Download IMPACT OF BUDGET ON ECONOMY

The Income Tax Bar Association - Khi
IMPACT OFBUDGET ON ECONOMY
Tuesday, 16 June 2009 – Hotel Regent Plaza, Khi
Budget 2009-2010 at a glance
REVENUE
Tax Revenue
Direct Taxes
Income tax
Others
Indirect Taxes
Customs
Sales tax
Federal excise
Carbon Surcharge on POL/CNG
Others
1
(Rupees in Billions)
Budget
Revised
Budget
Estimate
Estimate
Estimate
2008-09
2008-09
2009-10
477.0
19.0
496.0
443.3
17.7
461.0
536.2
21.1
557.3
170.0
472.0
112.0
1.4
755.4
1,251.4
145.0
457.0
116.0
1.4
719.4
1,180.4
167.2
515.6
137.4
134.0
1.5
955.7
1,513.0
Budget 2009-2010 at a glance
REVENUE
Non Tax Revenue
Less Provincial Share
Net Capital Receipts
External Receipts
Self Financing of PSDP by
Provinces
Change in Provincial cash
balance
Privatisation Proceeds
Bank Borrowings
2
(Rupees in Billions)
Budget
Revised
Budget
Estimate
Estimate
Estimate
2008-09
2008-09
2009-10
427.8
1,679.2
568.3
1,110.9
221.3
300.2
124.2
603.2
1,783,6
559.9
1,223.7
187.2
367.4
123.7
955.7
1,513.0
655.2
1,371.5
190.5
510.4
173.0
78.9
37.7
72.9
25.1
149.0
2,009.8
1.3
146.0
2,087.0
19.3
144.7
2,482.3
Budget 2009-2010 at a glance
EXPENDITURE
Current Expenditure
General Public Services
Debt Servicing
Others
Defence Affairs & Services
Economic Affairs
Others
Developmental Expenditure
PSDP
Others
Total Expenditure
Budget
Estimate
2008-09
(Rupees in Billions)
Revised
Estimate
2008-09
3
Budget
Estimate
2009-10
619.4
310.1
929.5
296.1
201.1
66.5
1,493.2
751.6
381.0
1,132.6
311.3
136.7
68.6
1,649.2
779.6
409.5
1,189.1
342.9
84.9
82.3
1,699.2
472.7
43.9
516.6
2,009.8
378.9
58.9
437.8
2.087.0
646.0
137.1
783.1
2.482.3
Key objectives for the Budget 2008-09
Restore economic
stability through:
 Protect vulnerable groups through
targeted program of cash transfers
BISF – High inflation
 Focus on Agriculture and
Manufacturing sectors to enhance
productivity and competitiveness
Agri = no major change
Manufacturing = Declined
 Restore Investors confidence
Declined
4
 Reduction in Fiscal and Current
Account deficits
- Fiscal 7.6 – 4.3
- Current 8.5 – 5.1
- Trade 9.3 – 6.5
 Rationalization of subsidies
Budget 295 billion to 252 billion
 Building Foreign exchange reserves
US$ 12 billion to US$ 11 billion
 Remove key bottlenecks in
supportive infrastructure for
spurring growth Little progress
 Increase social sector allocations to
improve social indicators
PSDP produced by about 100 bill.
