Economy set on strong footing, more measures afoot towards stability: Dar

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Supplementary grants reduced to Rs121 bln, NA gives approval

ISLAMABAD, May 26 (APP): Minister for Finance, Revenue, Statistics
and Economic Affairs Ishaq Dar on Friday said that during the last four years the economy had been put on a strong footing as the government was taking measures to achieve the goal of economic stability.
Presenting the Rs 5,310 billion budget for 2017-18, the minister
said the amount included proposed revenue collection by the Federal Board of Revenue of Rs 4,013 billion as 14 per cent increase in tax collection
was expected during the next fiscal year.
He said the share of provincial governments in total income would
be Rs 2,384 billion that was 12.4 per cent more than the corresponding period of last year and the share of the federal government would be
Rs 2,926 billion.
Similarly, the minister said, total expenditure was expected to be
Rs 4,753 billion, which was 11.7 per cent more than the previous year. Maximum increase in that category had been made in the development
budget.
He said there was a proposal to allocate Rs 920 billion for defence
as compared to the previous year’s Rs 841 billion. Moreover, with 40
per cent increase in PSDP, the amount proposed was Rs 1,001 billion
against Rs 715 billion last year.
Dar said the budget deficit had decreased to 4.1 per cent of
the GDP against 4.2 per cent last year.
He said it was an honour to present the fifth budget of this
government as “we achieved different milestones during last four
years, including budget deficit, inflation, foreign exchange
reserves, tax collection, and GDP growth in different sectors of
the economy.”
The minister said fiscal deficit had been controlled, load-shedding
reduced, and GDP growth rate recorded at 5.3 per cent, which was
proposed to cross 6 per cent during the next fiscal year.

Ishaq Dar said today Pakistan has foreign exchange
reserves worth imports of four months, as compared to reserves
worth imports of two weeks in 2013, while tax collection had
recorded 81% increase during the last four years.
He said most of international rating and financial institutions
have acknowledged Pakistan’s progress in the economic sector and
have predicted Pakistan to be part of G-20 by 2030 in the wake of
measures taken by the government.
“All this could be possible in the wake of the vision of
Prime Minister Nawaz Sharif and decisions by the PML-N government
that is being appreciated by the nation,” he added.
The minister said, due to strict monetary discipline and reforms
in the country, Pakistan has been able to achieve these goals
and the government had been successful in meeting targets
mentioned in its election manifesto.
He said this year GDP growth rate has been recorded at 5.28
percent as compared to 3.16 percent in 2013, and it will cross
six percent during the next fiscal as the volume of economy has
exceeded US$ 300 billion.
During the last year, agriculture sector recorded 3.46
percent growth, services sector – 5.98 percent growth
while per capita income at present is US$ 1629 as compared to US$
1334 in 2013 showing an increase of 22 percent.
He said the FBR tax collections had shown 81 percent increase during
last four years. Its present volume is Rs 3521 billion as compared
to Rs 1946 billion of 2013. Interest rate has been decreased
to give incentives to agriculture and industrial sectors.
He said agriculture loans had increased to Rs 600 billion as
compared to Rs 336 billion of 2013, while private sector loans
volume has grown to Rs 507 billion.
The minister said, remittances had recorded an increase to the
tune of US$ 19.9 billion while Pakistan Stock Exchange had
surpassed 52,000 points and international rating institutions have
ranked it as the best economy in Asia and 5th emerging stock
market across the world.
He said market capitalization has increased from previous US$
51 billion to US$ 97 billion while 5855 new companies had been registered during the last nine months, while 24 important laws were enacted and
ten more are in the pipeline.

