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Economic & Business Review [Monday, June 22,
2009 ]
Addressing fiscal anomalies
By A.B. Shahid
Monday, 22 Jun, 2009 | 03:19 AM PST |
Taxpayer response to several taxes andprocedural change clauses in the Finance Bill 2009
has been harsh. Already, the government has
promised to withdraw or soften their impact.
But the big worry is the governments over-
reliance on debt. According to the Advisor on
Finance, external debt (including $3.6bn lent byIMF thus far) is now $50.1 billion. Another $4
billion would be borrowed from the IMF as per
the current agreement raising the debt to $54.1
billion. After repaying nearly $3.6 billion during
FY10, the debt could come down to $50.5 billion
but would still be higher than its June 2009 level.
Suspecting the fiscal deficit to exceed the planned
Rs722 billion, and fearing delay in or non-receipt
of aid promised by FoDP, Mr Shaukat Tarin is
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advocating a new $4.5 billion IMF facility. This
loan could inflate the external debt to $55.5 billion
or Rs4.60 trillion (at Rs81/$). Whether this option
will be exercised despite receiving a total of $1.8billion in aid from the US after the passage of the
Kerry-Lugar, is unclear.
The domestic debt is now Rs3.72 trillion. After the
budgeted borrowing of Rs458 billion and planned
repayment of Rs300 billion in FY10, this debt will
exceed Rs3.88 trillion. Thus, the total debt (Rs8.48
trillion) would form 58 per cent of the Rs14.58
trillion GDP inclusive of the 3.3 per cent growth
expected in FY10. The total debt, and external
debt therein (even at Rs81/$) exceeding the
domestic debt by 18 per cent, are worrisome
prospects.
Yet, nothing significant was proposed to mobilise
domestic resources. Ten per
cent tax on profit from all types of savings a
disincentive will continue. Atop thereof, the
budget didnt offer incentives to expatiatePakistanis to shift their foreign currency deposits
to Pakistan although, at present, profit rates on
foreign currency deposits inclusive of a premium
could be the cheapest source.
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The lopsided Finance Bill makes the 3.3 per cent
GDP growth and a slowdown in the rupees slide
very uncertain. The major deficiencies of the billare not taxing the sectors that have the capacity for
paying, but taxing commodities/sectors whose tax-
inflated prices will have a snowballing effect that
could thwart all attempts at lowering inflation and
stabilizing the rupee.
The most worrisome is the carbon tax on
petroleum products (even if CNG is exempted
from it) and a 10 per cent hike in power rates.
These tax increases will push up the price of
almost everything since, in one way or another,
energy forms a part of their cost as does the costof transporting them to consumer markets. Such
tax hikes have served as a cover for unchecked
profiteering by distribution channels that have
been fuelling inflation.
A key option exercised for increasing exports is to
allow faster depreciation (90 per cent in the firstyear) on power generation equipment that
exporters must buy to run their factories full-time.
But given the steady depreciation of the rupee and
high mark-up rates, exporters cant benefit from
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it. What they need is uninterrupted power supply,
which the state cant promise.
Export indenters (who market for export orders)must now pay five per cent tax on their earnings
compared to one per cent at present. How will this
nudge them to get more export orders is
anybodys guess. Exporters utilise a lot of the non-
fund-based banking services on which Federal
Excise Duty has been raised to 16 from 10 per
cent. Both export indenters and banks will pass
their new tax load on to exporters.
Doing away with minimum tax and requiring
trading houses to submit tax returns for assessing
the final tax liability has caused a storm because it
accompanies organisational re-structuring of theFBR that empowers Income Tax Commissioners
(ITCs) with extended authority for fixing tax
liabilities. Changes in the timeframes for settling
tax disputes made this move more questionable.
Earlier, appeals had to be settled within 120 days
from the end of the month in which they werefiled. If a decision wasnt taken within 150 days
thereafter, the taxpayers position was deemed as
accepted. Taxpayers only had to send a reminder
during the last 30 days. Now the 120-day period
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will start from the date the petition is filed but if a
decision isnt taken within 120 days thereof, the
taxpayer must keep waiting for it.
