Tax rates to be lowered in budget: no new levy proposed; entire system to be simplified

ISLAMABAD (June 04 2003) : No new taxes will be introduced in the Budget 2003-04, rather tax rates would be lowered, tax base would be widened, and the entire system would be simplified.

This happy tidings came from unimpeachable sources who added that under the new Income Tax Ordinance the tax return would be deemed as tax assessment, but there would be 10 percent to 20 percent computer-selected audit of returns.

This would be unsparing and ruthless to check evasion.

The sources said that the new ordinance, which came into force from this year, wanted to end to the age-old culture of corruption and evasion.

Its enforcement, in effect, means 100 percent self-assessment, which is a sea change from the old system.

Interestingly, the change has been strongly opposed by tax staff and tax advisers because it leaves little room for them for “Muk-Muka”, underhand deal saving in tax for the payer, bribe for the tax collectors and windfall for the adviser.

The sources said experts have developed the system after intense consultation, but it would be subject to change with experience.

The sales tax and levy of customs duty were also being simplified, the sources said.

To simplify the levy of customs duty, a major change would be the introduction of risk-rated clearance.

For which a pilot project would be started at the Karachi Port.

Under the new system, the importers would be classified according to the history of honesty or fairness of declarations. Instead of a plethora of declarations, there would be a fewer forms for early clearance of goods.

In case of sales tax, the sources said, there would still be some pain as a lot of tax evasion still continued in the system. Proper documentation and submission of invoices and registration have to be there.


Economic managers see textiles, engineering goods and small and medium enterprises (SMEs) as fast track catalysts of growth for which the Budget 2003-04 would announce several incentives.

The sources said that textiles and engineering goods have already registered remarkable growth and innovation.

The growth of large-scale manufacturing at 8.5 percent was phenomenal.

They said that the Budget would provide additional relief to the SMEs sector.

The tax regime would be simplified and some concessions were expected to be announced for retailers and wholesalers.

The exemption limits, it was further stated, were likely to be enhanced.

The engineering goods industry also registered substantial growth, in some cases by more than 40 percent.

The fan industry has found new markets and, according to the industry, Pakistani fans have made a niche in selected countries.

Exports to US were also on way. A major improvement has been in reduction of foreign debt whose repayment consumed 66 percent of the foreign receipts. This was being brought down to only 40 percent.

APP ADDS: Official sources said that the budget would be pro-poor and growth-oriented.

They said that was the reason that the Public Sector Development Programme (PSDP) has been increased to 31 percent for 2003-04 as compared to 2002-03.

They further said that this target could only be achieved through promoting important engines of growth, including agriculture, SMEs, private sector, etc.

The sources said that in the forthcoming budget less burden would be laid on the common people.

They said that the government would not take any cosmetic steps in the forthcoming budget, adding that all the measures would be pragmatic and realistic.

They said that the government would strictly implement its decision regarding tax incentives to the domestic and the foreign investors for the promotion of investment and further restore their confidence on the government polices.

To a question regarding defence allocations in the next fiscal year, the sources said, “We will give the funds according to the defence needs of the country.”

In the forthcoming budget the allocation for poverty reduction-related programmes may exceed to Rs 185 billion.

These programmes include Khushhal Pakistan Programme, Prime Minister Falahi programme, Zakat-related programmes and human and infrastructure developments in the country.

The sources added that during the next fiscal year, the tax collection target of the Central Board of Revenue (CBR) was set to be Rs 506 billion to Rs 510 billion, which was 10 percent high as compared to the current target of Rs 460 billion and the Budget deficit might be around Rs 170 billion, 4 percent of the GDP.

In the forthcoming budget the government is likely to reduce import duty on certain items, including tea, tyre, electronic appliances, car import and their spare parts.

This step, the sources said would also help in promoting local industry in the country.

The government is also likely to announce new pension scheme for the new civil and military retired servants in the budget.

Positive indicators with surging foreign exchange reserves at over $ 10.5 billion, inflation hovering around 3.3 percent, exports projected to transcending $ 10 billion barrier despite various economic shocks, including US-led operation in Iraq, re-profiling of debt stock and $ 3 billion surplus in the current account are bound to post sizeable fiscal space to cater to the country's development needs.

Concrete measures are still in progress to rope in budgetary target for revenue collection, to be set for the next fiscal year, the sources claimed, adding that restructuring of tax administration and other steps would certainly provide additional steam in realising future revenue targets.

Putting the economy back on track, economic managers are jubilant over curing the festering problems of the economy, particularly enormous hike in debt stock, rising inflation, exports stagnation, extreme volatility in exchange rate and escalating trade deficit.

