Analysis Federal and Provincial Budget 2010-11

21-July-2010

Submitted by: Maaz Aslam Khan

FEDERAL BUDGET Introduction and objectives of Budget 2010-11 The federal budget of Pakistan (presented by Dr. Hafeez Shaikh) this year has total budget outlay for 2010-11 is Rs 3259 billion, which is 10.7 percent more than the budget of 2009-10. In this latest budget of the 2010-11, government has set its target at 4.5 percent GDP growth rate. 6.1 percent of the GDP that stands to be 11.7 billion dollars is fixed as trade deficit The resources available during 2010-11 have been estimated at Rs 2598 billion against Rs 2299 billion in the budget of previous fiscal year. Net Revenue to be received is estimated Rs 1377 billion for fiscal year 2010-11 which increased by 1.9 percent as compared for the Revenue estimated for fiscal year 2009-10. The overall expenditure during 2010-11 has been estimated at Rs 2764 billion of which the current expenditure is Rs 1998 billion and development expenditure at Rs 787 billion. Development expenditure will increase by 25.3 per cent in 2010-11 over the estimates of 2009-10. Summary of important points which were discussed in the budget of Pakistan for current year are following:

Income Tax Relief measures for Salaried and non- salaried tax payers are proposed.

Salaried Tax payers Exemption limit for salaried tax payers is enhanced from Rs. 200, 000 to Rs. 300,000. Non Salary Tax payers Exemption for non salaried tax payers was increased from Rs. 100,000 to Rs. 300,000

Rate of Tax collected with electricity bill from Industrial and Commercial consumers is proposed to be reduced from 10% to 5%. Special relief of Rs. 2 billion has been provided to Khyber Pakhtunkhwa, FATA and PATA.

The tax rate payable by commercial importers is proposed to be increased from 4% to 5% i.e.1%. The tax charged on banking transactions will be .3% on every transaction that will exceed Rs. 25000. Tax revenue is targeted at 1.78 trillion rupees out of which the Federal Board of Revenue will collect 1.667 trillion rupees, about 9.8 percent of GDP. Non-tax revenue is targeted at 632.2 billion rupees. Revenue from direct taxes is targeted at 657.7 billion rupees and revenue from indirect taxes is targeted at 1.12 trillion rupees. Subsidies will be reduced to 126.68 billion rupees from 228.99 billion rupees. Sales Tax The change in structure of sales tax was proposed this year by Government, as they believe that current GST multiple tax rates are unfair to people i.e. between 16 to 25 percent. The proposed GST reform eliminates all multiple rates and replaces it with single 15 %( provisional rate), 1% of GST will be in order from 1st October 2010. This rate shall not be applied on turnover of more than Rs. 7.5million per year which was Rs. 5million last year. Capital Gains Tax of 10 percent being imposed on gains from stocks held for less than 6 months; 7.5 percent on gains from stocks held for 6 months to 1 year and; no tax on capital gains from stocks held for more than a year. Whereas, Tax rate on users of luxury items like cigarette (Rs 1 CED imposed on manufacturing of each cigarette), Air Conditions and Mobile phones was increased. No sales Tax on health and food. Customs The customs duty on products was not increased. Also reduction Rs. 1000/MT on duty for import of Crude palm Oil was proposed in budget. There is a significant decrease in customs duty as compared to last year for almost every major object like medicines; rice etc. 30 million energy savors will be provided in a bid

to conserve electricity. Exports for 2010-11 have been projected to grow 0.7 billion dollars more than the previous years exports. Also imports will be increased by 1.8 billion dollars. Furthermore, $9 billion of transfer of funds have been projected for the year 2010-11.

Pay Programs 50 percent ad hoc allowance of basic salaries to be granted to government employees. Salaries of government employees raised by 50 percent. Federal Cabinet cut down its salaries by 10 percent. Medical Allowance for employees of Grade-1 to 15 increased by 100 percent. While the raise in medical allowance for employees of Grade-16 to 22 are 15 percent of their basic pay. 40 billion to be distributed among people from Benazir Income Support Programme. Baitul Maal to continue functioning with Rs2 million. Minimum wage rose Rs1000 i.e. from Rs6000 to Rs7000. Pension raised by 15 percent for the employees who retired before 2001 and 20 percent for those retired after 2001.