Time frame for disposal of refund applications has
been increased from 45 days to 50 days.
Appointment of Alternative Dispute Resolution
committees will now take 60 instead of 30 days.
But the new profile of the appellate tribunals is
the oddest; these courts will now be presided over
by ITCs. No longer will an accountant, a judicial
officer and the ITC sit on the bench.
Banking sectors demand for tax relief on loan
losses has virtually been ignored. The relief is one
per cent of the classified loans, which was earlier
construed as one per cent of total loan portfolios.Both bases are unfair because one per cent of even
the total loan portfolio would be grossly short of
the banking sectors NPLs that now form 11.3 per
cent of the total outstanding credit.
The claim that the relief is in line with SBP
Prudential Regulations is misleading. The virtualabsence of tax relief on NPLs classified in the loss
category (i.e. overdue by two years) will adversely
impact the banking sector. According to Ford
Rhodes Sidat Hyder & Co., denial of the sectors
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valid tax relief demand potentially challenges the
continuity of some banks.
While the upper limit for tax exemption of salaryincome has been raised to Rs0.2 million, those
earning over Rs8,650,000 a year will still be taxed
at a paltry 20 per cent. In sharp contrast thereto,
non-salary earning individuals getting anything
over Rs1.3 million in a year will be taxed at 25 per
cent. But, salaried taxpayers will have to pay a tax
retrospectively (i.e. on their 2008-09 earnings) to
assist in IDP rehabilitation.
Teachers/researchers employed by non-profit
institutions or institutions approved by a Board of
Education, University or HEC, or serving in
governments research institutions were earlierentitled to 75 per cent relief in their tax liability.
That relief has now been cut to 50 per cent. How
much revenue this cut will generate was not
disclosed in the budget.
Despite all this, income tax on retail, wholesale
and corporate sectors, share-trading, and realestate remains unchanged. Income from
agriculture stays tax exempt. In a post-budget
seminar in Lahore on June 17, the Advisor on
Finance admitted that some of the anomalies in
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the budget and the Finance Bill escaped his
attention, and promised to redress them; lets
hope he does so.
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Budget a non-event for industry
By Nasir Jamal
Monday, 22 Jun, 2009 | 03:19 AM PST |
The industry is unhappy with the government for
failing to reduce the cost of doing business, seen as
the key to industrial revival and for reinstating
minimum income tax in the federal budget 2009-
10.
The budget contains nothing substantial for the
industry. Things must get worse before they
improve, notes Almas Haider, a leading
manufacturer based in Lahore.
He forecasts more industrial closures and joblosses over the next one year. The heavily
indebted units incurring losses must close down.
The government would spring into action only
when things get out of its control, he says.
The federal government is looking for moderateeconomic recovery during the next financial year.
It projects gross domestic (GDP) to grow to 3.3
from the current years two per cent. Agricultural
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growth will slow down to 3.8 from 4.7 per cent.
Industry is projected to grow by 1.8 from -3.3 per
cent besides some improvement in the services
sector.
Analysts feel that the GDP growth projection is
quite realistic in view of structural rigidities in
the economy like energy crunch.
The economic growth revival largely hinges on
the performance of the manufacturing sector and
security environment, Mohammad Imran Khan,
a Karachi-based analyst says.
The government has announced setting up of a
Rs40 billion Export Investment Support Fund
(EISF) to rev up industrial production. But it hasyet to formulate its modalities.
The EISF money is likely to go into long-term
projects like the establishment of warehousing
facilities, colleges, etc. Allocation of Rs32 billion
for the textile sector in the EISF is not enough.
The industry needs immediate, direct support toreduce its cost of doing business, All Pakistan
Textile Mills Association (Aptma) chairman Tariq
Mahmood argues.
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Though the budget carries a few steps to slash the
cost of car makers and cement producers, it has
little to offer to the textile industry, which earns
nearly 60 per cent of export revenue andcontributes nine per cent to GDP and is the largest
single employer of non-farm labour.
