All eyes were on the finance minister as he announced pro-business measures to boost economic growth and push Pakistan among the ranks of leading economies, as he mentioned during the unveiling of the Economic Survey 2016-17 a day ago as well as today.
Many sectors of the economy hoped that the government will come up with some incentives and concessions to help them cope with the challenges of modern times as competition gets stiffer day by day.
Priority was also given to PM’s pet schemes in an election year.
Salaries, pensions of federal govt, army personnel
Salaries of army officers to be increased by 10% in addition to a ‘special allowance’ — 10% of their income, would be given, says Dar.
“Pensions of federal government employees and army personnel will be increased by 10%,” he adds.
“Salaries of government employees will be increased by 10%.”
Further, the finance minister says minimum wage has been increased from Rs14,000 to Rs15,000.
Pakistan Development Fund
Pakistan will raise $1 billion through a special convertible bond for overseas Pakistanis, says Dar.
Loan write-off for widows
The government will pay off the pending loans that amount up to Rs500,000 on the behalf of widows, says the finance minister.
War on terror
A new special financial scheme for families of martyred soldiers, police personnel will be introduced, says Dar.
Automobile sector
A package to be announced on import of hybrid vehicles in the near future, says the finance minister.New taxes
A new 5% withholding tax on tobacco production to be imposed, says Dar.
“Sales tax on steel sector will be increased from 9% to 10.5%.”
Construction sector
Criticising builders and developers for contributing a meager Rs110 million in taxes during the outgoing fiscal year, Dar says the ‘special taxation regime’ for the Association of Builders and Developers (ABAD) will be taken back in 2017-18.
“The government collected Rs2.6 billion in taxes from ABAD during the previous regime. This time, a meager Rs110 million was recorded,” says a visibly angry finance minister.
Federal Excise Duty (FED) on cement has been increased from Rs1 to Rs1.25 per kilogramme, adds Dar
Corporate tax
The rate of corporate tax has been reduced to 30% for 2017-18, says Dar.
The rate was 35% in 2012-13 and has seen a yearly reduction of one percentage point.
In addition, the tax relief for newly listed companies has been extended for another three years, he says.
Defence budget
The defence budget allocation for 2017-18 has been increased to Rs920 billion, says Dar.
Salaries of federal govt, army personnel
Salaries of army officers to be increased by 10% in addition to a ‘special allowance’ — 10% of their income, would be given, says Dar.
IT sector
New IT companies will be a given a tax break of three years, says the finance minister.
“Withholding tax on mobile phone calls has been reduced from 14% to 12.5%. Sales tax on mobile phone calls has also been reduced from 18% to 17%,” says Dar.
“An IT park at a cost of Rs6 billion will be established with assistance from South Korea.”
Banking sector
In a bid to promote financial inclusion, withholding tax on branchless banking is being abolished, says Dar.
“In order to facilitate transactions through mobile banking, e-gateway
systems, the government is establishing a state-of-the-art e-gateway system at the State Bank of Pakistan at a cost of Rs200 million.”
Agriculture sector
Lending rate for farmers will now be reduced from an average of 14-15% to 9.9%, says Dar. “This will be for farmers with a landholding of up to 12.5 acres.”
Target of agriculture credit has been increased from Rs700 billion to Rs1.001 trillion for next fiscal year.
“Urea prices are being maintained for the time being. The decision to either grant them subsidy or reduce the rate of sales tax will be taken in the time to come.”
The government is also abolishing customs duty and sales tax on import of combined harvest machinery, he says.
Import of hybrid seeds will also be exempted from duty, he adds.
BISP
The number of families in the Benazir Income Support Programme (BISP) will increase from 3.7 million to 5.5 million, says the finance minister.“An additional 1.3 million children will also be facilitated through the programme.”
Targets for next fiscal year
Dar says the government has set a GDP growth target of 6% for the next fiscal year, and will look to reduce the budget deficit to 4.1%.
In the outgoing year, Pakistan’s GDP growth amounted to 5.28% and fiscal deficit is set to clock in 4.2% by June-end.
Women empowerment
Through the Companies Bill, women have been empowered and will now feature in the board of directors, says Dar.
Progress of Pakistan Stock Exchange
Dar did not want to let go off the opportunity to mention the success of the country’s stock market.
He says the market capitalisation – value of all shares – has gone up from $51 billion to over $97 billion in four years.The Pakistan Stock Exchange’s (PSX) KSE-100 Index gave a return of over 45% in dollar terms in calendar year 2016. It was Asia’s top-performing market and the fifth in the world.