Areas of major focus under multi-pronged strategy are poverty reduction, human resources development, enhancement of agricultural productivity, employment generation and fostering of economic activities through development of mega projects.

Approving the Public Sector Development Programme (PSDP) at Rs 160 billion, the National Economic Council (NEC) last week projected the GDP at 5.3 percent and inflation at 3.3 percent for the fiscal year 2003-04.

The NEC has already approved Rs 47 billion to the provinces for the next fiscal year 2003-04 and these resources would be utilised by the provinces for social sector development, human resources development and poverty reduction projects.

Well placed sources in the Finance Ministry said in the forthcoming budget the government would allocate 30 percent more funds on social sector development and infrastructure and poverty reduction-related projects.

The sources added through these projects more job opportunities would be generated and the life of common man would also be improved.

The sources said it was also proposed that the government would lend loans to banks for housing sector, which would also help in creating new job opportunities, especially for youth and also generate economic activity in the country.

The government would also allocate sufficient amount in the budget to improve law and order situation in the country, which was imperative for the economic activity in the country, the sources said.

They said that for the economic growth, consistency in policies was very essential, adding that reforms, introduced by the government in the past three years, would be continued for more economic development of the country.

The government was giving priority to improve foreign investment, enhance, economic sovereignty and to initiate development schemes for poverty alleviation.

The sources said that three years back 65 percent of the country's revenue was going to retire foreign loans, now this was reduced to less than 40 percent, while the government was trying to gradually bring it down to 30 percent.

The sources added that the government was also trying to improve GoP growth rate, which is now 5.1 percent, much better than other countries in South Asia.

The government has also fixed economic growth target of 5.3 percent for the year 2003-04.

The sources added that owing to the government policies and incentives to the private sector a large number of industries were working in stable condition and providing better production.

As a result, they said, industrial production was up by 10.8 percent during first nine months of 2002-03.

The sources said the government policies have helped in containing inflation rate and succeeded to bring it down to 3.3 percent, while measures would be taken to further reduce it.

They said that fiscal deficit, which averaged 7 percent of the GDP for two decades, has declined to 4.6 percent during 2002-03.

Domestic debt, which was growing on an average rate of 24 percent and 16 percent during 1980s and 1990s respectively, has slowed down to 1 percent during the current year.

Domestic debt as percentage of the GoP is expected to decline from 52 percent to 43 percent.

About the Central Board of Revenue (CBR) collections, the sources said, it has increased by Rs 152 billion during the last four years as compared to Rs 82 billion, an increase of 84 percent.

The CBR collections have grown at an average rate of 14 percent per annum during the last three years (excluding 2001-02 when it grew by 2.5 percent because of 9/11 incident) as compared to 4.6 percent per annum during the preceding three years.

They said that it has grew by 15 percent during the first 10 months of the current fiscal.

The sources said that the stock market remained buoyant and best performing in terms of profitability.

The KSE index increased from 1,770 to 3,002, registering an increase of 70 percent, reflecting growing confidence of investors in the Pakistani market.

The sources added that trade has picked up despite uncertain global environment.

Exports are up by 21 percent and imports by 23 percent during the first 10 months of the current financial year. Exports, the sources said, are expected to reach $ 10.5 billion.

Workers' remittances, the sources said, were likely to reach $ 4.3 billion as against $ 1 billion in 1998-99, all time high in the country's history. Foreign direct investment, they said, was $ 664.7 million during July-March 2002-03 against $ 403 million in 1998-99 and is expected to reach $ 1 billion.

The sources said Pakistan's current account that remained in deficit at around 5 percent of the GDP is now in surplus and is expected to reach $ 3 billion or 4 percent of the GDP, reflecting a major turnaround of economy.

Forex stood at $ 10.5 billion on May 23, 2003 and was sufficient to finance 11 months imports as opposed to four-five weeks of imports in the immediate past, the sources said.

Strong build-up of reserves has stabilised the exchange rate and the rupee has appreciated by 11 percent since July 2001, the sources added.

About the external debt and liabilities, they said, these have declined from $ 38 billion to $ 35 billion. As percentage of the GDP, it was expected to decline from 64 percent in June 1999 to 50.4 percent of the GDP by June 2003, they added.

External debt and liabilities, as percentage of the foreign exchange earnings was likely to decline from 335.4 percent in June 1999 to 193 percent by June 2003, they said.

About macroeconomic performance, the sources said that further consolidation of macroeconomic stability, a broad-based economic recovery, and near elimination of external account vulnerability have been the hallmark of the current fiscal year.

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