The value-added, downstream textile producers
were expecting cash subsidy in the form of
research & development (R&D) allowance. But no
allocation is made for that in the budget. Besides,
the amount allocated for three per cent subsidy on
interest rates for spinning has been cut to Rs500
million from Rs810 million. The budget abolishes
federal excise duty (FED) on imported viscose
staple fibre but it is going to leave negligible impact
on the industry.The key issue of 4.5 per cent dutyon the import of polyester staple fibre to protect
local manufacturers continues to plague the
spinning industry.
The soaring power and gas tariffs are likely to put
additional burden on the industry and squeeze the
gross margins of the industry, says Imran. He is ofthe view that structural imbalances including
power crunch will continue to hamper efforts for
industrial revival.
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Analysts expect the textile industry to remain under
pressure on account of higher
cost of business as well as contraction in domesticand global demand.
Not only that the government hasnt given the
industry, it has re-imposed minimum (turnover)
tax (0.5 per cent on local sales and one per cent on
exports) on all producers no matter whether they
are incurring losses or making profit. I will have
to pay around Rs5 to Rs6 million tax although I
am accumulating losses and also face harassment
at the hands of the tax collectors, says a spinner.
The government had removed the condition to pay
minimum tax in the outgoing years budget. It hasostensibly been brought back with a view to shore
up tax revenue to 9.6 per cent from nine per cent
this year.
The return of minimum tax amounts to
penalising exports, Tariq says. We dont yet
know if the government intends to actually helpthe industry and exporters in the present
transition from loss to stabilisation and
profitability.
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He, however, is glad that the government has taken
important step to stall smuggling of textiles from
China.
Ijaz Khokhar, a readymade garments exporter
from Sialkot, is critical of the government for
failing to stop the rot in the manufacturing.
Instead of picking Fatas unpaid electricity bills
of Rs80 billion, the government should have
pumped this money into the industry and exports
for quicker economic revival, he argues.
He does not see industrial revival in the short-
term and predicts the conditions to worsen in the
months to come. There is little likelihood of any
increase in exports even next year, says Ijaz.
Almas is of the view that interest rates must be
reduced to spur industrial growth and overcome
the economic woes. You can also control inflation
by improving supply side chain, he says. But the
industrial revival is not a priority with the
government, he complains. Imran says the
government would not be able to bring downcredit cost substantially because of International
Monetary Fund conditions.
Leading Lahore-based builder Akber Sheikh does
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not see the reduction of federal excise on cement
by Rs200 per tonne to Rs700 to spur construction.
Cement producers had already raised their price
by Rs15 per bag in anticipation of this reduction.So what impact will it create even if now they
reduce the price by Rs10 per bag?, he asks.
But the analysts say the public sector spending on
infrastructure development -- construction of
dam, power projects, buildings, etc, and
rehabilitation of internally displaced persons
(IDPs) would help spur construction activity and
boost industrial growth.
Car industry is glad on the fiscal incentives for it.
I hope the reduction in car prices will go a long
way in stimulating sales. But the governmentshould also have forced assemblers to increase
localisation of parts to support the auto vendor,
notes Nabeel Hashmi, an auto vendor.
Imran says overall the budget has been a non-
event for the industry, which requires government
help, removal of bottlenecks related toinfrastructure, and a long-term policy to make it
competitive if it must revive.
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Poverty reduction: rhetoric and the reality
She neatly braided hair of her daughter, Marium,10. Shahinas two toddlers sat in her lap and the
rest of three children were twisting and turning on
the Ralli (padded bed sheet) spread on the
footpath, on a bright June Karachi morning.
What drove her family out of the privacy of home
on a street? Answer is: abject poverty.
Her husband claims to be a motorcycle mechanic.
The family migrated to Karachi from Multan last
year and has been living on the side path next to
Zamzama Park at Neelum Colony in Karachi.
