Highlights of the Rs 1.599 Trillion 2007-08 Federal Budget

ISLAMABAD: The federal budget for 2007-08 with an outlay of Rs 1.599 trillion presented in the National Assembly on Saturday contains huge subsidies and relief for the masses and the public sector entities.

The subsidies amount to Rs 133.9 billion, while relief to the people included major increase in salaries of the government employees by 15 per cent, pensions by 15 to 20 per cent and reduction in customs duty on raw material for industries, tariff rationalisation on vehicles, and zero duty on sewing machines, bicycles and cottonseed oil.

The Rs 1.599 trillion federal budget includes Rs 1.056 trillion current expenditure and Rs 543 billion development expenditure. The federal budget for 2007-08 is 11.9 per cent higher than the revised estimates of the budget 2006-07. However, it is up by 21.7 per cent than the size of budget estimates of the current fiscal year.

Minister of State for Finance Omar Ayub Khan announced the overall size of the budget that stands at Rs 1.874 trillion, which includes budgets of the provincial governments also. Most of the budgetary expenditures have been shown under the general public services, which include debt servicing, pensions and other items. The pension bill of Rs 46.130 billion mostly goes to the military pensions, which are parked in the civilian budget.

Defence has got Rs 275 billion in the budget, while the combined federal spending on education and health is Rs 29.398 billion. Total resources are estimated at Rs 1.475 trillion, which include external receipts of Rs 259 billion. The budget deficit is four per cent of GDP that comes to Rs 398 billion.

A tax revenue target of Rs 1.025 trillion has been fixed for the Central Board of Revenue (CBR) against the expected collection of Rs 835 billion during the outgoing fiscal year. The budget announced by Omar Ayub Khan, the State Minister for Finance, is the 8th since the military takeover of October 12, 1999, and third of the Shaukat Aziz government.

Rs 113.9 billion has been marked for subsidies and relief to the masses. A huge sum of Rs 82 billion has been marked under the head of subsidies for Wapda, KESC, FFC Jordan, Trading Corporation and other public sector entities.

The budget assumes Rs 75 billion privatisation proceeds for next year, as well as a huge bank borrowing of Rs 130.937 billion to finance the budget deficit.

The government has increased pension of government pensioners by 15 to 20 per cent. Increase in pension is being given in two tiers: old pensioners (retired before 1997) will get 20 per cent raise while new pensioners (retired after 1997) will get 15 per cent raise. The government also promoted the employees in BPS-5, BPS-7 and BPS-11 to BPS-7, BPS-9 and BPS-14 respectively. A total of 87,500 federal employees will benefit from this measure.

The budget proposes the withdrawal of customs duty from the machinery used in horticulture, furniture, marble and granite, surgical and medical instrument-business. It also proposes withdrawal of customs duty or reduction by five per cent on raw material used in electrical, capital goods, paper and paperboard, chemicals, plastic and rubber industries.

The country is facing acute shortage of electricity and to provide relief to the people and industrial establishments, the minister said, it is proposed to withdraw customs duty on generators for home consumption. Similarly, reduction in customs duty is proposed on generators for industrial consumption.

Likewise, it is also proposed to withdraw customs duty on components used in alternative energy sources such as solar energy and wind energy. The sales tax at import stage on these items has also been waived off. To encourage energy saving lamp, customs duty is proposed to be reduced from 15 per cent to 10 per cent.

Omar Ayub said at present CVT is levied on imported cars, while the domestically manufactured vehicles are exempted. In order to remove this disparity withdrawal of CVT on imported vehicles is proposed. However, to maintain protection level intact, adjustment in customs duty at the rate of five per cent, 10 per cent and 15 per cent for different CCs of cars is proposed.

There is a proposal to levy five per cent withholding tax on local vehicles. To facilitate the middle-income groups, customs duty on 800 CC cars is not being charged. Finally, the capping for old and used cars previously for five years is being reduced to three years so that the domestic industry attains stability. The condition of three years will be applicable to TR, the gift scheme, and the baggage rules.

He said that textile is the backbone of the economy, which needs more attention to make it internationally competitive. Sometime ago R&D facility was provided to this sector. Now the DTRE system is being revamped whereby the import of PSF will be allowed. Through DTRE R&D the facility will also be available to fibre manufacturers at a rate of 3.5 per cent, which will be availed through SBP. The facility of debt/swap to the spinning sector is granted. Similarly, for exporters the existing WHT rate of 0.75 per cent to one per cent is being rationalised and one per cent rate of WHT is being proposed. “The textile exporters will also be the beneficiaries. We hope that with these initiatives, the textile sector will flourish further,” said the minister.

