was repaid as sales tax refund as well as customs duty drawback in excess of the amounts refunded in the preceding year. This was a major relief provided to exporters in the wake of testing times they faced in the aftermath of 9/11. However, it has been reported to me that in the recent weeks there has been a slowing down of refund payments. I do not approve of this situation and instructions have been issued to clear the outstanding refunds.

I am happy to announce that the government has fulfilled its promise to the taxpayers to lay down parameters of audit. For most sectors this has been done already while action for the remaining is in hand. This fulfills a long outstanding demand of taxpayers. Henceforth audit will be objective and painless. I take this opportunity of applauding the active role of the FPCCI in this exercise.

Concluding Remarks

Ladies and Gentlemen

The Budget 2002-03 is an investor friendly budget. Rather it has reduced the overall tax burden by lower maximum tariff, corporate and personal income tax together with minimizing discretionary powers of tax officials and personal contact between taxpayer and collector. In addition, it proposes to eliminate a host of irritants that continue to keep the cost of doing business high. The cost of financing has been reduced through better control of government’s demand for credit and keeping the rate of inflation down. All this points to an improved enabling environment necessary for investment promotion.

The budget has also catered for the common man. The increased development spending will create new jobs, provide better access to basic human needs afford more effective social safety protection. Inflation has been low and anti poverty program along with improved investors’ confidence will create more jobs.

The budget caters fully for the needs of country’s defense, as whatever is needed for this purpose has been provided. The economy drive would never cut corners when it comes to meeting the needs of country’s defense.

But, what I have presented before you is not merely an exercise in booking keeping rather it is a story of continuous and determined effort to bolster the economy of Pakistan. We have averted all the dangers that were threatening the economic viability of Pakistan. The risk of default that in 1999 appeared imminent is now off the radar screen. The reforms process, whose on-and-off and sporadic implementation had earned the country infamy, has been pursued with relentless determination enabling the country to regain its lost credibility. The capacity of institutions of governance that had eroded to the point of ineffectiveness is being restored through a well crafted program of power devolution and reforms in civil services, judiciary and police, all through a participative method. The poor has been brought to the centre-stage of economic, social and political planning of the country. Social sectors are receiving attention that was not witnessed previously.

This is the foundation over which a system of social justice is being erected by the government of General Pervez Musharraf. The year 2002-03 has demonstrated that this can withstand shocks, as ferocious and unpredictable as 9/11. At the onset of tensions on our eastern border, some analysts had apprehended that this was an attempt at economic strangulation of Pakistan. Clearly, if there were any such assessments, they have been veritably wrong. Pakistan’s economy has proven to have resilience to face challenges.

This is testimony to the strength of our nation. We should take pride in this achievement. Some may feel that not enough has been done but let me say, Ladies and Gentlemen that there are clear signs that Pakistan has bright economic future. Today, our foreign exchange reserves are plenty, exchange rate is stable, banks are flushed with liquidity, agriculture is performing despite persistent drought, industry is growing – and regarding unprecedented growth in some sectors like sugar – inflationary pressures have subsided, regulatory institutions are becoming effective, culture of merit is promoted in public appointments, power is devolved and poverty reduction is exalted to the status of primary focus of economic and social planning.

However, none of this should be a source of complacency. We have lot more to do. We must remember the advice of Quaid-i-Azam, which he gave on the occasion of the first anniversary of Pakistan on 14 August 1948:

We have faced the year with courage, determination and imagination, and the record of our achievements has been wonderful one in warding off the blows of the enemy. …... The result of our constructive and ameliorative work has gone far beyond the expectations of our best friends. I congratulate you all….., and I thank the people of Pakistan from whom we have received patience and genuine support in every effort that we have made to put forward the program of the first year.

But that is not enough. Remember, that the establishment of Pakistan is a fact of which there is no parallel in the history of the world. It is one of the largest Muslim states in the world, and it is destined to play its magnificent part year after year, …, provided we serve Pakistan honestly, earnestly and selflessly.

There are numerous challenges and difficulties that we continue to face and hence we cannot afford to lower our guard. There is a large agenda that remains on the table. The state of poverty, exports, revenue collection and debt is such that we have to continue to work hard to completely break the shackles of our economic dependence. The private sector has to rise to the occasion and play its due role, especially in accelerating the rate of investment. If we put our hearts and minds together, there is no challenge too big for our joint efforts. Lets resolve that we will work together to shape our destiny. The journey that we began three years ago is proceeding apace. We have to remain on course.

And then there will be unforeseen problems and difficulties that we may face in future. We are now blessed with a dependable economic base, that would Inshallah allow us confront them with the same determination and courage that we displayed after 9/11. We have emerged stronger in the aftermath of 9/11, and the same phenomenon will be repeated, provided we remain on course and don’t lose site of our goal. Thus we should not worry about challenges, as Dr. Allama Iqbal has said that they visit us only to make us stronger:

I have no doubt that Pakistan has a bright future. Lets advance in unison toward that shining tomorrow.

Pakistan Painda-e-bad.