Jewa, the mechanic told Dawn that his unsteadylow income has forced him to migrate and live off
road. He had to also to give away one of his
daughters who was fussy. It was not clear if the
child was sold or given in care of a prosperous
family.
Jevas family has been surviving for the last abouta year on generosity of the residents of the
locality. He was not willing to leave the place and
move to some shanty settlement where his equals
live as it would deprive him of alms and material
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help that he manages here to sustain his big family
of small children. Where even bare sustenance is
uncertain, education cannot be on agenda. The
health and hygiene of the family is up to thereaders to imagine.
This is a perfect example how economic hardships
render even a semi-skilled worker, who could
have been supporting his family, into a parasite
living off on others fruits of labour.
The poverty survey is not out as yet but the IFIs
estimated poverty has risen by over 10 per cent in
just last two years falling anywhere between 33 to
36 per cent. It makes up over fifty million people.
The allocation to poverty related programme atconsolidated Rs245 billion (BISP Rs70 billion,
IDPs Rs50 billion, health 30 billion, education
Rs61 billion, population welfare Rs4 billion) in a
federal budget of Rs2.48 trillion is a pittance of
what is required to address the issues of social
exclusion.
The misguided stabilisation strategy in a
shrinking economy, pursued in 2008-09 under
IMF tutelage drove thousands like Jeva out of
their homes and in the streets to suffer.
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The government does not contest that poverty is
increasing. Over the last two years, people were
retrenched in thousands from shrinking industrialand other business concerns.. .
The self-employed petty workers such as small
time mechanics, tuition teachers, beauticians, etc
are unable to cope with rising costs and declining
demand for their services joined the swelling
numbers of unemployed. People had to pull their
children out from many small private schools
which were closed.
Workers lost jobs in construction activities; media
workers settled for half their wages as media
houses readjusted with fall in advertisingrevenues; hundreds of lower staff was driven out
of brokerage houses and mutual fund industry.
Young and educated mounted a search for
patrons in political parties as their friends and
relatives failed to find them placement. If crime
rate has increased, you need not look far for anexplanation.
Shaukat Tarin, de facto finance minister, in the
post- budget press conference, said: There is
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special focus on social sector development and
poverty alleviation and the government is
planning to enhance expenditure on education,
health and infrastructure development. We aredevising a strategy to increase budget to health
and education sector to about 7-8 per cent of the
GDP during the next five years. The support
offered by the friends of democratic Pakistan
would be spent on these sectors.
Tarin blamed the last regime for irresponsible
behaviour that aggravated macro economic
challenges for the current government. He
mentioned global economic crisis particularly
commodity and oil price escalation for added woes
of economic managers who were forced to slash
development spending to achieve stability. Theadvisor boasted of his policies that reigned in the
trend of rising inflation and controlling deficits
beside apt agriculture pricing mechanism that led
the sector to perform better than expected.
He and his advisors had no explanation why less
than appropriate allocations were made for socialsector. They avoided giving out the comparable
measure of allocations to the social sector in the
budget.
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The budget speech of Hina Rabbani Khar or the
budget brief provided to the media did not show
the allocations as percentage of GDP.
The advisor was not able to give a satisfactory
reply to a question on the Millennium
Development Goals that failed to find even passing
reference in the budget.
In the absence of progress report, no one can tell
where the country stands against bench marks set
for the last three years. It is not so difficult to
guess though. Pakistan was at the bottom among
its peers in the region when the economy was
growing at six per cent and above.
The last millennium report assessed progress vis avis goals and targets made in the year 2006. The
queries made by Dawn revealed that the
democratic government rendered the Centre for
Research on Poverty Reduction and Income
Distribution, a project under the Planning
Commission redundant by replacing the staff with
a set of political appointees who have not beenable to bring out a single report.
It is not wise to undermine the power of an
informed mass of people. It is nave to try to test
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their patience by ignoring their concerns
indefinitely. No power intrigues worked. In the
end it was the street power that clinched the
reigns of government from the military rule andpassed it on to an elected dispensation, said a
political economist.