 Significant addition to low cost
housing for low income groups
Little progress
Composition of Sector GDP Growth
2007-08
Economic Survey
07-08
08-09
2008-09
GDP (FC)
5.8
4.1
2.0
GNP (FC)
6.1
4.1
2.6
Commodities Producing Sector
3.2
1.4
0.2
Agriculture
1.5
1.1
4.7
Major Crops
(3.0)
(6.4)
7.7
Minor Crops
4.9
10.9
3.6
Livestock
3.8
4.2
3.7
Manufacturing
5.4
4.8
(3.3)
Large Scale Manufacturing
4.8
4.0
(7.7)
Small Scale
7.5
7.5
7.5
Construction
15.2
(3.9)
(10.8)
(14.7)
(22.0)
(3.7)
Service Sector
8.2
6.6
3.6
Finance and Insurance
17.0
12.9
(1.2)
Electricity, Gas Distribution
5
Sectoral Contribution to GDP Growth
Sectoral Contributions to the GDP growth
(Percent Point)
2006-07
2007-08
2008-09
Agriculture
0.9
0.24
1.00
Industry
2.3
0.45
-0.92
Services
3.6
3.41
1.92
Real GDP
6.8
4.10
2.00
6
7
Inflation
2007-08
2007-08
(Jul-Apr)
2008-09
(Jul-Apr)
Overall inflation
12.0
10.2
22.4
Food inflation
17.6
15.0
26.6
Non-food inflation
7.9
6.8
19.0
Core inflation
8.4
7.5
17.8
SPI (Sensitive Price Index)
16.8
14.1
26.3
WPI (Wholesale Price Index)
16.6
13.7
21.4
8
Savings & Investment
(Percent of GDP)
Description
2005-06
2006-07
2007-08
2008-09
Total investment
22.1
22.5
22.0
19.7
Changes in stock
1.6
1.6
1.6
1.6
Gross fixed investment
20.5
20.9
20.4
18.1
- Public Investment
4.8
5.6
6.9
4.9
- Private Investment
15.7
15.9
15.2
13.2
Foreign Savings
3.9
5.1
8.5
5.3
National Savings
18.2
17.4
13.5
14.3
Domestic Savings
16.3
15.6
11.5
11.2
9
Subsidies
(Rupees in Billions)
Budget
2008-09
Revised Estimates
2008-09
Budget
2009-10
WAPDA
75
93
63
KESC
14
19
4
TCP (Wheat & Sugar)
26
27
30
USC
3
4
4
140
70
15
2
7
4
260
220
120
35
32
10
-
-
2
295
252
132
Current
Oil Refineries / OMC / Others
Others
Development
Import of Fertilizers
Benazir Track Support Program
Total Subsidies:
Key objectives for the Budget 2009-10
Provide protection to poor
and vulnerable against the
current economic
downturn.
Revive manufacturing and
industry, especially export
oriented industry.
Key Objectives
Broaden tax base, instead
of overburdening the
existing tax payer.
Restrain unnecessary
imports to improve the
Balance of payments
position.
10
Budget for a Common Man
Key Drivers
Welfare of the people
Reduce unemployment
and creation of jobs
Reduce inequity of
distribution of
Target reduction
of Poverty
Focus on Agriculture
value addition,
productivity and research
Rationalize subsidies
Skills development
Improve Tax GDP ratio
Direct cash transfers
Enhance social sector
allocations
Micro-finance reach
Induce growth of
manufacturing sector and
productivity
improvement
Skills Development
And Training
Provide quality health
and other services at
affordable costs
Access to basic needs
Inflation target
11
Common Man’s Perception of
Economic Development
 Food at affordable prices
 Health support on efficient basis
 Housing and shelter
 Access to utilities (water, power, gas, telephone) on consistent basis at affordable cost
 Education
 Good quality at low costs
 Aligned to required skills and vocational development demand
 Employment opportunities – Massive investment in human capital
 Freedom of access to information
 Value for contribution to federal, provincial and local revenue
 Potential for vertical migration in terms of quality of life and a mechanism to balance
consumption and savings
 Good governance
12
Common Man’s Perception of
Economic Development
 Inflation
 Supply side planning and reforms
 Balance between consumption and savings
 Strengthening of direct government intervention
 Import Substitution
 Inequality
 Growth to be inclusive
 Ensuring efficiency and productive utilization of PSDP
 Accelerated focus on Social sector
 Social
Sector
 Reallocation of resources from general administration, defence; etc.
