• Home
• /
• Economy
• /
• Business

Is this the right budget for Pakistan?

Dubai - Pakistan spending plan is pro-investment - but also tax-heavy

Pro-business Prime Minister Nawaz Sharif's government has unveiled a pro-investment but tax-heavy budget for fiscal year 2017 that starts on July 1.
New investments and several businesses will get fresh and larger incentives to boost GDP growth and gear up new industries to speed up growth. It provides several incentives for agriculture, which was the principal sector that pulled the GDP rate down during FY-2016, closing on June 30.
The budget for FY-2017 estimates gross federal revenue at Rs4,915.5 billion. The total expenditure is estimated at Rs4,394.8 billion.
Bad news for prospective buyers of mobile phones who will have to pay a huge Rs300-Rs1,000 as sales tax on all imported mobile sets: it may hurt, or slow down. the growth and profitability of the nascent IT industry, which is already facing a reduced average revenue per user. A larger sales tax will also hit users of stationery and 2,300 other products. A 10 per cent duty will burden all real estate and immovable property, users of minerals, milk and fat-enhanced milk, aside from a lot more items.
Finance Minister Ishaq Dar, while unveiling the budget for FY-2017 told the National Assembly that he wishes to collect Rs160 billion through his new and enhanced taxation proposals.
"The money is urgently needed to carry on the expanded social sector plans for the poor and the needy and development projects," said Dar, who is deputising for Sharif, now recovering from open-heart surgery in London.
Where else will this new money and other revenues go? Close to 38 per cent of the overall tax revenue of Rs3,621 billion, or Rs1,360 billion, are allocated for debt servicing. In addition, the government will repay foreign loans totalling Rs443 billion.
The revenue will also go to foot the larger military spending, which will increase by 11 per cent to Rs860 billion from the revised estimates of Rs776 billion in FY-2016. The army will get Rs409 billion, the air force Rs82.7 billion and the navy Rs93.3 billion. The larger allocations reflect the fact that the military is still fighting masse terrorism across the country.
The new budget provides Rs24.95 billion for the health sector, while provinces will announce their own allocations. Education allocation is up 11 per cent to Rs79.5 billion, but he provinces will make their separate allocations.
Khalid Tawab, president of the powerful Federation of Pakistan Chambers of Commerce and Industry, "lauded the government, for accepting the industry's demand of declaring all the five export industries of no-tax no-refund plan".
"This plan provided that all the five industries when buying raw materials will pay all the taxes including the sale tax on the material. This amount is refundable to the relevant industrial units when they show the written documents and the proof that the material in which the raw material was used was actually exported abroad."
But wrong-handling and delays in repayments of refunds, totalling Rs280 billion, which will now be repaid by the government to exporters, will help the industry move faster. And this arrangement has been abolished for the future. The five industries hit by this provision are textiles, leather, sports, carpets and surgical goods.
The highly-influential Overseas Chamber of Commerce and Industry, or OICCI, said "the growth target of 5.7 per cent, for FY-2017, is highly challenging".
It also said "the budgetary proposals presented by the finance minister are largely traditional and my not be sufficient to kick-start the economy at a high pedestal".
"In terms of foreign investors, the extension of benefits until June 2019 for investment under balancing, modernisation and replacement, and also the reduction in the equity component to 70 per cent on new investment, are positive steps," the OICCI added.
Gohar Ijaz, chairman of the All Pakistan Textile Mills Association, representing the country's biggest producers and the largest exporters, said: "New investments in the textile industry largely depend on the formulation of a mechanism for hassle-free payment of local taxes and levies."
He said at present, "all federal taxes, other taxes and levies constitute almost nine per cent of textile and clothing export turnover. It is important to ensure hassle-free refund of these amounts to revive the viability of the industry."
Shabbir Ahmad, chairman of the Pakistan Readymade Garments Association, criticised the finance minister for "making no provision in the budget" to pay refunds of Rs280 billion in the budget.
Fawad Ijaz Khan, chairman of Pakistan Leather Garments Manufacturers and Exporters, while appreciating Dar's announcement, called for a reduction in the export finance rate. "By reducing the export refinance rate from 4.5 to three per cent, the scope fof business and exports has been expanded." He called for cheaper finance and reduced taxes to boost export of textiles.
Mehtabudddin Chawla, chairman of Sindh Industrial and Trading Estates, said: "The exemption from customs duty on import of plants and machinery will boost industrial activity in Pakistan, and push exports up."
Muhammad Hanif Gohar, chairman of the Association of Builders and Developers, criticised the tax increase on cement, but appreciated the budget provision for "putting the construction industry on fixed tax". But he was "not happy" with the "imposition of capital gains tax of 10 per cent on property sold within five years".
.Jaamal Khan Taraqi, president of the Quetta Chambers of Commerce and Industry, said: "The reduction of several taxes on purchase of raw materials for industrial processing and reduction in import duty for machinery will boost the economy, particularly units and sectors pertaining to agriculture and the industrial sectors."
Saqib Rafiq, president of the Rawalpindi Chamber of Commerce and Industry, said: "A number of good decisions have been made in the budget. We appreciate provision of a subsidy on fertilisers to help boost the ailing agriculture sector. We welcome reduction of taxes on import of textile machinery, which will help the industry to enlarge its output and push exports. The acceptance of demand of exporters to reduce duties on textile, leather, carpets, sports and surgical goods, is also a very good news as it will push the falling exports." But, the chamber expressed its "concern" over the "imposition of duties on cement and fertiliser and capital gains tax on real estate".
What about the stock market? The market cheered the budget and pushed it by 666 points to a historic high of 37,360 points. Cement, textiles and fertilisers got a big boost.
The imposition of several taxes notwithstanding, the business and industry have largely welcomed the budget. What will be its real impact on consumers via prices? It will come up on the horizon in the next few days. But can it hit the prices of all sorts of goods and services and push them up with the advent of the holy month of Ramadan this week?
Views expressed are his own and do not reflect the newspaper's policies.