Agriculture Pakistan is considered as an agricultural Country and it is an Agro based economy, and at a time agriculture was considered as backbone of Pakistan. But now much of the emphasis is also towards industries and service providing. The budget has projected agricultures growth rate 3.8 percent, manufacturing 5.6 percent, and services sector 4.7 percent. Production targets of wheat and rice have been set at 25 million tons and 6.2 million tons, respectively for 20110-11. Practice of loans given to farmers will be increased to achieve the target. Production target for sugarcane in 2010-11 has been set at 53.7million tons. This is to be contributed by major crops (3.7 percent), minor crops (3.0 percent), livestock (4.2 percent), fishery (2 percent) and forestry (2.5 percent). The services sector is expected to grow by 4.7 percent with the contribution of transport, storage and communication (4.6 percent) and wholesale and retail trade (5.1 percent).

Defense Budget Defense Budget is as much important as the remaining budget since our Defense budget make up a huge part of our national budget. In year 2009, Pakistan Defense Budget was approx Rs 343 billion which was later on increased to Rs 378 billion due to war on terror. Pakistan on Saturday increased its defence budget by 16.935 per cent by allocating Rs 442.173 billion for 2010-11. This reflects a marginal increase of around five per cent in real terms in defence spending if the inflation rate of 12 per cent is taken into account.

With these major allocations, Following are the other main allocations1: --- Rs.28423.8 million for Water and Power Division (Water Sector) --- Rs.15227.5 million for Pakistan Atomic Energy Commission. --- Rs.14565.7 million for Finance Division. --- Rs.13629.6 million for Railways Division. --- Rs.9395.7 million for Planning and Development Division. --- Rs.15762.5 million for Higher Education Commission. --- Rs.16944.5 million for Health Division. --- Rs.10873.7 million for Food and Agriculture Division. --- Rs.3220.1 million for Industries and Production division. --- Rs.5140.9 million for Education Division. --- Rs.5584 million for Interior Division. --- Rs.3887.1 million for Defence Division. --- Rs.3618.3 million for Housing and Works Division. --- Rs.3618.7 million for Cabinet Division. --- Rs.4115.5 million for Population Welfare Division. --- Rs.1646.2 million for Science and Technological research Division. --- Rs.885.6 million for Livestock and Dairy Development Division. --- Rs.1000 million for Law and Justice Division.
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Dr. Abdul Hafeez Shaikhs Speech

--- Rs.1000 million for Environment Division. --- Rs.1000 million for Special Initiatives Division. --- Rs.1234.7 million for Revenue Division. --- Rs.623.4 million for Petroleum and Natural Resources Division. --- Rs.718.3 million for Information Technology and Telecom Division. --- Rs.1229.7 million for Defence Production Division. --- Rs.474.1 million for Commerce Division. --- Rs.149.1 million for Communication Division (other than NHA). --- Rs.518.6 million for Ports and Shipping Division. --- Rs.246.9 million for Pakistan Nuclear Regulatory Authority. --- Rs.152.9 million for Women Development Division. --- Rs.107.6 million for Social Welfare and Special Education Division. --- Rs.65.8 million for Labor and Manpower Division. --- Rs.82.3 million for Local government and Rural Development Division. --- Rs.125 million for Tourism Division. --- Rs.140.8 million for ministry of Foreign Affairs. --- Rs.549.8 million for Narcotics Control division. --- Rs.114.4 million for Establishment Division. --- Rs.353.9 million for Culture Division. --- Rs.229.6 million for Sports Division. --- Rs.74.5 for Youth Affairs Division. --- Rs.509.9 million for Information and Broadcasting Division. --- Rs.164.6 million for Textile Industry Division. --- Rs.82.3 million for Statistics Division. --- Rs.81.1 million for Ministry of Postal Services. --- Rs.15 million for Economic Affairs Division. --- Rs.12029.7 million for WAPDA (Water) --- Rs. 44637 million for National Highway Authority