 Raise revenue from Financial Services and other Profitable Sector like
trading etc. for direct transfer to social sector to be managed by an
independent representative body
 MDG’s to be real goals rather than compliance of commitments. These
goals should be dynamic and progressive
13
Pakistan Economy – SWOT Analysis
Strengths
 Strategically geo political position post 9/11 inducing active
interest of USA and other global powers in safeguarding its
stability
 Strong large population base with potential to be a sizeable
market
 Medium term Development framework
 IMF stabilization stand by arrangement
 Consensus on major political issues including fight against
insurgency and extremism
 Sustainable external and domestic debt
 Most liberal foreign investment regime
 Tariff barriers are being reduced
•
•
•
•
•
•
•
•
•
•
•
•
Opportunitie
s
Capacity constraints with India in IT sector
BPO’s potential
Telecom and Media revolution
Geo political situation
Foreign Direct Investment
Investment in education and health
Lapsing of WTO multi-fibre agreement
Global financial crisis
Focused skills development to secure dividend from
demographic advantage
Global intent and support in our fight against extremism
IMF stabilization program
Friends of Pakistan Forum
14
Weaknesses
• Credibility of statistics
• Quality of governance
• Low Tax / GDP ratio
• Incompatible contribution of various sectors of Economy in tax
revenue
• Inefficiency in utilization of development expenditure
• High unproductive non development expenditure
• Continued trade and fiscal deficits
• Low level of Foreign Currency reserves
• Economy vulnerable to external shocks
• Dependence on aid and loans from multilateral institutions and
bilateral parties
• Potential impact of global recession on exports and expats
remittances
• High cost of doing business
• Poor HDI indicators
• Decline in trend of Foreign investment
• Continued subsidies for loss making public sector enterprises
• Inequality in distribution of income
• Continued increase in poverty
• Fragile political system
Threats
• Intensity of war against terror
• Issues in Balochistan and Northern Areas
• Worsening of situation on Western borders
• Anti Pakistan attitude in Afghanistan
• Level of corruption
• Broadening gap between Rich and Poor
• Social unrest
• Public discontent with the policies which may threaten reform
process
• Increasing trend of terrorist activities
• Pressure on exchange rates
• Soaring core and food inflation
• Worsening law and order situation
• Large number of IDPs
• Increasing oil prices
Pakistan Economy – SWOT Analysis
Strengths
 Strategically geo political position post 9/11
inducing active interest of USA and other
global powers in safeguarding its stability
 Strong large population base with potential
to be a sizeable market
 Medium term Development framework
 IMF stabilization stand by arrangement
 Consensus on major political issues
including fight against
insurgency and extremism
 Sustainable external and domestic debt
 Most liberal foreign investment regime
 Tariff barriers are being reduced
15
Pakistan Economy – SWOT Analysis
16
Weaknesses
 Credibility of statistics
 Quality of governance
 Low Tax / GDP ratio
 Incompatible contribution of various sectors
of Economy in tax
revenue
 Inefficiency in utilization of development
expenditure
 High unproductive non development
expenditure
 Continued trade and fiscal deficits
 Low level of Foreign Currency reserves
 Economy vulnerable to external shocks
 Dependence on aid and loans from
multilateral institutions and
bilateral parties
 Potential impact of global recession on
exports and expats
remittances
 High cost of doing business
 Poor HDI indicators
 Decline in trend of Foreign investment
 Continued subsidies for loss making public
Pakistan Economy – SWOT Analysis
Opportunities
 Capacity constraints with India in IT sector
 BPO’s potential
 Telecom and Media revolution
 Geo political situation
 Foreign Direct Investment
 Investment in education and health
 Lapsing of WTO multi-fibre agreement
 Global financial crisis
 Focused skills development to secure
dividend from demographic advantage
 Global intent and support in our fight
against extremism
 IMF stabilization program
 Friends of Pakistan Forum
17
Pakistan Economy – SWOT Analysis
Threats
 Intensity of war against terror
 Issues in Balochistan and Northern Areas
 Worsening of situation on Western borders
 Anti Pakistan attitude in Afghanistan
 Level of corruption
 Broadening gap between Rich and Poor
 Social unrest
 Public discontent with the policies which
may threaten reform process
 Increasing trend of terrorist activities
 Pressure on exchange rates
 Soaring core and food inflation
 Worsening law and order situation
 Large number of IDPs
 Increasing oil prices
18
Pakistan Economy – SWOT Analysis
Challenges
Sustainability of growth momentum
Addressing structural problems in energy, agriculture and exports sector
Job creation
Poverty alleviation
Improving social indicators and enhancement of safety nets
Strengthening of physical infrastructure
Converting the demographic transitions into demographic dividend
Leverage the current strategic role in achieving meaningful economic dividends
Supply side improvement to match growing domestic demand
Achieve political stability and institutional strengthening