The Finance Minister said that economic targets for next fiscal year 2017-18 included: Gross Domestic Product (GDP) growth 6 per cent, investment to GDP 17 per cent, Rs 1,001 billion Federal Development Expenditure, lowering inflation rate below 6 per cent, budget deficit 4.1 per cent to GDP, tax to GDP 13 per cent, keeping Net Public Debt to GDP 60 per cent, foreign reserves equal to four months export and continuation of social safety measures.
He said budget strategy has been devised to achieve the said targets. The strategy included 14 per cent increase in revenue of FBR while 11 per cent enhancement in federal expenditure, controlling current expenditure.
New measures were being announced for agriculture, export, textile and social
sector in order to create more jobs opportunities, he said.
These steps would not only expedite economic activities but also help create new jobs opportunities besides bringing improvement in income of people, he added.
The Minister said more tax incentives were being announced for promotion of agriculture, SME and information technology sectors.
He said around 10,000 MW additional electricity would be added to the national grid system before next summer season which would help end power crisis in the country.
He said a sum of Rs 121 billion has been proposed for Benazir Income Support Programme (BISP) which was only Rs 40 billion in 2013 thus registering 300 per cent increase.
He said financial assistance to 5.5 million families would continue and they would be given Rs 19,338 per family per year. Financial assistance to some 1.3 million children of primary schools would also be given, he added.
Dar said the government would continue subsidies on electricity bills to the consumers using 300 units per month besides subsidy to the farmers of Balochistan on tube wells consumers. The government has allocated Rs 118 billion in the budget in this regard, he added.
The minister said Rs 20 billion has been specified for
the Prime Minister’s Youth Schemes which include Business Loan Scheme, Interest
Free Loan, and Training Scheme, Skill Development Programme, Free Reimbursement
and Laptop Programme.

Ishaq Dar said the government under the guidance of Prime
Minister Nawaz Sharif was committed to the welfare of poor masses
and had taken measures, which resulted in decrease in number
of those living below the poverty line. “In line with our previous
actions, the government will impart technical training to the poor
people under the BISP. This programme will benefit 250,000 families.”
He said an off-grid power system would be introduced to
provide solar power to the people in remote areas, especially
in Balochistan.
He said mark-up for agricultural loans for land owners having
less than 12.5 acre was being reduced to 9.9 per cent from around
15 per cent. Under the scheme, he said, two million loans of
Rs 50,000 each would be provided by ZTBL, National Bank of Pakistan
and other banks as the loans volume for agriculture was being
increased to Rs 1,001 billion from Rs 700 billion.
The minister said it had been decided to sell Urea fertilizer
available with NFML at the rate of Rs 1,000 per bag while GST on
DAP fertilizer was being reduced to Rs 100 instead of existing
Rs 400. Urea fertilizer price in the open market would be
Rs 1,400 as the government had proposed Rs 13.8 billion and
Rs 11.6 billion subsidy in terms of DAP and urea fertilizers
respectively.
Ishaq Dar said the banking system was being streamlined in accordance
with Record Management Information System, new seeds would be
provided to farmers and tariff subsidy to tube-wells would continue,
while the government would provide Rs 27 billion for the purpose.
He said the production index unit for agricultural
land was being enhanced to Rs 5,000 from Rs 4,000, which
would enable farmers to get more loans for agriculture.
Explaining further measures for the agriculture sector,
the minister said customs duty and sales tax on new and five-year
old combined harvesters was being waived off, tax ratio on
import of machinery for the poultry business was being reduced to
7 per cent from existing 17 per cent, GST (general sales tax)
was being waived on imported sun-flower and canola seed, and
17 per cent sales tax on three to 36 horse power diesel engines
for tube-wells was also being waived off.
The proposed measures, he said, would encourage and compensate
farmers to contribute more vigorously in the stability of national
economy, besides enabling them to earn better living.
The minister said for the textile sector interest rate on long
term financing facility was being reduced to 5 per cent from
11.5 per cent, import of the textile machinery was being allowed
duty free and Technology Upgradation Fund was being introduced
while measures announced in the budget 2016-17 would also continue
during the next fiscal year.
He said the government would start Brand Development Fund
while the Textile Ministry would start for the first time in the
country an ‘online textile trade portal’ for promoting
‘business-to- business’ and ‘business-to-consumers’ culture.
He said the mark-up rate on the Export Refinance Facility
had been decreased to 3 per cent from previous 9.5 per cent
while zero duty was being proposed on raw hides and stamping foil
being used in producing high quality leather products.
To alleviate difficulties of the rice exporters, he said,
the government had decided to allow them warehousing of rice and
details of the scheme would be finalized by the Commerce Ministry,
State Bank and Rice Export Association.

