Pakistan's Finance Minister Ishaq Dar presented new budget for the financial year 2016-17 before the National Assembly on Friday with total outlay of Rs4.8 trillion, around eight per cent higher than last year's budget of Rs4.1 trillion.
The budgetary proposals presented by the minister appears to strike a balance between fiscal consolidation, imposed by the International Monetary Fund (IMF), and some incentives for the industrial sector.
Dar said Pakistan would target a fiscal deficit of 3.8 per cent of gross domestic product for the coming financial year, down from the 4.3 per cent envisaged for this year.
He said the aim was to push Pakistan's persistently low tax-to-GDP ratio to above 10 per cent and raise revenues from taxation to Rs3.95 trillion from Rs3.42 this year.
Dar said that economic growth in the past two years has increased by 4.7 per cent, hitting an eight-year high. "This would have been better if the cotton crop hadn't suffered a fall in growth of 28 per cent," Dar said.
To counter the collapse in the agriculture sector, Dar announced a decline of Rs400 in Urea prices to Rs1,400 per packet. He announced that the government had targeted growth of 5.7 per cent for fiscal 2016-17, with an even more ambitious target of seven per cent growth for fiscal year 2017-18.
However, analysts as well as economists feel the growth rate is low and not enough to meet the growing job demand. Talking about the budgeted tax revenue, Dar said: "Tax collection has increased seven per cent which is historic. We will reach our target of Rs3.96 trillion and we want to push the tax-to-GDP ratio to over 10 per cent next year."
In the longer run, Dar said the government wants to push this ratio up to 14 per cent.
In three years there has been an increase of three per cent in tax revenues. The increase has come on the back of higher tax rates.
Meanwhile, the tax net has fallen with the number of returns filers going below the one-million mark.
Dar announced Rs800 billion development budget, an amount that is Rs100 billion higher than last year but still comes across as less given the huge financing requirements of about 866 projects including the pressing needs of the China Pakistan Economic Corridor (CPEC).
Minimum wage has been increased to Rs14,000. Last year, the amount went up from Rs12,000 to Rs13,000.
The minister announced 10 per cent capital gain tax on selling real estate within five years.
Dar said that the government's aim is to restrict the fiscal deficit at 4.3 per cent of the GDP.
The federal budget deficit - excluding provincial surpluses - will be brought down to four per cent by 2017, and 3.5 per cent by 2018.
The minister further said that rate of inflation which was recorded at 2.82 per cent is the lowest in the past 10 years.
A total of Rs11.4 billion will be allocated to the telecom sector. The government has allocated a total of Rs115 billion for the BISP. Last year the set amount was Rs102 billion.
Keeping the health sector in mind, the government has allocated Rs22.4 billion to the health sector for the coming year.
Foreign Exchange Reserves target has been set at $30 billion, the finance minister said.
The government has decided to zero-rate the local supplies of textile, leather, carpets, surgical and sports sectors from July.
The import of textile machinery will continue to be exempted from customs duty.
The agriculture sector has suffered due to floods and depressed prices. The PM announced a Rs341-billion Kisan package in September 2015 to help farmers.
Announcing development expenditure plans for next year, the minister said Pakistan Railways engines, bogies, tracks and signal systems will be improved. Rs14 billion, he said, has been set aside for purchase of new bogies for railways.
Talking about projects under the China-Pakistan Economic Corridor, Dar said Gwadar will play an important role in Pakistan's development in the future. "So we have allocated a special amount for its development in our budgets."
The customs duty exemption on solar panel exports has been extended to June 30, 2017.
Withholding tax will be imposed on the channels airing foreign drama serials, said Dar.
Market capitalisation has increased over the last four years, while the pending merger of all three stock exchanges was also settled. The PSX is also going to be added to the MSCI Emerging Markets Index.
Dar said that more than 10,000 MW of additional electricity would be added to the national grid by March 2018. He also announced Rs4 billion allocations for Pakistan Baitul Mal that is double as compared to that of the previous year.
The minister announced that Rs20 billion have been allocated for the Prime Minister Youth and Skill Programmes.
Last year, under the PM Youth Loan Programme, as many as 15,000 loans approved. Rs1.75 billion loans were given to 44,000 people in 2014-15 - while recovery rate had been 100 per cent.
Dar announced that the Public Sector Development Programme (PSDP) stands at Rs800 billion with a foreign assistance of Rs143 billion.
Dar said conveyance allowance of Grade one to 15 employees has been enhanced by 50 per cent
Dar also announce an increase of 23 paisa on low-category cigarettes while 55 paisa on high-category cigarettes sales tax on medium level smart phones has been proposed to be enhanced from Rs500 to Rs1,000. The tax on lower level mobiles phone will remain unchanged.