Harmonious relationship amongst Federation and its units
Equitable distribution of resources between Federal, Provincial and Local
governments
 Revenue generation by provinces
 Balanced approach of combination of Fiscal and Monetary Policy measures to
combat inflation
 Containment of exposure to war on terror












19
Pakistan Economy – SWOT Analysis
Strengths
20
Weaknesses
• Credibility of statistics
 Strategically geo political position post 9/11 inducing active
• Quality of governance
interest of USA and other global powers in safeguarding its
• Low Tax / GDP ratio
stability
• Incompatible contribution of various sectors of Economy in
 Strong large population base with potential to be a sizeable
tax revenue
• Inefficiency in utilization of development expenditure
market
• High unproductive non development expenditure
 Medium term Development framework
• Continued trade and fiscal deficits
 IMF stabilization stand by arrangement
• Low level of Foreign Currency reserves
 Consensus on major political issues including fight against
• Economy vulnerable to external shocks
• Dependence on aid and loans from multilateral institutions
insurgency and extremism
and bilateral parties
 Sustainable external and domestic debt
Challenges
• Potential impact of global recession on exports and expats
 Most liberal foreign investment
regime
 Sustainability
of growth momentum
remittances
 Tariff barriers are being reduced
 Addressing structural problems in energy,
agriculture
exports
sector
• High
cost ofand
doing
business
•
Poor
HDI
indicators
 Job creation
• Decline in trend of Foreign investment
 Poverty alleviation
• Continued
subsidies
 Improving social indicators and enhancement
of safety
nets for loss making public sector enterprises
•
Inequality
in
distribution
of income
 Strengthening of physical infrastructure
• Continued increase in poverty
 Converting the demographic transitions
demographic
dividend
• into
Fragile
political system
 Leverage the current strategic role in achieving meaningful economic
dividends
 Supply side improvement to match growing domestic demand
 Achieve political stability and institutional strengthening
Opportunitie
Threats
 Harmonious relationship amongst Federation
and its units
s
 Equitable distribution of resources between Federal, Provincial and Local
• Intensity of war against terror
• Capacity constraints with India ingovernments
IT sector
• BPO’s potential
 Revenue generation by provinces • Issues in Balochistan and Northern Areas
• Fiscal
Worsening
of situation
on Western borders
• Telecom and Media revolution  Balanced approach of combination of
and Monetary
Policy
•
Anti
Pakistan
attitude
in
Afghanistan
• Geo political situation
measures to combat inflation
•
Level
of
corruption
• Foreign Direct Investment
 Containment of exposure to war on terror
• Broadening gap between Rich and Poor
• Investment in education and health
• Social unrest
• Lapsing of WTO multi-fibre agreement
• Public discontent with the policies which may threaten reform
• Global financial crisis
process
• Focused skills development to secure dividend from
• Increasing trend of terrorist activities
demographic
• Pressure on exchange rates
advantage
• Soaring core and food inflation
• Global intent and support in our fight against extremism
• Worsening law and order situation
• IMF stabilization program
• Large number of IDPs
• Friends of Pakistan Forum
• Increasing oil prices
THANK
YOU !
Presenter’s contact details
SYED MASOUD ALI NAQVI
Senior Partner
KPMG Taseer Hadi & Co.
+92 (21) 568 5847
[email protected]
www.kpmg.com.pk
Macro Economic stability & real sector growth
 Real GDP is expected to grow by 3.3 percent in 2009-10 and by 4 and 4.5
percent during Fiscal Years 2010-11 and 2011-12
 Sectoral growth rates expected
- Agriculture - 3.8 percent
- Manufacturing - 1.8 percent
- Services - 3.9 percent
 Inflation target for 2009-10 is 9.5 percent and will be brought down to 7 and
6 percent during Fiscal Years 2010-11 and 2011-12
 Current expenditure to decline by 15.3 percent of GDP in FY 2009-10 and
14.7 percent of GDP in 2010-11, owing to elimination of unproductive
subsidies
 Measures for documentation of the economy and broadening of the tax base
 Total revenue to grow by 15.7 percent and FBR collections to grow by 16.8
percent
 Tax to GDP ratio will be 9.6 percent (9 percent in 2008-09)
 Revenue as a percentage of GDP at 14.7 percent in 2009-10 and will increase
to 15.1 percent in 2010-11
Targeting the poor and vulnerable
Benazir Income Support
Programme (BISP)
-Rs. 70 billion from Rs. 22 billion
-Social assistance Program – Health
Insurance up to Rs. 25,000 per family
-Poverty exit strategy, training and
employment, social mobilization
program
-Transparency to be enhanced
-Plan to have Social Security Protection
Program
People Works Program
Rs. 35 billion to create employment
opportunities
Targeting the poor and vulnerable
Workers Welfare
Microfinance
Housing
- Rs. 10.8 billion for workers welfare
development schemes
- Marriage grant enhanced from Rs. 50,000 to
Rs. 70,000
- Cash back of 9,469 housing units / flats for
workers
Plan to increase outreach from 2 million to 3
million houses
- Low income population community
participation and squatter settlement
regulation
- Allocation of flats in Islamabad for working
journalists
- Tax credit for loans increased from Rs.