Finance Minister Ishaq Dar said that there was shortage of
over 1 million housing units in the country. Every year, an
additional demand of 300,000 units was being added to this
gap, he added.
He said availability of long-term financing was a major
hurdle and the banks were shy of offering long-term financing.
In order to overcome this hurdle to housing loans, Risk
Sharing Guarantee Scheme for low-income housing would be
launched, he said.
Under this scheme, the minister said the Government would
provide 40 percent credit guarantee cover to Banks and DFIs for
home financing for up to Rs.1 million.
A sum of Rs.6 billion has been allocated for this purpose,
he said. It has been decided that this facility would also be
made available through micro-finance banks, he added.
The minister said to fulfil the needs of infrastructure, the
government has increased development spending on permanent basis.
It has consistently increased its development spending to match
the financing needs of infrastructure sector, he added.
Dar said in addition to financing for public sector
infrastructure the government was also facilitating private
sector investment and finance in infrastructure through a
range of policy instruments and regulations.
These included a Public Private Partnership framework, new
prudential regulations for infrastructure finance and development
of new institutions and instruments. Pakistan Development Fund (PDF)
has been created which would be made fully operational soon, he
added.
The minister said PDF would provide long-term infrastructure
financing for commercially viable public sector and PPP projects.
He said the international development partners have expressed
their interest to provide further support through PDF and Pakistan
Infrastructure Bank (PIB). PIB would also be established to provide
infrastructure financing for commercially viable private sector
projects, he added.
The minister said this effort would be spearheaded by the IFC
with a 20% equity of the Government through PDF, while the remaining
share would be of the private sector.
The Bank was expected to assist in introducing innovative
project financing tools such as building domestic infrastructure
bond market and creating contingent financing products which include
credit guarantees, credit default swaps, foreign currency liquidity
facility and refinancing options, the minister said.
Ishaq Dar said ‘Public Private Partnership Act’ has been
enacted by the Parliament recently. This Act provided a regulatory
framework for promotion of financing public-private-partnership
projects in the country, he said.
This would also cater to the requirement of viability gap
funding of large sized public sector projects, he added.

The Finance Minister said in recent years, financial sector has
demonstrated good performance. To further strengthen the financial
sector in the country, the government was taking several measures.
He said in order to increase access to financial services for
the vast majority of the people, the government was implementing the
National Financial Inclusion Strategy.
For the next year, he said initiatives were being proposed
including Rs 8 billion fund would be created at the State Bank of
Pakistan to provide loans to low-income segments through
microfinance banks facilitate transactions through mobile banking,
e-gateway systems and mobile banking.
The government was establishing a state-of-the-art e-gateway
systems at the SBP at a cost of Rs 200 million and technical
training and handholding of the service delivery organisations would
be also be undertaken through this project, he added.
He said exemption from withholding tax on Cash Withdrawals by
Branchless Banking Agents, exemptions on withholding tax would be
given on withdrawal of cash from branchless banking.
The Minister said that Pakistan Micro Finance Investment
Company was jointly launched with DFID and KFW in 2016 to augment
the availability of capital for Micro Finance institutions.
It was estimated that this will lead to doubling of small
loans, he added.
The Minister said Disaster Risk Management Fund has been
created with the main aim to provide disaster risk management and
preparedness assistance to communities.
An Endowment Fund of Rs.12.58 billion has also been created,
he added.
He said Small and Medium Enterprises (SMEs) were the backbone
of any economy. Unfortunately, the growth of SMEs was stunted in
Pakistan, he said and added that any growth witness was in the
informal sector.
Ishaq Dar said the new measures have been announced for SMEs
sectors as the biggest constraint of the SMEs sector was access to
credit.
He said banks were generally reluctant to offer credit to the SME
sector because of high risk attached to the sector.
In order to enable banks to provide financing to SME
sector, the government was planning to introduce Risk Mitigation
Facility for Small and Medium Enterprises through a Rs 3.5 billion
fund to be established in the SBP, he added.
The minister said the facility would cater to both
Islamic and conventional banking products.
He said investment in new technologies was imperative to give
impetus to small businesses to keep pace with the changing market
requirements.
Technologies were involved at all levels of industry and
supply chain uses continuous upgrade and improvement to maintain
profitability.
To cater this requirement of SMEs, the government is
announcing establishment of an Innovation Challenge Fund with Rs 500
million, he said.
He said this fund would be professionally managed in
collaboration with the key technology universities of Pakistan.
Ishaq Dar said in order to encourage SME and agriculture
lending the Government has passed Financial Institutions Secure
Transactions Act 2016. The law provided for establishment of an
electronic registry which would enable the small borrowers in SME
and agriculture sector to obtain small loans by pledging their
moveable property, he said.
The minister said Federal government would establish the
registry during the next financial year.

