June 11, 2013

SHADOW

FEDERAL BUDGET 2013-2014

11

SHADOW

FEDERAL BUDGET 2013-2014

The ultimate objective and goal of the Shadow Budget is to provide a sustainable growth model:

A step toward Poverty Alleviation, improving sustenance level for common man, Reducing Prices for Essential Items including transportation, petrol, utilities; Reducing Unit Cost of Production for improving Exports Competitiveness; Resolving Energy Shortages and settling of Circular Debt for ever; Incentive for Investment, Industrialization, that leads to Growth; Creating further opportunities for Employment; and Providing support for Food and Energy.

SHADOW

FEDERAL BUDGET 2013-2014

MAJOR PROPOSALS:

Income from all sources, above the taxable limit be taxed; Reduction in sales tax rate from 16% to 10%; Reduction of maximum duty rate on imports to 10-15% with a minimum of 5%; exception only with the approval of parliament; No duty or sales tax on machinery and raw materials essential for industries; Abolition of Petroleum Levy; Reduction in the basic Discount Rate from 10.5 % to 9%; Reduction of Federal Government Expenditures; Improving governance of Public Sector Enterprises [PSE], prevent their hemorrhaging and assign a role to private sector in public private partnership model; and Reducing the prices of utilities (gas and electricity) for common man also resulting in reduction in cost of doing business.

SHADOW

FEDERAL BUDGET 2013-2014

MAJOR PROPOSALS:

Reducing corruption and improving efficiency of Federal Board of Revenue [FBR]; Providing Food and Energy Subsidy and settling of the circular debt; Availability of uninterrupted energy supply for industries; Diversification of energy sources such as greater use of coal and also including alternates such as solar / wind / ocean; Reducing abuse of Afghan Transit Trade, Under-invoicing and curbing smuggling Pakistan; Social sector and human resource development on fast track through big investment; Infrastructure development in primary and secondary cities on war footing basis to make them engines of growth particularly mass transit programmes for metropolitan city; Promotion of organized micro-finance sector, venture capital financing, cooperative marketing, agricultural reforms, small medium enterprises, labor intensive and value addition industries etc.

SHADOW

FEDERAL BUDGET 2013-2014

MAJOR PROPOSALS:

Assigning a greater role to the overseas Pakistanis in the fast and sustainable economic development of Pakistan, for example creating public private partnership models with overseas Pakistanis in housing sector including low cost housing schemes, establishment of IT parks, industrial zones, technology cities etc;

Improvement of security environment through resource mobilization and grater participation of local governments and communities,

Carving out a greater role of for local governments in the economic development increase the minimum wages for workers to Rs 15,000; and

Increase the salaries and pension for government employees by 15%.

FEDERAL BUDGET 2013-2014

SHADOW

EFFECTS OF PROPOSALS

Reduction in prices of petroleum due to decrease in sales tax rate and abolition of Petroleum levy. Approximate reduction of 20 percent. Reducing inflationary pressure Inflation is effectively Cost-pushed. Reduction in petrol price and sale tax will reduce that pressure. Reduction in cost of government borrowings and cost of Government borrowings due to increased revenue and decrease discount rate. Mitigation of Energy Crises because of Special Subsidy for Energy Sector. Possibility of settling Circular Debt and closing chances of its recurrence.

FEDERAL BUDGET 2013-2014

SHADOW

EFFECTS OF PROPOSALS

Promotion of Industry due to easy and cheaper availability of credit due to reduction of discount rate from 12 to 10 percent, Availability of energy due to resolution of Circular debts. Improving Equity in Taxation System by increasing the direct and indirect taxes ratio [48:52 from 36:65]. Saving of losses from Public Sector Enterprise. Availability of basic food to poor people at subsidized rates.