Problems and criticism on budget 1 percent increase in budget 2010-2011would be harmful to common people. The rates of utility bills would also be increased. It is irony that we are facing severe energy crisis and still no substantial amount has been allocated for the development of Bhasha dam or coal reservoirs in the country. The government reduced the income tax collected along with the electricity monthly bill from the industrial and commercial consumers from 10 to five percent but government has also doubled the federal excise duty (FED) on gas from five per cent to 10 per cent. It is estimated that this move would be going too hard to poor of this country. Moreover, the government also announced to increase income tax exemption limit for salaried taxpayers from Rs200,000 to Rs300,000 benefiting approximately 430,000 taxpayers. The exemption limit for non-salary income has been raised from Rs 100,000 to Rs 300,000 per year, benefiting about 350,000 tax payers. In the latest budget the government has allocated Rs 16.945 billion for health sector which is around Rs 6 billion less that the amount announced last year. It is feared that this budget will not be sufficient for the existing needs of time in health sector. The budgetary allocations for the family planning and primary healthcare have been sliced. Also in this budget education has been given much less priority, the budgetary allocation to education sector has been decreased as compared to last year. It is estimated that the proposal to impose a 0.3 percent withholding tax on banking transactions including withdrawal where such transaction exceeds rupees 25000 in a day would be discouraging and disturbing. Majority of the banking experts feel hampered with the tax on cash withdrawals and consider it as a damper on deposit growth. It seems that the government has badly ignored agriculture and industries sectors, and announced no visible incentives in the federal budget 2010-11. It is feared that due to which agriculture could also affect the sectors production next year. The government has been keeping on saying severe shortage of resources and still once again, the agriculture sector has been exempted from tax. From time to time we have been facing food security problems and no funds have been allocated in this regard. Same is the case for industrial sector. Whereas, big amount of spending on Defense budget is very much concerning and point of criticism for a common man, so What Government needs to do is adopt all

possible ways to increase tax-to-GDP ratio, control high levels of inflation and ongoing energy crisis.

PROVINCIAL BUDGETS Sindh

Introduction The provincial budget of Sindh before Sindh Assembly presented by Chief Minister Sindh Syed Qaim Ali Shah presented Rs 422 billion for 2010-11. The budget shows total revenue of Rs 397 billion with a deficit of Rs 25 billion. The current revenue expenditure has been estimated at Rs 268.3 billion with an increase of 19.3 per cent over revised estimates of Rs 224.8 billion. Shares of local governments have been worked out to be Rs 120.8 billion on the basis of 2007 PFC Award which reflects an increase of 20 percent over last year budget. The provincial ADP has been set at record Rs 115 billion against the current years allocation of Rs 75 billion, with an increase of 53 percent. Pay of Government Employees In this regard he announced Ad hoc Relief of 50 per cent of basic pay, also a 100 per cent increase in medical allowance of employees in grade 1 to 15, and 15 per cent of initial basic pay as medical allowance for employees in grade 16 to 22. These increments in pays of employees will cause Rs 31 billion to the provincial government.

Road master plan and development Road Master Plan has been prepared and this is the first time ever in Sindh that such plan has been prepared which consists of nine strategic highways and two bridges over the Indus, having an approximate length of over 1000 km

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Karachi-Thatta-Badin-Mithi-Islamkot Road (296 Kilometers) Ratodero-S. M.Thahim-Jacobabad (61 Kilometers) which will turn Ratodero to a very Strategic Town after completion of Gwadar-Ratodero Highway. The dual carriageway between Ratodero and Jacobabad will reduce the distance by 27 Kilometers and add to strategic value of both these cities.

Qazi Ahmad-Benazirabad-Sanghar-MirpurKhas Road (159 Kilometers) and HalaShahdadpur-Sanghar Road (58 Kilometers): These two highways will connect different cities in central Sindh. Given the population and economic base of these major cities; these highways will facilitate massive economic growth in this central region.