Dar says the merger of three exchanges – Islamabad, Lahore, and Karachi – should be credited.
“MSCI has already upgraded the PSX and it will be an emerging market from June 1.”
Tax collection
In 2012-13 the Federal Board of Revenue (FBR) collected Rs1,940 billion and the revenue now stands at Rs3,521 billion for an increase of 81% in four years, says Dar.
The surge in tax collection has come at the back of PML-N’s efforts to penalise non-filers, but is also the result of an increase in indirect taxation.
‘No load-shedding for industrial sector’
Dar says there was no load-shedding for the industrial sector. A visible reduction in load-shedding was seen for domestic households, adds the finance minister.Opposition members attend NA session wearing black bands.
Opposition announces walkout
Addressing the lawmakers in the National Assembly, Leader of the Opposition Khursheed Shah says, “We will walkout of the House in protest against the mistreatment to farmers who were only demanding their rights.”
“Today, the government created chaos in the capital by mistreating farmers who were protesting even outside the red zone,” he says. “The authorities used shelling to disperse farmers and they were manhandled.”
Shah asks the NA speaker why the opposition wasn’t allowed to speak, terming it a sign of dictatorship.
In a historic development, National Assembly Speaker Ayaz Sadiq allows Leader of the Opposition Syed Khursheed Shah to pass opening remarks.
Finance Minister Ishaq Dar willingly steps back to allow Shah make a statement.
1) Real GDP Growth at 5.28pc this year is the highest in the past decade. Four years' ago, the economic growth was 3.68pc. Considering that the World economy is likely to grow by 3.5pc this year, Pakistan's economy is performing better than most countries in the World. There has an improvement in every aspect due in Pakistan due to economic growth. For the first time the size of the economy has surpassed $300 billion;
(2) Alhamdolilah, our agriculture sector has turned around. The sector has performed impressively this year. Compared to last year's stagnation this sector has registered a robust 3.46pc growth. All major crops including Wheat, Cotton, Sugarcane and Maize have registered healthy growth. This turnaround in agriculture from stagnant growth is a result of the Prime Minister's Kisaan package announced in September 2015 and the extraordinary measures approved by this house as part of budget 2016-17; (3) Industrial production grew by 5.02pc and businesses are now hiring additional workers.
(4) Services sector - which includes banks, retail, transportation, housing, etc. - grew by 5.98pc;
(5) On average, income of each Pakistani has increased by 22pc since fiscal year 2012-13. Per capita income today stands at $1,629 as compared to $1,334 four years ago;
(6) Inflation was on average 12pc between 2008-13. In this current year inflation is expected to be around 4.3pc;
(7) Fiscal deficit: The government followed a policy of fiscal consolidation because of which fiscal deficit reduced from 8.2pc to the current year's 4.2pc. This was achieved through higher revenue collection through improved administration and broadening of the tax base, undoing decades-old concessionary SRO and curtailing non-development expenditure of the government;
(8) FBR Revenues: In fiscal year 2012-13 FBR collection was Rs. 1,946 billion. For the current year the target is Rs. 3,521 billion. This represents a historic increase of 81pc in the last 4 years with average annual growth of 20pc.
Tax to GDP ratio which was 10.1pc in fiscal year 2012-13 is likely to increase to 13.2pc this year;
(9) Policy rate of State Bank of Pakistan has come down from 9.5pc in June 2013 to the current 45-year low of 5.75pc. Similarly, mark-up rates of Export Refinance Facility have been reduced from 9.5pc in June 2013 to 3pc in July 2016. In addition, the mark-up rate on Long Term Finance Facility has been gradually reduced from 11.4pc in June 2013 to 6pc for exporters and 5pc for textile sector. This has led to a spurt in credit to the private sector;
(10) Resultantly Credit to private sector has grown to Rs.507 billion till May of this year, as compared to Rs. 93 billion in fiscal year 2012-13, resulting in expansion of business activity in the country;
(11) Agriculture credit was Rs. 336 billion four year's ago which at the end of 2016 was Rs. 600 billion and is targeted to increase to Rs.700 billion during the current financial year;
(12) Imports: Imports have been recorded at $37.8 billion during July-April showing an upward trajectory compared to the same period last year.
This vibrancy in imports is attributable to over 40pc increase in capital machinery, industrial raw material and petroleum products and the increased investment under the CPEC projects focused on energy and infrastructure sectors. All of this augurs well for Pakistan's economy in the near future;
(13) Exports during the first ten months of this year have shown an overall minor decrease of 1.28pc compared to 7.8pc decline during the same period last year. This reversal has been the result of timely support by the government to exporters in shape of a comprehensive package of Rs.180 billion in January 2017 and efforts of our exporters;
(14) Foreign Exchange Reserves: In June 2013 foreign exchange reserves held with the State Bank were $6.3 billion which included short-term swap of $2 billion for which payments were to be made within weeks.