500,000 to Rs. 750,000
Agriculture–Increasing Productivity and Value Addition
 Upgrade existing R&D facilities and set up two world class
research institutes for wheat and cotton
 Development of new technologies
 Productive use of water through precision land leveling and high
efficiency irrigation systems
 Promote production and export of high value crops
 Focus on live stock rearing, dairy production, fisheries and
horticulture
 Creating necessary infrastructure
 Ensure availability of Agriculture credit
 Common facilitation centers
 Ten model agricultural union councils for each major crop across
country
 Promotion of model organic farming
Agriculture–Increasing Productivity and Value Addition
 Allocation in PSDP increased from Rs. 14.4 billion to Rs. 18 billion
 Rs. 2.5 billion proposed for food security and productivity
enhancement of farmers
 Plan to treat livestock, Agriculture and fisheries as an industry
 Agreement with Monsanto of US to introduce genetically modified
cotton
 Farmers will be offered BT cotton hybrids varieties
 National on Farm Water Management Program implemented
 Water sector Rs. 60 billion
- 32 small and medium Dams
- 12 billion for raising of Mangla Dam including resettlement
- Rs. 10 billion for improvement of water courses
- Rs. 15 billion for canal improvement and rehabilitation of
irrigation system
 Benazir Tractor scheme - Rs. 4 billion over two years
 A new Agricultural model village programme in 26 villages
Agriculture–Increasing Productivity and Value Addition
 Capacity Enhancement of Dairy Products under Public
Private Partnership’ a project worth Rs 3.5 billion
(Rs.300 million in 2009-10)
 Poverty Reduction through Small Holders Live Stock and
Dairy Development’ worth Rs 3.5 billion (Rs 400 million in
2009-10)
 More model dairy community, biogas and breeding farms,
cooling tanks, rural services providers and pasteurization
plants
 Focus on fisheries
- lifting European Union’s ban on fisheries export by
upgrading fishing vessels
- improvement of infrastructure facilities for value
added products
- establishing a fisheries training centre at Gawadar
- landing sites along the coastal line
- reducing post harvest losses through improved fish
handling along the food chain and marketing
- establishment of shrimp aquaculture in the country
Industry
 Export Investment Support Fund of Rs. 40 billion
- Government – Rs. 10 billion
- Export Development Fund – Rs. 10 billion
- Government agencies – Rs. 20 billion
 Fund for credit guarantee for SME sector – Private Public
partnership (Rs. 2.5 billion from Government in 2009-10)
 Venture Capital Fund – Private Public partnership
 Create new DFI for industrial financing
 Industrial clusters for skill development
 Allocation of M/o industries from Rs. 2 billion to Rs. 8.7
billion
 Allocation for science and technology from Rs. 1.5 billion to
Rs. 3.1 billion
Industry
Automobile
Construction
Reduction of 5% FED
FED on cement reduced by Rs. 200 per
ton
Textile
- Withdrawal of FED on import and
supply of Viscose Staple Fiber (VSF)
- Zero rating of chemicals used in
manufacture of Fire retardant fabrics
- Regulatory Duty of Rs. 250 per set
eliminated
- Reduction in Customs Duty from
Rs. 500 per set to Rs 250 per set
- FED reduced from 21 percent to 19
percent
- Sim activation charges reduced from
Rs. 500 to Rs. 250
Cellular service
providers
Industry
 Priority allocation of gas and electricity
 Cross subsidy in electricity and gas tariffs would be
reduced in a phased manner
 Large Export Houses to be established
 Special Economic Zones and Special Industrial Zones to be
fast tracked
 Corporate Rehabilitation Act (CRA) to improve bankruptcy
and insolvency regime
 Resolution Trust Corporation (RTC) to promote
consolidation of industry
 Transparent privatization policy based on Public Private
Partnership
 National Trade Corridors Improvement Program launched
 Enhanced allocation for infrastructure development
 Custom duty reduced on raw materials for poultry, dairy,
fish processing and pharmaceuticals
Industry
 PSDP for energy sector increased from Rs. 11.4 billion to