To overcome the issue of growing imports that have adverse impact on the trade deficit, one per cent special surcharge is levied on all imports with the exception of petroleum products, edible oil, fertilisers, medicines and necessary food items (vegetable and pulses).

Furthermore, the already exempted items will continue to remain exempted from this levy. The minister also announced that the scope of zero rating is being widened to include sewing machines, bicycles and cotton seed oil.

Cable TV is a basic necessity of daily life, therefore, excise duty on cable TV is proposed to be withdrawn, he maintained.

He said that traders belonging to Fata and Pata are facing difficulties in carrying out their businesses due to unresolved disputes lying pending with the courts. Therefore, in consultation with them, the sales tax already due is proposed to be waived, enabling them to carry out their business.

In the country, iron and steel, plastic and paper industries are fast growing but unfortunately majority of them are functioning in un-organised sectors, resultantly the government as well as the organised sector industry are facing continuous losses. In order to establish equilibrium, the sales tax of 15 per cent is proposed to be enhanced to 20 per cent on raw material imported for iron and steel plastic and paper industries. However, the rate of 15 per cent sales tax on final product for these sectors will remain the same. He said that a task force was constituted to bring improvement in the provisions of law relating to holding companies.

In view of the recommendations made by the task force, amendments are proposed to legislation relating to holding companies; 75 per cent shareholding will be required if none of the companies is a listed public company; 55 per cent shareholding will be required if one of the group companies is listed public company; current losses can be surrendered by holding company to a subsidiary or between subsidiaries which fulfil the requirements of shareholding; inter-corporate dividend shall be liable to 10 per cent adjustable withholding tax.

“For computation of income of the banking companies a separate schedule will be added to the Income Tax Ordinance, 2001.” This measure is being taken on the recommendations of the SBP and PBA on the analogy of taxation of insurance companies. Inter-corporate dividend is proposed to be subjected to adjustable 10 per cent withholding tax.

Omar Ayub said: “The amount of money spent on poverty reduction and employment generation during last five years is Rs 1.441 trillion which is commendable, especially in comparison with all previous governments.”

During 2006-07 an amount of Rs 418 billion was transferred to provinces under the amended NFC award, while Rs 497 billion would be transferred during 2007-08, which would be 46 per cent of the total amount. The transfer from divisible pool would reach 46.25 per cent by the year 2010-11. If subventions are added, transfer of provinces would get 50 per cent of the total amount.

The Ministry of Housing and Works will immediately construct 37,000 houses for the low paid employees and give it to them on ownership basis. In phase-I, work on the construction of 5,000 units will immediately start for which land will be provided by CDA at official rate.

The government employees will have the facility to get loan for construction of house. Low cost Housing Scheme would also be started in collaboration with provincial and district governments. Loan from HBFC will be available. under this scheme and an estimated number of 250,000 units would be constructed in the next five years.

The government has decided upgradation of basic scales in Railways by one step for the remaining 62,482 staff excluding secretarial staff. Long-standing demand of Railways employees regarding up-gradation of posts has already been accepted along with increase in their allowances.

Minimum wage of unskilled worker is being increased from Rs 4,000 per month to Rs 4,600 per month. Old age pension, old and new both, has been increased by 15 per cent. Minimum pension has been increased from Rs 1,300 to Rs 1,500 per month. Worker’s widow shall now get pension of her deceased husband as per entitlement.

This restriction that the workers receiving more than Rs 6,000 per month were not entitled to compensation on account of disability has been removed and now all the workers regardless of their wage level would be entitled to compensation on account of disability caused during the course or as a result of performance of duty.

Contract employees have been made entitled to receive companies profit under the Companies Profit (Workers Participation) Act 1968. The limit of profit has been enhanced from Rs 12,000 to Rs 20,000. Workers Welfare Fund Ordinance 1971 is being amended to allow industrial workers to get medical, education, housing and death grant from Workers Welfare Fund. This facility shall apply to those units having an annual income in excess of Rs 500,000.

Workers Welfare Fund Ordinance 1971 has been amended to increase the limit of death grant from Rs 200,000 to Rs 300,000.