This means that the real reserves were $4.3 billion. Our foreign exchange reserves currently stand at a comfortable level of $16 billion despite a larger than expected trade deficit mainly due to increased import of capital goods. If we include foreign exchange deposits with commercial banks, the total foreign exchange reserves of the country have increased to around $21 billion;
(15) Exchange Rate: Inter bank rate of dollar on 30th June 2013 was Rs. 99.66. Within a few months this rate increased to around Rs.111. After better economic management and increase in foreign reserves the exchange rate reverted to Rs. 99. Due to political disturbances between August and December 2014 the rate again increased close to 104.80. Since then this rate is the same;
(16) Remittances: Over the past four years, Pakistani workers and professionals working abroad have contributed a substantial amount of remittances which increased from $13.9 billion to $19.9 billion. This 40pc increase was made possible due to government's revival and payment of outstanding dues of Pakistan Remittance Initiative.
The remittances for the first ten months of the current FY stand at $15.6 billion and are expected to grow in the last two months due to Ramazan and Eid despite challenging economic situation in the gulf region.
I thank the hard-working Pakistanis abroad who used banking channels to send money to their relatives and friends in Pakistan and I appeal them to use banking channels to send remittances so that they can be contribute to Pakistan's economy;
(17) Pakistan Stock exchange: The merger of the three stock exchanges was completed in January 2016 after successful resolution of issues pending for over a decade. Since then, Pakistan Stock Exchange has graduated from frontier to emerging markets in the Morgan Stanley Capital International (MSCI) Index.
It has been declared as Asia's best performer and 5th best performing market in the World by Bloomberg. It is note worthy that the index has increased from 19,916 on 11 May 2013 to over 52,000 points currently.
And during this period market capitalisation has increased from $51 billion to $97.3 billion depicting a 90pc increase;
(18) Registration of New Companies: This year 5,855 new companies have been incorporated till March. Four years ago, in the entire financial year 3,960 companies were incorporated; (19) Enactment of Economic Laws: For an economy to unleash its growth potential, there has to be in place an enabling legal and regulatory environment.
Realising the constraints that a less than effective legal framework imposes on efficient governance and service delivery, the government has in its tenure completed 24 pieces of legislation in different sectors of the economy including; Benami Transactions Prohibition Act, Special Economic Zones Amendment Act, Deposit Protection Corporation Act, Credit Bureau Act, Corporate Restructuring Companies Act, National Energy Efficiency and Conservation Act, Anti- Money Laundering Act, Gas Theft Control and Recovery Ordinance, and Limited Liability Partnership Act. 10 new pieces of legislation are currently in the process which would lead to further augment the enabling legal environment required for a flourishing economy;
(20) Companies Law: The Parliament has approved the companies law 2017 only this week. I thank congratulate both the houses.
This law has replaced the 33-year old Companies Ordinance of 1984. This is a major reform to consolidate the provisions/laws relating to companies so as to encourage and promote corporatisation in Pakistan based on the best international practices. This law will simplify procedures creating ease of starting and doing business and protect investors.
It addresses issues related to protection of minority shareholders and creditors, eases regulatory compliance requirements for smaller companies, and among others provides relaxation for registration of agricultural promotion companies for the development of agriculture sector. Keeping in view the importance of women, the new law will allow women membership in boards of directors of listed companies;
(21) Ease of Doing Business: Reforms have been undertaken to make it easy for firms to do business in the country.
As a result, Pakistan's ranking in the World Bank's ease of Doing Business index improved from 148 to 144 in the report launched in 2016, based on performance in 2015.
Pakistan was also recognised as one of the top ten reforming countries in the World. On the basis of additional reforms undertaken during the period 2016, Pakistan expects further improvement in the ranking of World Bank's Doing Business report to be published in October 2017;
(22) To encourage documentation in the economy, for the first time registered prize bonds of Rs. 40,000 have been introduced. Registered bonds of different denominations will be introduced in FY 2017-18;
We have signed the letter of intent to join `Open Government Partnership' initiative. The OGP is a global partnership of over 70 countries including most of the developed countries.
While a country can show its intent to join, its membership is by invitation only when you meet its criteria.