People displayed great restraint and endured
pain all through 2008-09 to give the democratic
government a chance to right the wrongs. The
democratic goodwill, however, must not be taken
for granted. There is need for Gilani government
to display greater sensitivity to the problems faced
by the multitude. If people can install a
government they can also bulldoze it concluded
the commentator.
The senior government functionaries find the
analysis too harsh on a government struggling
with worsening security situation and a still
harsher international economic environment. It
is easy to trash all efforts of the government but
difficult to deliver under constraints that the
democratic government works. Yes allocation tothe social sector might not be enough but low
inflation will improve the purchasing capacity of
poor families and transparent system of
distribution of Rs1000 to deserving marginalised
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families will provide some relief, a PPP
parliamentarian asserted.
Let the growth pick up and you will see that thequality of our governance will be better than that
of the government of Musharraf-Shauket Aziz
that excluded the majority from benefits of
growth, said another Jiala.
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Upgrading farmer service centres
By Tahir Ali
Monday, 22 Jun, 2009 | 03:18 AM PST |
To increase productivity and income of farmers,
the NWFP government launched farmer service
centres (FSCs) a few years ago.
FSC is an organisation of the farmers for thefarmers by the farmers. It creates linkages
between farmers and public/private line
departments and associations and aims at the
capacity-building of farmers. The provincial
government has spent Rs255 millions so far on the
FSCs.
There are around 45,000 members of the FSCs.
Farmers can become FSC members after paying
an enrolment fee of Rs100 and a share-money of
Rs500 each. The government provides a matching
grant equal to the farmers share.
Against the minimum number of 200, the current
FSC membership ranges from 500 to 2,000. But
the overall FSC membership is very small
compared to 1.356 million farms in the province.
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Growers complain that the executive body (EB) of
the FSC is supposed to serve as a bridge between
the general body (GB) and the managementcommittee (MC), but interaction between them is
not a regular feature. In some areas, the GB and
EB members pursue their individual interests
which may weaken the system.
The MC is supposed to take all important
decisions but in effect, 75 per cent of all FSCs are
predominantly managed by agriculture officers
because of their final say in financial matters. This
goes against the FSC by-laws that provide
autonomy to these establishments.
In 2007, model farm services centres (MFSCs)were opened in each district of the NWFP. The
government provided Rs1 million endowment
funds to each entity. It also constructed a building
complex containing offices of all relevant
departments along with warehouse, equipment,
machinery, training and conference hall. A
president, invariably a farmer, heads the MFSC.
MFSCs have been built in 22 of 24 NWFP
districts. Kohistan is yet to have one while that of
Batagram is under construction. Unfortunately,
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those in Malakand division are non-functional
these days
The MFSC is registered under CooperativeSocieties Act. An official says the government
intends to enact a law to give sanctity and
credence to the entity and its resolutions.
The NWFP Project Director of MFSCs Rasool
Mohammad said the project was for a three-year
period and after that the MFSCs would be able to
run on their own. This objective will be obtained
through consultation and training of farmers, he
added.
He revealed that MFSCs provided 22,500 bags of
fertiliser at half of the market price to itsmembers last year when there was an acute
shortage of the commodity. Quality wheat seeds
and other inputs were also supplied on official
prices. These services are sources of income not
only for MFSCs but also save time, energy and
money of farmers besides expediting the pace of
work and services, he said.
He said seven departments agriculture extension,
agricultural research, water management, soil
conservation, cooperative inspector, water and soil
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testing, livestock/poultry and plant protection will
have offices in MFSCs and provide services
through MFSC under the same roof. Some
departments, he said, were yet to shift to theMFSCs.
Millions of rupees are available with the FSCs. If
these funds are spent judiciously with the
technical advice and expertise provided by the
government, it will go a long way in development
of agriculture in the province, he believed.Asif
Ali Jah, a farmer and president of MFSC
Haripur, told this scribe that the MFSC was a
revolutionary idea which, if expanded, would
solve agriculture-related problems.