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Hyderabad-Badin Road (100 Kilometers) Nara Canal Road from Sukkur to Umerkot (374 Kilometers) Nawabsbab-Ranipur via Faiz Ganj- Mirwab

Energy Allocation Sindh has huge coal resources which can provide cheap energy to this country for more than 100 years. The coal linked investments have already been delayed and Sindh Government is now trying to put all resources together to create Coal linked Economic Hub in South East of Sindh. Stated in budget and also speech of Chief minister Sindh, that Joint venture has been signed with Engro Group for development of coal mining and establishment of 1200 MW power plant. A similar joint venture for a 300 MW Power Plant in Badin Coalfields has been finalized with Al-Abbas Group. Licenses have been granted to M/s Oracle for 300 MW power plants and to M/s Cougar Energy of UK for 400 MW power plants.

Education budget For the budget of fiscal year 2010-11 the total education budget of Sindh province including that of district governments is to the tune of Rs. 60 billion. On the provincial side Government is increasing the education development budget from Rs. 5.9 billion to Rs. 7.0 billion. An additional Rs. six billion is being earmarked for boarding schools and comprehensive schools. Criticism and Analysis The Sindh budget went the same route as the federal budget: increasing existing taxes and keeping well away from imposing those taxes that the parliamentarians would oppose. The Sindh government has, however, earmarked 40 billion rupee collection under this head for 2010-11. The 22 billion rupees, identified as 'overpayment' that would be returned to the province by the federal government, is being considered as a reflection of the FBR collections from July 1 to October 1 as GST on services. The decision of the federal government to raise the salaries of government servants by 50 percent, a decision that unfortunately was also serving on all provincial governments, accounts for as much as 31 billion rupees to the Sindh government. Another rescue package to the Pakistan Steel Mills, estimated at 12 billion rupees. Such a huge injection, consisting of half the budget deficit of Sindh, is strange without any guarantee that steel mill will be able to work in profit. However the increase in education budget of 5.9 billion to 7 billion rupees is not impressive considering the NFC Award given to provinces. Health outlay has been impressive i.e. from 5.7 to 16.9 billion.

Punjab
Introduction The Punjab announced by Punjab Government is an overall combined budget of Rs 583.66 billion for 2010-11, which contains a net deficit of Rs 12.6 billion and fails to effectively tax agriculture income. The budget sets aside Rs 193.5 billion for development, which is increased by 11 per cent over the outgoing fiscal years original allotment of Rs175 billion and 44 per cent from an actual spending of Rs 134.73 billion. A sum of Rs150.47 billion, a rise of 18 per cent from Rs127.38 billion, will be transferred to local governments under the provincial finance award.

Taxes The budget will be financed by federal transfers of Rs 444.61 billion, which increased by 32 per cent from Rs336.77 billion, and provincial own revenue (tax and non-tax revenue and extraordinary receipts) of Rs113.77 billion. All these big receipts are due to NFC award. The tax revenue target, including provincial GST on services, has been enhanced to Rs91.58 billion from 49.65 billion. GST on services is projected to increase by Rs47.77 billion to Rs51.15 billion from the actual collection of Rs3.39 billion this year. The provincial government, however, avoided from taxing agriculture income effectively. No new taxes were imposed however existing taxes were rationalized. The government in the Punjab Finance Act 2010 has also proposed 50 per cent cut in Capital Value Tax (CVT) on the sale and purchase of property. The move came after the declaring the CVT as a provincial subject.

Revenue Expenditure Mainly the revenue expenditure includes what the subsidies provided by the government for the betterment of poor, to the tune of Rs21 billion (which includes Rs13 billion for subsidized wheat, Rs5 billion for sasti roti scheme, Rs2 billion for Ramadan package and Rs1 billion for public transport). Pay of Government employees Also the expenditure of government increased by 22.8 per cent from Rs314.87 billion, mainly due to a 50 per cent ad hoc increase announced in pay and pension and medical allowance for serving and retired government employees. The decision will cost the province Rs54 billion. Also a 15 per cent increase in the pension of provincial employees who had retired after 2001 while those who had got retirement before 2001 would get 20 per cent rise. Agriculture In this portion of budget Government will allot Five Marla plots to 20,000 of the rural poor, the government has announced leasing of state forestlands to 40,000 landless farmers and forestry graduates, which is total approximate area of 30,000 acres. Education During the fiscal year 2010-11, an amount of Rs two billion was proposed for Punjab Education Endowment Fund. The government also had allocated Rs 53.99 billion for education sector for new and ongoing development schemes, which is 12 per cent more than the budget for fiscal year 2009-10