The fact that we met 15 of its 16 criteria; and Pakistan was formally invited to join OGP on the 7th December 2016, which itself speaks of the major improvements that Pakistan has made in transparency and openness in its governance;
OECD's Multilateral Convention: In the last budget speech, I said that we were trying our best to sign the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
This was based on our commitment to fight tax evasion and avoidance.
In January 2014, after Federal Cabinet's approval we started the journey. Since then, the Coordinating Body (CB) of the Multilateral Convention evaluated Pakistan's laws.
Based on their recommendations, this Parliament made changes to income tax laws through Finance Bills 2015 and 2016 after which Pakistan received invitation to join the Convention in July 2016.
On 14th September 2016, representing Pakistan I signed the joining documents of the Convention.
As a result of joining this Convention, in the matters of tax at an international stage, we will be able to receive details in coming years.
This will help us improve our tax governance and tax avoidance will be effectively tackled;
Agreement on Avoidance of Double Taxation (AADT): We have also now signed the revised agreement on Avoidance of Double Taxation with Switzerland. Pakistan's existing Agreement with Switzerland signed in 2005, and enforced in 2008, was deficient for meaningful exchange of information with reference to the internationally accepted standard. Therefore, this government took the initiative in August 2013 to renegotiate the AADT and with consistent efforts, was able to update the Article on exchange of information in the treaty. The revised treaty is now in the process of ratification and shall become effective thereafter.
Under the agreement for the purposes of tax, details will be available regarding financial books and banking. I would also like to point out that renegotiations took longer than expected because the Swiss side was seeking extraordinary concessions in return. Alhamdolilah, we have been able to successfully include these negotiations without conceding any concessions.
Economic targets of FY 2017-18:
(1) Increase in real GDP growth of 6pc;
(2) Investment to GDP 17pc;
(3) Development budget of Rs.1,001 billion
(4) Inflation below 6pc;
(5) Budget deficit at 4.1pc of GDP;
(6) Tax to GDP ratio at 13.7pc;
(7) Foreign exchange reserves level that can cover a minimum of 4 months of imports;
(8) Net public debt to GDP ratio below 60pc of GDP;
(9) Continuation of targeted social interventions. Initiatives to achieve targets - Main Elements of Budget Strategy Mr. Speaker,
FBR revenues are targeted to increase by 14pc while the Federal expenditures will grow by 11pc;
(10) Non-tax receipts of the Federal government are budgeted to increase by 7pc.
(11) By keeping the current expenditure under tight control, we will be able to create substantial space for development.
Federal PSDP for the next year is budgeted at Rs. 1,001 billion. This is 40pc higher than revised estimates of Rs. 715 billion for the current financial year. If we add the provincial ADPs the outlay for development of FY 2017-18 would be a whopping Rs. 2.1 trillion;
(12) At the same time, current expenditure will be contained below the level of inflation;
(13) New initiatives are being announced for agriculture, financial sector, exports, textile, social sector and employment. This is being done with the aim to boost our economic activity even further.
The purpose is to increase job prospects and incomes of the people. I will present these initiatives in a short-while;
(14) Tax incentives are being announced with the aim to give facilitation to the agriculture, SMEs, and IT sectors;
(15) Under the leadership and personal supervision of Prime Minister Nawaz Sharif through Cabinet Committee on Energy, approximately 10,000 MW of electricity will be added to the national grid by summer 2018.
This will Inshallah eliminate load shedding;
(16) Investments will be made to speed up the process of development of Gwadar including development of airport, hospital and desalination plant;
(17) Around 5.5 million women-led families in the country who do not have economic means for sustenance will continued to be provided with cash transfer of Rs. 19,338 per annum. For this purpose, Rs.121 billion are proposed to be allocated to Benazir Income Support Programme.
This allocation has increased to 300pc of Rs. 40 billion in fiscal year 2012-13. During this period, the number of recipient families have increased from 3.7 million families in 2013 to around 5.5 million.
In addition, around 1.3 million primary school children are receiving cash grants;
(18) The state will continue to subsidise bills of the low-income domestic consumers up to 300 units per month in shape of electricity subsidy. For the farmers in Balochistan, the Federal Government will pay a portion of their electricity bills to run agriculture tube wells.
The Federal Government's will continue to provide electricity subsidies on tube-wells in Balochistan. Off-peak rate of Rs. 5.35 per unit for agriculture tube-wells will continue in the FY 2017-18. An amount of Rs. 118 billion has been proposed in the FY 2017-18 for these measures;
(20) The Prime Minister's youth schemes which include business loan scheme, interest free loan scheme, training scheme, skill development programme, fee reimbursement, and laptop programme will continue. For this purpose Rs.20 billion is proposed in the fiscal year 2017-18.