SHADOW

FEDERAL BUDGET 2013-2014

FEDERAL GOVERNMENT RECEIPTS WHERE THE MONEY SHOULD COME FROM

WHERE THE MONEY COMES FROM

SHADOW

FEDERAL BUDGET 2013-2014

FEDERAL GOVERNMENT EXPENDITURE

WHERE THE MONEY GOES

WHERE THE MONEY SHOULD GO

FEDERAL BUDGET 2012-2013 [PROJECTED 2013-2014]

2012-2013
Federal B udget Government of Pakistan

Rupees in Billion

2012-2013 Shadow Budget

%

2013-2014 Shadow Budget

%

As per Budget Document

Proposed

Proposed

Revenue Receipt [Note 1] Public account receipt (net) Total receipts Less: Transfer to Provinces Net revenue receipts Expenditure [Note 5] - Current expenditure on revenue account - Current expenditure on capital account - Development expenditure [Note 5.2]

(Table A) (Table A)

3,234 188 3,422

1 00% 43%

3,530 200 3,730 (1,550) 2,180 2,185 70 2,255 500 2,755 (575)
1 00% 42%

3,875 200 4,075 (1,710) 2,365 2,370 70 2,440 650 3090 (725)
1 00% 42%

(Table A)

(1,459) 1,963 2,612 63 2,675 591 3,266 (1,303)

78% 1 7% 95% 38%

60% 1 3% 74% 1 5%

60% 1 6% 76% 1 8%

(Table B)

Deficit

- Domestic debts non-bank - Domestic debts banks - Foreign debt - Surplus from provinces
(Table A)

353 484 387 79 1,303

200 300 75 575

250 400 75 725

FEDERAL BUDGET 2012-2013 [PROJECTED 2013-2014]

REVENUE RECEIPTS [NOTE 1]
2012-2013 As per Budget Document
%

Rupees in Billion

2012-2013 Shadow Budget Puroposed

%

2013-2014 Shadow Budget Puroposed

%

Tax Revenues Direct Taxes Income Taxes Indirect Taxes Custom Duty Sales Tax Federal Excise Duty Petroleum levy & others

932

35%

1,255

46%

1450

48%

248 1,077 125 122 1,572 2,504

65% 1 00%

325 970 200 1,495 2,750

54% 1 00%

325 1,050 200 1,575 3,025

52% 1 00%

Non Tax Revenue Income from property & enterprise Receipts from Civil administration & others - SBP Profit - Others TOTAL REVENUE CURRENT ACCOUNT

179

300

325

200 351 730 3,234

180 300 780 3,530

200 325 850 3,875

NOTE 2
FEDERAL BUDGET 2012-2013 [PROJECTED 2013-2014] RECONCILIATION OF 2012-2013 WITH PROJECTED Rupees in Billion

BUDGETED COLLECTION (NOTE 2.1) Normal Increase due to inflation and expected growth (Inflation 10.5%; Expected Growth 3%)

932 118 1,050

ADDITIONAL / UNEXPLORED SOURCES Agriculture income tax [collected through Federal mechanism] Tax on Agricultural Trading (Arthis) Improvement in Tax Collection due to correction in Afghan Transit Trade, Under invoicing of other and smuggling Improvement in monitoring, broadening the tax base and elimination of tax evasion due to corruption 100 50 50 200 400 1,450

TOTAL

NOTE 2.1 FEDERAL BUDGET 2012-2013 [PROJECTED 2013-2014] RECONCILIATION OF 2012-2013 WITH PROJECTED
Composition of collection of Income Tax (Estimated) Rupees in Billion

2012-2013

2013-2014 627 269 107 116 330 1450

Taxes from corporate sector Taxes at import stage Salaried class Agriculture Other sources

543 233 93 100 286 1255

NOTE 3 FEDERAL BUDGET 2012-2013 [PROJECTED 2013-2014] RECONCILIATION OF 2012-2013 WITH PROJECTED
CUSTOMS DUTY
Abolition of SRO culture, Duty exemptions and abuse of SRO to be curtailed. [In the country inspite of higher rates of duty, the effective rate of duty is 5 per cent]. Duty slabs be rationalized with minimum of 5 percent and maximum of 10 to 15 percent [maintaining cascading principle]. Any exception to be approved by the parliament. Reconciliation of actual and proposed is as under: Actual 248 Rupees in Billion

Increase @ 15% [Rs 248 + 15 percent] 37 235 Correction in Afghan Transit Trade Correction is under invoicing Curtailment of abuse of DTRE 30 20 10 30

