Budget 2010-11:a difficult budget in difficult times

June 14, 2010 by admin · Leave a Comment 

ISLAMABAD: The government on Saturday announced a consolidated budget outlay of Rs 3.259 trillion for next fiscal year, with 4 percent budget deficit, and what the Federal Finance Minister was careful to refer to as deferring the reforms of GST, understood by the galleries as reluctant to use the three-letter word ‘VAT’, till October 1, 2010 instead of July 1, 2010, but increased the GST from existing 16 to 17 percent.

VAT MADE TO WAIT TILL OCTOBER 1 The total revenue is projected at Rs 2,574 billion while gross federal tax and non-tax revenue are projected at Rs 2,411 billion. The Federal Board of Revenue collection is estimated at Rs 1,667 billion or 9.8 percent of the GDP. The provinces would be transferred Rs 1,033 billion in the next fiscal year under 7th NFC Award as compared to Rs 655 billion estimated for the on-going fiscal year. The federal budgetary outlay is proposed at Rs 2.229 trillion or 13.9 percent of the GDP.

Dr Abdul Hafeez Sheikh who took oath just a few hours before the budget as Finance Minister to present his first and the third budget of the incumbent government, announced that the federal government employees would be allowed an ad hoc monthly allowance equal to 50 percent of one month’s basic pay and announced to freeze all the current expenditure of the government, except salaries under austerity measures.

However, the benefit of ad hoc increase would not be available to the federal government employees who are already recipient of a monthly allowance equal to one month’s basic pay. The minister said the budget is one important instrument of economic management however, the importance of this one-year ritual should not be over exaggerated.

The government also announced to double the medical allowance for employees working in BS-1 to 16 and increased the medical allowance by 15 percent of those above Grade 16. The pension of those who had retired after 2001 was increased by 15 percent and those who had retired before 2001 by 20 percent. The minimum monthly pension was proposed to be increased from Rs 2000 to Rs 3000 while the rate of family pension was enhanced from 50 to 75 percent. The government also announced a scheme for providing employment to the 200,000 unskilled in rural areas with an amount of Rs 5 billion.

Federal Excise Duty (FED) has been increased by Rs 1 on per filter rod of cigarettes and FED on natural gas to Rs 10 per mmbtu besides levying FED @ 10 percent ad valorem on air conditioners and deep freezers. Hafeez said no custom duty on any product would be increased rather duty on 29 categories of products has been reduced to lower the burden of dearness on the people.

He said continuous changes in the GST have distorted the tax and the government wanted to reform it to make it uniform rather than multiple tax rates between 16 to 25 percent. The education, food and health would be exempted under reform mode of GST, government intends to implement from October 1, 2010 by taking on board all the provinces. The proposed GST reform would not apply to turnover less than Rs 7.5 million per year whereas the current threshold is Rs 5 million per year. This would help broaden the tax net instead of burdening the existing taxpayer.

Outlining the ultimate objectives of the budget, the Finance Minister said priorities would be to protect the growth by enforcing fiscal austerity, eliminating waste and tightly controlling expenditure, curtailing inflation, which is primarily a monetary phenomenon, reducing borrowing from the State Bank of Pakistan and achieving a measure of self reliance through better domestic resource mobilisation.

We are playing with fire by borrowing excessively and have to move towards self-reliance. The government would provide targeted subsidy to the poor, reduce burden of public sector enterprises and would ensure that the economic recovery is employment oriented. The ongoing energy shortage and law and order situation are major hindrances in the way of economic growth, the minister added.

The minister said the first differentiation is that this budget is based on transparency in the budgetary process involving widespread consultation while the second differentiating feature is that the budget is realistic while third feature of the budget is that this is the first post-NFC budget.

He said that the co-operation, partnership and enhanced role for the provinces is an integral part of the budget and provinces would be transferred additional resources to spend on law and order, education, health drinking water and municipal and ultimately reduce fiscal space of federal government.

Another feature of this budget is that the government is operating in the framework of international commitments. “It is important that we as a sovereign nation keep our commitments and do not erode our international credibility,” he said, adding that while maintaining international obligations we must ensure that we become self-reliant and less dependant on foreign borrowing and assistance.

- Business Recorder

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