Federal Budget 2002-2003

Columnist SYMA NASIR analyses the Finance Minister’s proposals for the next financial year.

The Federal Finance Minister Mr. Shaukat Aziz unfolded federal budget for the year 2002-2003 on 15th June 2002. Since then different opinions/ views, have been appearing in the National press about the budget. Some quarters are satisfied with the budget and terming it as a balanced one while others are pointing fingers on it and are terming it as a budget that have not come up to mark of various segments of society. Before going into details, it is better if we take a bird’s eye view of the major features of the federal budget 2002-2003. The budget has been described by the Federal Minister as “investment friendly” and “Growth oriented”. Total budget is of Rs 742 billion. The size of the budget is less than the budget of current year whose revised figure was Rs 773.3 billion. A major feature of the budget for the year 2002-2003 is reduction of 12.34 present in the debt servicing allocation. Rs 289.7 billion have been allocated to the debt servicing in the coming year as compared to Rs 320 billion in the current year. Budget projects the gross revenue receipts for the next year at Rs 674.9 billion. The   overall budgetary deficit has been fixed at 4 per cent of the GDP. Allocation for the defence sector is also lower as compared to outgoing year. In current year the revised estimate was Rs 151.7 billion while in the new budget this amount is Rs 146 billion with a statement that the same will be revised as and when required. Allocation for the development has been increased to Rs 134 billion for the next year from Rs 124.7 billion in 2001-2002.  Provinces will get Rs 193.5 billion during the next financial year. Among other expenditure Rs 57.5 billion have been allocated for running civil government, expenditure for pensions Rs 34 billion, for grants Rs 56.3 billion and for subsidies Rs 20.8 billion. Health and education sector will get Rs 3.30 billion and Rs 2.60 billion respectively and both of these allocations have been increased as compared to the ones in the budget of 2001-2002. Central Board of Revenue has been given the revenue target of Rs 460.6 billion in the year 2002-2003. The same target in its original form in the year 2001-2002 was Rs 457.7 billion which was revised and was reduced to Rs 414 billion. Out of total revenue collection for the next year, Rs 148.4 billion will be collected in the form of direct taxes and Rs 312.2 billion in the form of indirect taxes. An amount of Rs 153.8 billion is the estimated receipt of non-tax revenue in the new financial year.   

As mentioned in the beginning, Federal Finance Minister, Mr. Shaukat Aziz has termed the budget as investor friendly as it will reduce the overall tax burden by lowering maximum tariffs and corporate and personal income taxes. It will minimize the discretionary powers as well as the personal contacts between taxpayers and collectors. New self-assessment scheme has been made meaningful by not making it conditional that it will be available to some classes of taxpayers and not to others. Similarly no condition like declaring higher income is a part of this new scheme. Five types of withholding taxes have been withdrawn. For encouraging the export of processed poultry meat certain tax incentives have been introduced. Similarly tax incentives in the form of lowering of withholding tax on commission and brokerage have been introduced for the capital market. It has been declared by the federal finance Minister that the budget for the year 2002-2003 is a part of 3 year macro-economic framework covering the period 2001-2004. This framework aims at the achievement of certain goals for major economic variables of the country. The major features of the framework include the rise of GDP growth rate to 5 per cent in the year 2003-2004, containment of the inflation at less than 4 per cent, increase in gross investment to GDP ratio to 17.2 per cent, dropping the fiscal deficit to 3.5 per cent, containment of the current account deficit to 1.8 per cent of GDP. In the new budget duties on imported cars have been reduced to encourage the competition and to check the local manufacturers who are costly and less quality conscious. It has also been announced by the Federal Finance minister that government is considering establishing a large trade free zone at Gwadar in the close vicinity of Gwadar Deep Water Port Project. Among other features of the budget, important ones are as follows: The maximum tariff of custom duties has been lowered to 25 per cent from 30 per cent and custom duties have been reduced on about 2,500 products. 45 Income tax exemptions have been withdrawn. The limit of taxable income has been increased to 80,000 from the present Rs 60,000. The income upto 0.2 million rupees of the people who are above 65 years of age has been made tax-free.   Medical allowance for officials of government and overtime allowance of drivers has been increased.

Though no new taxes have been levied except on the allowances of that salaried class which is getting a certain salary and above but still the general impression about the budget is that no specific relief has been provided to the common man. Application of 15 per cent GST on edible oil and ghee has been criticized widely as it will increase the prices of these products which in turn will affect the budget of common man. Rather it has been criticized from this point of view that duties on imported cars have been reduced which is not a product being used by the common man in the country and things of essential use have been brought in GST regime. However, various trade associations/trade bodies and representative organizations of businessmen and traders have commented positively on the document saying that it will help in attracting investment, growth of business in stock market, in the increase of economic activity in the country and in increasing exports as different incentives in the form of reduction in import duties and various tax rates, change in the system of duty drawback scheme and incentives to the capital market have been provided in the new budget. The taxpayers have also hailed the new self-assessment scheme.