Ishaq Dar said from agricultural revolution to the industrial
revolution, the world was now undergoing an information revolution.
It was leading to the use of Information Technology in every
sector of human activity be it communication, banking, trading,
learning, entertainment, e-commerce, government and management, he
said.
He said in future, the gap between industrialised and non-
industrial countries would become less pronounced than the one
between IT enabled societies and others.
The government was cognizant of this challenge and has taken
a number of measures in past and we will continue with similar
measures, he said.
He said the government would set up a IT software park in
Islamabad with the help of Korean Government at a cost of 6 billion
rupees.
The financial arrangements for this have been concluded and
the construction work would start soon, he said.
He said the start-up software houses would be exempted from
Income Tax for the first 3 years. Exports of IT services from
Islamabad and other Federal territories would also be exempted from
Sales Tax, he said.
The minister IT export houses/ companies would be allowed to
open Foreign Exchange Accounts in Pakistan on the condition that
deposit in these accounts would only be allowed through remittances
from abroad in respect of their export earnings.
They would be allowed to use these accounts for meeting
business related payments outside Pakistan, he said.
Ishaq Dar said mobile phones were an important element in
providing IT connectivity and the mobile telephony was heavily
taxed. It has been decided to provide a relief to common man by
reducing the withholding income tax on cell phone call from 14% to
12.5% and Federal Excise Duty from 18.5% to 17%, he said.
He said in order to encourage use of smart / android phones –
custom duty would be reduced from Rs.1,000 to Rs.650 and import duty
was being reduced on mobile telecom products.

The finance minister said development of infrastructure and
energy had generally been neglected in the past, but the present
government had completely reversed that trend and today most of the
development budget was allocated for roads and communication
infrastructure, and energy.
He said infrastructure had been allocated 67% of the total
development outlay. The highest priority had been accorded to
transport and communication sector with an allocation of Rs 411
billion, including Rs 320 billion for national highways, Rs 43
billion for railways and Rs 44 billion for other projects,
including aviation schemes, he added.
The minister said the housing and population census was
currently underway after 19 years. Since youth under the age of
20 would continue to be the largest portion of the population,
therefore, the development plan was focused on development in
human and social capital, education, health, empowerment of
women, poverty alleviation, job creation and addressing
inequality, he added.
Ishaq Dar said being an energy deficient country, Pakistan
was unable to actualise its economic potential. By 2018, 10,000
MW of additional electricity, he said, would become part of the
national grid, he said.
He said in addition, financial close have taken place for
15,000 MW of electricity generation projects beyond 2018. In that
regard, the government, he said, was proposing Rs 401 billion
for power sector development, including investment of Rs 317
billion to be undertaken by WAPDA for the next year.
He said a new programme called `Energy for All’ was being
introduced with an initial outlay of Rs 12.5 billion.
He said Rs 76.5 billion had been allocated for the two LNG
based power plants in Balloki and Haveli Bahadurshah. Both the
projects would be completed during the year, and generate 2,400
MW electricity.
Similarly, Rs 54 billion and Rs 21 billion had been allocated
for Dasu Hydro Power project Phase-1 and Diamer Bhasha Dam – Lot 1
respectively, which would generate 4,500 MW electricity, he said.
He said for Neelum Jehlum Hydro Power Project, Rs 19.6 billion
had been earmarked, which would generate 969 MW electricity.
Dar said Rs 16.4 billion had been allocated for completing
fourth extension of Tarbela Hydel Power, which would generate 1,410
MW electricity while Rs 16.2 billion earmarked for installation
of 1,200 MW coal fired power plant in Jamshoro.
He said in addition, work on two Karachi nuclear power
projects with combined capability of 2,200 MW and Chashma Civil
Nuclear Power Plant with 600 MW capacity would continue.
In the past, he said, no significant investments had
been made in the areas of transmission and distribution, but now
emergent measures were being taken to rectify the situation.
Matiari-Lahore transmission line was being built, he added.