We provided cheap inputs, modern machineryon rent and even interest free loans in form of
inputs that had 100 per cent recovery ratio. We
also provided fertiliser worth Rs1.8 millions last
year. We have also booked a large quantity of
DAP for the Kharif season, said Jah.
Out of the seventy per cent of Haripurs onemillion population were farmers, he said just
1,529 farmers had joined MFSC. Jah, however,
claimed that his was the only MFSC in NWFP
that had 70 female farmers as its registered
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members.
Jah demanded fertiliser dealership and setting up
of a provincial organisation for MFSCs. Smallprojects for value addition should be planned and
specialists in various fields, like poultry in
Mansehra, should be nominated for all MFSCs.
Hafiz Minhajuddin, the president of MFSC Laki
Marwat said that farmers need quality inputs,
exposure to modern farming techniques and
machinery, and availability of credit support.
MFSC coordinates between growers and
government. It provides cheap agriculture inputs
and services. It provides farmers guidance and
marketing services for their outputs, which in-
turn, increases their incomes, said Minhaj.
Malik Jamshed, president of MFSC Mardan, said
MFSC provided wheat seeds last year at Rs1,600
per bag as against Rs2,200 market price. Member-
farmers were sold a bag of urea at Rs670, much
below its market price of around Rs1100.
He pleaded for processing and cold storage, seed
certification, soil and water testing facilities for
MFSCs. The government should give endowment
fund of Rs5 million to each MFSC for purchase of
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inputs and machinery. Maximum limit for
farmers from MFSC fund should be enlarged and
period of loan recovery extended. All departments
should be asked to cooperate.Jamshed demandedearly construction of cattle-farm and cattle-colony
in Mardan. The government has built a large
building for our MFSC. But it is agonising that all
departments except agricultural extension are yet
to join their offices in MFSC here, he lamented.
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Paltry allocation for agriculture
By Ahmad Fraz Khan
Monday, 22 Jun, 2009 | 03:18 AM PST |
THE allocation for agriculture in the Punjab
budget has been meagre. Of Rs175 billion annual
development plan (ADP), the agriculture got only
Rs3.2 billion. A mere 1.8 per cent of the overall
development outlay has been made for a sector,which forms 22 per cent of the provincial GDP,
provides around 45 per cent of employment and is
professed priority area of national and provincial
policy makers.
There is another way to look at importance of
agriculture. The sector yielded some 2.7 milliontons additional wheat this year, which, at current
price is worth Rs62 billion. It produced 0.5 million
tons extra rice some 3.7 million tons against
normal production of 3.2 million tons. These fours
cropswheat, rice, grain and maize--have
benefited the economy by Rs113 billion during lastsix months.
Punjab has fiscal space for development during
the coming year, which could have easily been
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diverted to development of farming had the
agriculture department better capacity to deliver.
Last years budgetary allocations and subsequent
spending show where the departmental capacitystands: out of the total budget of Rs3 billion, it
spent Rs1.6 billion. If the last years left over is
carried forward, the new allocation would stand
only at Rs1.8 billion.
Barring the importance of taking cotton to non-
traditional areas and growing it on pressurised
irrigation, which the department has advocated
and got money for it, one can argue that all other
major issues have been ignored.
Take the example of storage crisis which is
essential for safe stocks (read food security). Theprovince has 2.2 million tons of indoor, not
modern or temperature controlled, storage
capacity, whereas it needs at least seven million
tons of such storage capacity to ensure regulated
grain supply and buffer stocks. This year, it
purchased six million tons of wheat, four million
tons of which are lying in the open.
Given the changing weather pattern, with sudden
and heavy showers becoming a routine, even if one
million tons of wheat gets affected, it would cost
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on quick political gains rather than calm, cool,
calculated planning, especially when it comes to
agriculture.
Agriculture credit has always been a problem for
farmers in Punjab. The provincial government
has simply chosen to keep quiet on the issue
despite owning two banks the Bank of Punjab
and Punjab Cooperative Bank. There has been no
mention of the issue in the entire document.