Pulses, Chana, Moong and Mash, which is being sold in market at Rs 38, Rs 56 and Rs 72 per kg would be sold in Utility Stores at Rs 29, Rs 47 and Rs 57 respectively.

From today (Sunday) there would be a relief of Rs 10, Rs 5 and Rs 5 per kg on tea, sugar and rice respectively. At present, the price of cooking oil is increasing rapidly in the international market. On the direction of the prime minister it would be sold at the utility stores at Rs 67 as against the market price of Rs 80 per kg. It has been decided to increase the number of utility stores by additional 5,000 and provide a utility store at every union council in the next 4 months. It will also result in creation of employment opportunities.

At these stores, necessities of life like pulses, rice, sugar, ghee and basic medicines would be available and due to their close proximity people will save time and money by not going to the distantly located markets.

In Pakistan, for the first time people will get medicines at reduced rates. People would not have to travel for miles but would get the facility at their doorsteps.

Omar Ayub said that CDA has been directed to allocate a sector for three to five Marla plots. In sector I-15 a total of 5,500 plots and 8,500 apartments have been reserved for low-income people who will have the facility of loans from banks. This will solve the problem of low-income people. Moreover, work in 4 sectors of Islamabad has started after 17 years. To provide direct relief to the poorest of the poor, a sum of Rs 7.5 billion has been allocated for Pakistan Baitul Mal which is Rs 2.5 billion more than the allocation of last year.

The Pakistan Baitul Mal is at present helping 1,500,000 households through its Food Support Programme. This year 700,000 more households will benefit thus bringing the number of beneficiaries to a total of 2,200,000. The government will extend a subsidy of 20 per cent to agriculture tube wells payable on electricity charges. This subsidy will be shared by the Centre and the provinces equally.

The subsidy to farmers will increase from Rs 400 per bag of DAP to Rs 470 per bag. As a result of this, the price of each bag of DAP will be reduced by Rs 70.

President General Pervez Musharraf announced the Rozgar Scheme in last financial year which has been very successful. The small amounts advanced at low rate of mark-up of six per cent enabled the youth to start their own businesses.

These small businesses also generated employment. Under the scheme, 1.8 million youth will be able to stand on their feet, and provide support to their families. In the last financial year 10,321 applications were approved under this scheme and Rs one billion disbursed.

The youth set up PCOs, established transport businesses, utility stores, mobile general stores and telecentres. Rs 104.7 billion will be disbursed under this scheme in the next five years. Each graduate will be provided a stipend of Rs 10,000 per month. As of now 8,000 interns are working and this figure will increase to 30,000 next year. The government will provide micro credit to 3 million people in next three years.

As many as 815 medical clinics are being set up at the union council level. In each medical clinic there will be a doctor, lady health worker and dispenser who will provide medical consultancy close to people’s places of residence. In these clinics staff will be recruited from local union councils which will provide 4,917 employment opportunities.

Mentioning about the mega projects, he said the design of Bhasha-Diamir dam will be completed in 2008. Rs 500 million have been reserved for this project in the PSDP. Along side this, work on Gomal-Zam Dam, Kurram Tangi Dam and Subak Zai Dam is in full swing.

Work on the raising of Mangla dam started by Wapda is close to completion. As a result, 2.09 million acre feet additional water will be available for storage and 644 MW electricity will be generated.

By construction of these dams, 2.6 million acres land will be irrigated. Under-developed areas will be transformed into prosperous pieces of land.

The government has allocated a sizeable amount for the Greater Thal Canal, Reni Canal and Khitchi Canal on which the work is in full swing. The government is also starting work on expansion of Karakuram Highway. The work on expansion of Hasanabdal-Mansehra section will start in the next few months. The N-5 Highway will be linked with the National Trade Corridor. For this purpose, it has been decided to provide the National Highway Authority with an allocation of Rs 29 billion. The National Highway Authority will, during this year, start construction of 1,585 km long highways at a cost of Rs 147 billion.

So far an investment of Rs 13.5 billion has been made in the Gwadar deep seaport. This amount excludes foreign investment. The Coastal Highway, which links Karachi to Gwadar, has already been completed. Gwadar will emerge as an important port for the region because it will provide a transit route to Central Asian States and China. As a result, both Balochistan and Pakistan will benefit.

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