The minister said development of Gwadar was fundamental
to development of China-Pakistan Economic Corridor.
A comprehensive plan was being implemented for the road link
networks, expansion and modernisation of the airport, and
development of the area, he added.
He said under Gwadar master plan, new Gwadar
international airport, a 200-bed hospital, 200 MW power generation,
and desalination plant would be set up.
About CPEC projects, the minister said funds to the tune of
Rs.180 billion has been proposed for CPEC and its supporting
projects during the next financial year.
He said for fast track development in Special Areas, Rs.62
billion has been allocated. On the direction of the Prime Minister,
the development funds for Azad Jammu and Kashmir and Gilgit
Baltistan has been increased from Rs.25.75 billion in FY 2016-17 to
Rs.43.64 billion for the FY 2017-18 – which was a historic increase
of 69%, and Rs.26.9 billion were being allocated for Federally
Administered Tribal Areas (FATA).
Dar said Pakistan is a frontline state in the global war
against terror and as a nation we suffered heavy losses. “On behalf
of the Prime Minister, to recognise the brave sacrifices of the brave
pillar, I announce today that a 10% increase will be given on the
pay of all officers and Jawans as special allowance. This allowance
will be in addition to the increase in pay that will be announced”
he said.
The minister said over the past three years the government has
been paying Rs.90 to Rs.100 billion each year directly or indirectly
on military operations against terrorists. Directly for the spending
on military operations and indirectly on the rehabilitation, return,
reconstruction of the area, he said.
He said in this regard, the National Security Committee
recommended that 3% of Gross Divisible Pool should be allocated for
this national duty. However, he said this matter is under
discussion in the CCI and NFC.

The Finance Minister said to provide relief to the unemployed
youth, exemption from collection of advance tax on vehicles leased
under the Prime Ministers Youth Loan Scheme is proposed.
He said in order to provide relief on education expenses
which are unbearable for low income groups, individuals having
taxable income less than Rs. 1 million were given tax relief equal
to 5% of school fee up to Rs 60,000 per child per annum in the
Budget for 2016-17.
He said the threshold for availing deduction for education
expense was proposed to be enhanced upto taxable income of Rs 1.5
million per annum and this will provide added relief for medium
income groups.
He said at present every individual deriving income above Rs
500,000 was required to pay advance tax in four installments on the
basis of tax paid for the last tax year.
This threshold of Rs 500,000 is in place since 1st July 2010
and is now proposed to be enhanced to Rs.1, 000,000 in order to
facilitate small taxpayers, he added.
The minister said limit for importing raw material by
manufacturers through exemption from income tax at import stage is
proposed to be enhanced from 110% of the quantity imported in the
last year to 125% of the quantity imported in the last year to
promote industrial expansion and facilitate industry.
In the Budget of 2016-17 a limit of 5% of turnover was placed
for sale promotion expenses by pharmaceutical sector, he added.
The minister said that withholding tax rates are still on the
higher side and are therefore, proposed to be reduced Reduction from
3.5% to 2.5%.
There will be no reduction on the rates for non-filers, he
added.
Ishaq Dar said that on the demand of withholding agents they
are being granted the right to revise their withholding tax
statements in the case of any error or omission within 60 days of
filing the statement.
The minister said in the Budget for 2016-17 20% tax credit on
tax payable for enlistment in stock exchange was made available
for 2 years instead of 1 year.
He said in order to broaden the tax base and to encourage
compliance with tax laws, adjustable withholding tax at the rate of
1% on life insurance premium to be collected from non-filers was
introduced in the Budget for 2016-17.
This withholding tax is collectable only if annual premium is
not less than Rs 200,000. On the demand of the insurance sector the
basic limit is proposed to be enhanced to Rs.300,000, he added.