Correction of abuse of zero-rating and SRO culture 90 325

NOTE 4
FEDERAL BUDGET 2012-2013 [PROJECTED 2013-2014] REDUCTION OF SALES TAX RATE TO 12 PERCENT SALES TAX BUDGET 2013-2014 FORECAST Rupees in Billion 1 2 Sales Tax Present Rate 16% All essential commodities subject to sales tax; direct burden on common man; 3 4 Collection 2012-2013 Proposal Reduce Sales Tax Rate from 16 to 10 percent Improve Collection System Projected calculation 1,077 x 10 / 16 Add: 15 per cent growth = 673 101 774 Rs 1,077 billion

Increase in Sales Tax collection on account of checks on Afghan Transit Trade, under invoicing, DTRE Curtailment of abuse of input tax on account of lowering the rate Sales Tax: (i) on services (ii) retail and wholesale trade Improvement in monitoring, broadening the tax base and elimination of evasion of tax due to corruption

60

70

45 31

70 1050

NOTE 5
FEDERAL BUDGET 2012-2013 [PROJECTED 2013-2014] EXPENDITURE Rupees in Billion

2012-2013 As per Budget Document % CURRENT EXPENDITURE ON REVENUE ACCOUNT (1) Debt Servicing Local (Note 6) Foreign: Interest Repayment of debt 846 80 216 1,142 545 521

2012-2013
Shadow Budge t Proposed

2013-2014
Shadow Budge t Proposed

750

800

36% 17% 17%

250 1,000 450 500

36% 16% 18%

275 1075 500 500

35% 16% 16%

(2) Defence Expenditure (3) Subsidies / Transfers / Gra nts [note 5.1] (4) Federal Government Expenses Public Order & Safety: Police Others Pension Education Affairs & Services Economic Affairs General Public Service & Others

85 15 104

55 5 100

69 6 126

45 65

25 25

31 31

90 404 2,612

13%

25 235 2,185

9%

31 295 2370

9%

CURRENT EXPENDITURE ON CAPITAL ACCOUNT

69 2,681

2%

70 2,255

3%

70 2440

3%

DEVELOPMENT EXPENDITURE [Note 5.2]

451 3,132

14% 100%

500 2,755

18% 100%

650 3,090

21% 100%

SHADOW FEDERAL BUDGET NOTE 5.1 SUBSIDIES AND GRANTS

Rupees in billion

Proposed

2012-2013

2013-2014

Subsidy: Energy subsidy Food and fertilizer support 250 150 400

Subsidy: Energy subsidy Food and fertilizer support 250 150 400

Grants: AJK Gilgit Baltistan Baluchistan Railway Others 20 10 20 25 25

Grants: AJK Gilgit Baltistan Baluchistan Railway Others 20 10 20 25 25

100 500

100 500

SHADOW FEDERAL BUDGET

DEVELOPMENT EXPENDITURE (PSDP & NON PSDP) NOTE 5.2

Rupe es in billion 2012-2013 2013-2014

PSDP Various Federal Ministries or organisations (This includes Rs 36 million for Ministry of Water & Power) (Table C) WAPDA National Highway Authority Peoples W ork Program 1 Peoples W ork Program 2 Special Areas AJK Gilgit Baltistan FATA ERRA Outside PSDP Benazir Income Support Program [BISP] Zulfiquar Ali Bhutto Income Generation Program (a) Funds to be utilized for other productive and essential PSDP e.g. Water, Energy and Higher Eduction Special infrastructure and security development projects for mega cities e.g. Mass Transit System 30 20 50 250 30 20 50 250 150 100 100

(NHA) 5 28

40

40

25

25

11 7 10

25 10 200

25 10 200

(b)

500

650

NOTE 6

FEDERAL BUDGET RECONCILIATION OF NATIONAL DEBT AND DEBT SERVICING

SHADOW
Rupees in Billion Foreign Debt approximate -. US 60 billion @ 98 Local debt - bank and non-bank debt (Estimated) 5,880 6,500 12,380

Cost of Servicing: Foreign debt : Average rate 3% - 60 US$ @ 3% x 98 Local debt servicing 6500 x 9.5% (Average) 176 624 800

NOTE 6.1 SHADOW

FEDERAL BUDGET
US$ US$ US$ 42 billion 4.2 billion 2 billion

Total Imports Estimated under invoiced imports Afghan Transit Trade Duty and Taxes Evaded Custom duty Sales Tax Income tax withholding 10 16 5 31 % % % %

US$ US$

4.2x31%x98=Rs 127 billion 2x31%x98= 61 billion 188 billion