But at the same time budget has been criticized from the point of view that no incentives or measures have been introduced for the promotion of SMEs in the country. It has also been argued by the people involved in the car trade business that import duties reduced by the government in budget for the import of foreign cars will not achieve the purpose for which they have been reduced due to the fact that duties after reduction are still very high. If government really wants to create a competition like situation then duties will have to be reduced by 50 per cent. Government employees are also critical of the budget that no relief has been provided to them. A general complaint is that though this budget has been termed as more or less a tax-free budget but as no relief has been provided to common man and their costs of living is always on rise. It is argued that the prices of petroleum products and utilities have been increased regularly by the concerned authorities.  This segment of the society is of the view that in the past it was the budget in which prices of petroleum products and utilities were increased but now it has become an independent activity and these prices are increased three to four times a year while their salaries remained unchanged making it very difficult for them to live with the increased living costs. Here it is commented that their point of view is true. They are perhaps the most hard depressed class in our society. Salaries in the private sector are being   increased   regularly   though   they may not be proportionate to the ever increasing living cost of our country but at least an increase is given to them. But in the case of government servants it was only in the last budget that after years their salaries were increased and even that increase was provided to them from January this year. They were expecting the second instalment as was promised last year in this budget but no relief has been provided to them.  

Budget has been severely criticized by some political parties on various grounds and they are presenting it as a complete failure. They are of the view that budget has nothing to offer to common man. Rather it will create more problems for the people instead of providing them any relief.  Here it is stated that they must realize that economic activity of a country in the present world largely depends not only in internal situation of the country but international situations do play their role as well. Then in case of our country, which was not only faced with the threat of foreign aggression from our neighbour that heavily effected almost all our sectors of economy, but with the slump in international economic activity especially after September 11 incident, preparation of a budget that can cater to the requirements of all segments of the society becomes a very difficult task. In fact here we must admit that the situation which our country faced since September, 11, 2001 the losses to our economy are not that deep as was expected and negative effects have been offset upto a large extent by prudent handling of the situation by the present government. Inspite of the intense external and internal pressure the effect on the growth rate of GDP was not severing. Similarly, inflation remained also in manageable limits. Means to say that we must admit that present government steered the ship of economy in such a way during all this troubled period that negative effects on economy was brought to minimum level. It is true that during all this time, we did not see much investment both foreign and domestic pouring into our economy but at the same time, we must realize that no panic situation was witnessed in any sector of economy. This can be termed as confidence of business community on the economic policies of the present government. Though a support to the economy was provided by the   increased   foreign remittances of overseas Pakistanis and for the first time in our   history foreign exchange reserves have touched a record figure. As well as international financial assistance and the facilities and concession granted to us in the repayment of our debts has played its role in it. It is true that budget does not contain any large relief package but what is required to be taken into consideration is that government has been successful in bringing out more or less a balanced budget when we were passing through very critical time and were faced with numerous problems both internally and externally. Hence, all concerned must applaud this achievement of the present government and should join hands with them. Critics of the document must realize this point. The budget has certainly come up with certain incentives devised to facilitate the increased economic activity in the country. Now it is the duty of business community of our country to take advantage of the incentives provided by the government in the budget and they must invest in business, industry so that a sound footing can become available to our weak economy. This will not only result in the increase of our economic growth but will also create employment opportunities in the private sector. It is the responsibility of businessmen, traders, industrialists of the country to exploit   the incentives in such a way that fits in the overall strategy of the government for the growth of economy of our country. Finance Minister himself declared that this budget has been designed to facilitate the growth of economic activity in the country and now its time for the private sector to play their positive role in the achievement of desired objectives. He is of the view that budget will provide relief to common man through the growth of economic activity in the country as it will create employment opportunities for the people. Similarly, allocation for development has been increased in the federal budget and it will also provide relief to the people in the form of availability of civic facilities. Then with the start of development work, people will be able to get more jobs. Federal Finance Minister is of the opinion that the criticism that no relief has been provided to the common man is being offset by the fact that government has increased the allocation for development expenditure and has introduced measures that will cause the growth of economic activity in the country and in turn this will be to the benefit of common man.  In the end it is commented that seeing the difficult times we are passing through, the federal budget for the year 2002-2003 is more or less a balanced one and what is required from all concerned is not to be involved in criticism for the sake of criticism and should join hands with the government to achieve the objectives of growth of economic activity in the country. This policy is also very much required due to the fact that we are passing through the most difficult phase of our history and are trapped with too many problems both internally and externally. On the part of the present government what is required is to ensure that the practice of bringing mini-budgets during the year, which has been followed by almost all the previous governments will not be opted for as it not only creates problems for the common people but also results in discontinuation or change in the policies adopted earlier thus making them less effective.