Rs. 22.8 billion
 Circular debt of energy sector being reduced to create liquidity
for power sector
 Projects for transmission and distribution system are being
undertaken – 15 IPPS with capacity of 2,921 Megawatts (13 to be
completed by 2010)
 Five rental power projects for 800 Megawatts
 16 Hydro power projects with capacity of 4,160 Megawatts
initiated
 Plan for electrification of all villages
 Conservation measures are also being undertaken
 Ideal policy mix for hydel, coal, wind and solar power
Human Resource Development
 Establishment and operation of basic education and community
schools (Rs. 2 billion)
 Education for All - through providing missing facilities to
primary schools (Rs 2 billion)
 Development funding to Higher Education Commission
enhanced to Rs 22.5 billion (60% increase) in 2009-10; current
budget provision also enhanced by 26% to Rs. 21.5 billion
 National Vocational & Technical Education Commission to
target one million trainees every year in a phased programme
(Rs. 2.2 billion in 2009-10)
 Skill development (vocational/technical) programmes aimed
for labour export market are being planned
Health
 PSDP increased by 66 percent, from Rs. 13.99 billion in 2008-09
to Rs. 23.15 billion in 2009-10
 Family Planning and Primary Healthcare and Immunization
programmes with allocations of Rs. 7 billion and Rs. 6 billion
respectively
 The Prime Minster’s Emergency Action Plan for disease
launched (Rs. 11 billion in the next five years)
 Concessionary import duty rate on 35 raw materials used in
pharmaceuticals, medicines and diagnostic kits
 Zero rate sales tax on import and supply of wheelchairs for the
special people
 Tobacco taxation is being increased as per WHO
recommendations
Youth Affairs, Culture and Sports
 Different programmes for youth motivation, character building,
awareness and integration, and establishment of youth activity
centers - under the National Youth Policy
 Approximately 30,000 educated postgraduates will be offered
internships under the National Internship Programme (Rs 3.6
billion in 2009-10)
 A Mobile Youth Computer Literacy and Awareness Programme
launched
 Approximately 15,000 volunteers registered for community
development activities and disaster management
 Rs 450 million in 2009-10 for cultural development (Rs 186
million over the previous year)
 Special focus on the development of sports - Rs 583 million
allocated in 2009-10 (Rs 140 million in 2008-09
Governance of Just and Fair system
 Establishment of Public Defender and Free Legal Aid System
 Establishment of Fast Track and Evening Courts at the federal
level and provincial headquarters
 Pro-poor legislation and automation of the justice sector
 Monetizing incentives for civil servants
 Making public sector ‘Employer of choice’
 Improved service delivery
 Greater transparency and self-accountability
 Market-based competitive salary structure
Governance of Just and Fair system
 An ad-hoc relief allowance of 15% of pay for serving government
servants from 1 July 2009
 An increase in the allowance of armed forces deployed on the
western front equal to one month’s initial basic pay with effect
from 1 July 2009
 For the remaining armed forces personnel, allowance equal to
one month’s initial basic pay will be admissible from 1 January
2010 and in the interim period, an adhoc relief allowance of 15%
of pay
 The retired government servants and armed forces personnel will
also get 15% increase in their net pension from 1 July 2009
 Limit for the exemption on Income Tax for salaried male
enhanced from Rs 180,000 to Rs 200,000
Governance of Just and Fair system
 Limit for the exemption on Income Tax for salaried female
enhanced from Rs 240,000 to Rs 260,000
 Senior citizens will now enjoy 50 percent relief in their tax
liability in case of income upto Rs 750,000; previously this limit
was upto Rs 500,000
 Reform process for Public sector enterprises including Pakistan
Railways, Pakistan Steel Mills, Pakistan International Airlines
and the Power Distribution Companies
 Corporate status for National Savings Organisation and the
Federal Bureau of Statistics