The Finance Minister said flat rate of 12.5% is proposed to
be enhanced to 15% flat rate- Reduced rates of tax for certain types
of dividend will remain unchanged.
Rates for dividend paid by mutual funds are also proposed to
be enhanced from existing 10% to 12.5% in line with the increase on
general dividend, he added.
He said rationalization of Slab Rates for Interest Income-
Interest income is subject to progressive rates of 10%, 12.5% and
15% for interest income upto Rs. 25 million, between Rs 25 million
and Rs. 50 million and above Rs. 50 million respectively.
He said it is proposed to maintain the existing rates but the
slabs on which they are to be made applicable are proposed to be
changed to upto Rs. 5 million, between Rs. 5 to Rs. 25 million and
above Rs. 25 million respectively.
He said this will increase progressivity of the taxation of
interest income and make the taxation more equitable.
The minister said the existing three tier rate structure for
capital gain tax on securities is proposed to be replaced
with a single rate of 15% for filers and 20% for non-filers for
simplification and promotion of stock market transactions.
This will remove the incentive for holding the securities for longer
periods just to reduce incidence of taxation and promote the
transactions in stock exchange, he added.
He said currently tax credit @ 3% of tax liability is
available to all manufacturers who make 90% of their sales to Sales
Tax registered persons.
It is proposed to withdraw this tax credit as it has not
achieved its desired objectives and is being used a means of getting
tax break of 3% without any consequent benefit in the form
of increase of sales tax registration, he added.
The minister said in the budget for the financial year 2015-16
a tax on the income of the affluent and rich individuals,
association of persons and companies earning income above Rs. 500
million at a rate of 4% of income for banking companies and 3% of
income for all others was levied.
He said the government in an attempt to ensure that the small
shareholders get return on their investments and to protect interest
of shareholders by encouraging companies to distribute dividend,
through budget 2015-16 made an amendment in Income Tax Ordinance
2001.
He said Presently, there is exemption from tax on
undistributed reserves if the lesser of at least 40% of after tax
profit or; 50% of the paid up capital, is distributed as
dividend.
He said SECP has pointed out that the latter condition of
distributing 50% of the paid up capital has minimized the
effectiveness of this provision and the desired objectives are not
being achieved.
The minister said the government has progressively reduced the
rate of Corporate Tax to encourage the taxpayers to declare their
actual profits. However, it has been observed that profit
declarations have not improved and a large number of companies and
other businesses are still paying only minimum tax on their
turnover, he said.
He said the rate of minimum tax on turnover is proposed to be
increased from1% to 1.25%. This will encourage the organized and
compliant sector in whose case the rate will be reduced from 31% to
30% and to create disincentive for entities not declaring their
actual profits, he added.

Mohammad Ishaq Dar said on the recommendation of association of
builders and developers and in order to bring this sector in to tax
net and to eliminate disputes a final tax regime on the basis of
fixed tax per unit area was announced for builders and land
developers in the last budget but it failed to achieve the desired
results and is proposed to be withdrawn.
He said at present withholding tax at the rate of 0.5% is to
be collected by dealers, distributors and wholesalers of electronics
at the time of sale to retailers.
On the demand of Electronics Retailers Association the rate is
being increased to 1%, he added.
He said the government on the demand of taxpayers introduced the
policy of higher rates of withholding tax
for non-filers in order to penalize the persons staying out of tax
net and to provide an incentive for joining the tax net.
The policy paid dividends and the number of return filers
increased from 750,000 to 1,225,000 in three years, he added.
As a continuation and further strengthening of the policy, the
rates of withholding taxes for non-filers on payments received for
contracts, supplies and services, payments to non-residents, rental
income, prizes on prize bonds and lotteries, commission, sale by
auction, collection on gas bill of CNG stations and sale by
manufacturers and commercial importers to distributors, dealers and
wholesalers are proposed to be further enhanced, he said.
He said the withholding tax rates for filers will be
maintained and there will be no increase for filers.
The Minister said withdrawal of extra tax @ 2% on lubricating
oils supplied by Oil Marketing Companies is proposed to prevent
hardship to businesses purchasing lubricating oils.
In order to promote use of energy efficient motor vehicles
the reduced rates of sales tax available at import stage are
proposed to be made applicable on local supply of these vehicles as
well, he added.
He said it is proposed to provide for automatic stay of the
amount of sales tax involved in an order that is the subject matter
of an appeal till the decision of Commissioner (Appeals) subject to
payment of 25% of the principal amount.
This relief will be also available for recovery of Federal
Excise duty, he said.