Health The government had also proposed Rs six billion allocation to provide medicines to the patients in the public hospitals of Punjab. Government proposed a total allocation of Rs 43.80 billion for health sector for ongoing and new development schemes, showing a 16.6 per cent increase in comparison with current fiscal year. The government also announced to set up four new medical colleges in various cities of province, at the same time as an amount of Rs 21 billion would be spent on development projects in the health sector. Development For development, a sum of Rs147.93 billion has been set aside for the social sector (Rs68.25 billion), infrastructure (Rs59.26 billion), production sector (Rs7 billion), services sector (Rs7.05 billion) and others (Rs6.37 billion). District governments and tehsil municipal administrations will get Rs12 billion while a sum of Rs19.12 billion has been allocated for special infrastructure (Lahore Ring Road, etc). An amount of Rs2 billion has been reserved for technical and vocational education. Analysis and Conclusion Punjabs budget of Rs 583.66 billion for 2010-11 can be called as a balanced budget, which imposes no new taxes, but sees a deficit of Rs 12.6 billion. In Last years budget the development budget was not fully utilized, which is essential for delivering the claims made in budget. The government has announced leasing of state forestlands to 40,000 landless farmers and forestry graduates. There have been reports that the Punjab cabinet had approved leasing of 30,000 acres forestland for this purpose. Punjabs forest cover is already inadequate and leasing of forestland will ensure clearing of forests for agricultural use. This decision should be reversed.

Another critique of this budget is its failure to make specific allocations for the development of the public transport sector, which has been disgustingly neglected by the present Punjab government, and people daily suffer due to lack of adequate transport facilities. The provinces economy had grown by 4.25 per cent during the current fiscal year, despite a general economic slowdown, energy crisis, high inflation and escalation in terrorism in the province.

Khyber Pakhtunkhwa
Introduction The budget presented by Khyber Pakhtunkhwa Government is a balanced budget of Rs 294.246 billion for 2010-11, with the highest-ever Rs 69.3 billion Annual Development Programme. And it is worth 40 per cent more than the previous year's budget. Government expects to generate Rs198.590 billion from general revenue receipts because of the new National Finance Commission award9this is an increase of 48 percent).

Taxation No new tax had been introduced by Government in budget 2010-11, but changes were made in sales tax (services) schedules in line with the 18th Amendment to authorize provincial tax collecting agencies to recover capital value tax (CVT) on transfer of property. However there is a one per cent increment in general sales tax on services, taking it to 17 per cent from 16 per cent. Revenue receipts of Rs12.325 billion are projected on account of GST on services.

Jobs and Compensation Pensions for government workers were raised. Salary of provincial ministers has been reduced by 20 per cent, compared to a 10 per cent cut in the federal budget. Many new projects to end unemployment were announced and over 9,000 more jobs would be created in different departments. Seeing the decisions made by federal government and other provincial governments in this regard, Khyber Pakhtunkhwa announced a hike of 50 per cent in salary of 0.375 million employees, 15 to 20 per cent for pensioners and 100 per cent increase in medical allowance for employees of grade 1 to 16. He also announced a 15 per cent pay raise for officers in grade 17 and above. It will cost the provincial government an additional Rs22 billion and put the overall wage bill at the highest-ever Rs76 billion.

Education and health In latest budget the education sector would receive major chunk of Rs33.1 billion. And about 604 new posts would be created in the sector. Government has also promised 27,419 schools during the next fiscal year, and 604 teachers positions would be created in new schools. An amount of Rs5.9 billion has been allocated for the health sector, which is 48 per cent higher than the estimates for the outgoing financial year. Health Support Programme to provide free treatment to hepatitis patients, for which Rs 500 million had initially been allocated.

Police As pay of police employees were already increased last year so they didnt get pay hike this year. But Khyber Pakhtunkhwa police will get Rs21 billion and About 5,792 new posts would be filled in the police department. This big grant is due to bad condition of law and order in province, and new recruitments are required for the province.

Conclusion The budget is a balanced one as the total estimated revenue is Rs 294.2 billion while the total estimated expenditure also amounts to Rs 294.2 billion. But spending on agriculture sector is neglected which is main point of criticism. The KP budget's expenditure, like in the Sindh budget, followed Federal government's decision to raise the salaries of government servants by 50 percent, as well as pensions and medical allowances. Thus in 2010-11, the KP budget predicts an expenditure of 76 billion rupees for salaries - an amount 58 percent higher than last year. Revenue and expenditure figures of the KP budget are, consequently, unlikely to impress any one as a serious provincial attempt to raise revenue or decrease expenditure. Bold measures were required and these, unfortunately, have not been taken.

Baluchistan
Introduction Balochistans budget for the financial year 2010-11- which is also called tax-free Budget has a record outlay of Rs 152.017 billion with7.1 billion deficit, showing 100 per cent increase as compared to 2009-10. The total revenue expenditures, including current expenditures and development expenditures, were estimated at Rs 152.017 billion against the total revenue and capital receipts of Rs 144.917 billion thus showing an estimated deficit of Rs 7.10 billion that would be bridged through provincial resources. Health and Medical Rs 1bn allocated for procurement of medicine Revenue Expenditure The major chunk of the current revenue expenditures would go to the general public service (Rs 18.565 billion) as well as education affairs and services (17.328 billion), public order safety affairs (Rs 12.505 billion) and economic affairs (Rs 9.107 billion). Other revenue expenditures include: Rs 6.680 billion for housing and community amenities; Rs 7.443 billion for health affairs and services; Rs 2.226 billion for recreation, culture and religion; Rs 0.782 billion for social protection; Rs 0.418 billion for subsidies; Rs 4 billion for local government grant and Rs 4.391 billion for debt servicing. Similarly, the total estimates of receipts were Rs 144.910 billion which includes Rs 115.520 billion of the revenue receipts and Rs 29.390 billion of capital receipts. Development The Balochistan government has allocated Rs 2 billion for the rehabilitation of people affected by cyclone in the provinces budget for 2010-11. The government had also increased the development budget from Rs 18 billion to Rs 26 billion for the year 201011, with a foreign exchange component of Rs 3.9 billion.

Education With a low literacy rate of 34 per cent compared to the national rate of 52 per cent, the provincial government plans to spend Rs3 billion for the uplift of education and health sectors during the next fiscal year. Government allocated Rs1 billion to provide for missing facilities in educational institutions. Of this, Rs200 million have been set aside for purchase of furniture and Rs400 million for repair and renovation of schools. Similarly a sum of Rs200 million has been allocated for repair and renovation of colleges.

Police The provincial government has allocated Rs 10 billion to strengthen the law enforcement apparatus and decided to raise the basic pay of personnel of police, levies and Balochistan constabulary by 100 percent.

Conclusion and Analysis The provincial government has virtually ignored the key sectors of provincial economyagriculture, livestock, fisheries and mining on which the local population depends for its livelihood. However, it is much commendable that the provinces economic managers plan to generate more funds in order to reduce the excessive dependence on the centre for its fiscal needs and obligations. The province has been running its financial affairs on loans from the centre. A sustainable strategy still needs to be implemented to put Balochistan on the path to fiscal independence.

References
http://www.finance.gov.pk/fb_2010_11.html http://www.brecorder.com/ www.thenews.com.pk www.dailytimes.com.pk www.dawn.com http://pukhtunkhwatimes.blogspot.com/2010/06/khyber-pakhtunkhwa-budget-today-rs300bn.html http://www.syedfazlehaider.com/