Banking for agriculture is a commercial activity
because it entails no subsidy on mark-up. But it
contributes immensely to agricultural economy.
Nor has the government been able to re-direct
focus of the BoP towards agriculture.
Punjab has pathetic marketing infrastructure,
which is out of the budget focus. No money has
been spared for developing marketing network.
Its premier agency Punjab Agriculture
Marketing Company (Pamco) for developing
such infrastructure has not been able to perform
with three new heads in the last one year. It doesnot have even one project to its credit for the last
five years, nor has it developed any alternative
mechanism.
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An allocation of Rs1.2 billion for research augurs
well and one hopes that Punjab Agriculture
Research Board, which has not been able to
perform during the last two year, pulls its socksup this year. The government needs to ensure that
its money is well spent.
The repeat of subsidised tractor scheme is also
heart-warming for Punjab farmers. The
government distributed 10,000 tractors last year
and plans to distribute 10,000 this year at a cost of
Rs2 billion. Its transparent distribution helped
farm mechanisation..
Water management allocation (Rs10 billion),
though less than Rs11.5 billion last year, is still a
substantial amount and should he able to helpbetter water distribution in Punjab. The
government plans to spend 90 per cent of the
amount on on-going projects but it would
undertake eight new projects to improve
efficiency. Some 200 small dams in upper parts of
the province must be of great help at the local
level.
In final analysis, the provincial budget seems to be
run of the mill document, which tries to keep
the momentum of on-going schemes rather than
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breaking new ground. Tragedy with the provincial
agriculture, however, is that traditional methods
would not solve problems. It needs innovative
thinking, out of box solutions and sustained, long-term commitments. The proposed budget,
however, fails on all these accounts.
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Unfriendly environmental practices
By Mohammad Niaz
Monday, 22 Jun, 2009 | 03:18 AM PST |
Environmental profile is affected adversely by
unfriendly environmental practices. And the
increasing deforestation and pollution, depleting
biodiversity, desertification, over-exploitation of
natural resources, receding glacial phenomena,water scarcity, degrading ecosystems etc are
posing a huge challenge to sustainable farming
and economic development.
These factors are likely to increase the countrys
vulnerability to climate change. Severe pressure
on meagre resources will adversely impact foodproduction and livelihood of millions.
That climate change will affect water regimes,
water reserves, and pattern of rainfall. Their
effects on vegetation and crops will be profound
both in rain-fed conditions and the tropical zonein the country because of scarce water. In 1999
and 2000, the drought caused sharp decline in
water tables and dried up wetlands, severely
degrading ecosystems.
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The main source of water is the Indus River
system, one of the worlds largest contiguous
irrigation systems having associated ecosystems.This serves as a source of livelihood for millions of
people whether forest dependent communities in
the north, poor farmers and fishermen in the
Indus plains or fishing communities in the Indus
delta ecosystem. Changes in water flow will
degrade spawning streams.
The gradual glacier recession in the Himalayas is
projected to increase flooding within next two to
three decades followed by decreased river flows
up to 30 per cent to 40 per cent over a period of
five decades. This will dramatically cause
fluctuations in irrigation water with increasedsedimentation from the upstream.
Increased temperature and decreased
precipitation would register severe impacts on
water availability for crops with decreased crop
productivity and increased handling and
combating cost.
Mangroves constitute a significant part of coastal
biodiversity but besides continuous loss of
mangroves forest, the sea level rise due to global
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warming and climate change will cause salt water
inflows which will tender profound damage to the
mangroves and their rich fish breeding habitats.
This will have deep repercussions on theassociated flora and fauna besides adverse
impacts on livelihood of people.
Marine ecosystems would also come under threat
of coral bleaching, increased invasive species, and
ocean acidification.
Not only livestock sector but agriculture sector
would largely suffer from the impacts of climate
change.
According to an FAO estimate, agriculture
accounts for 24 per cent of world output, and uses40 per cent of land area (FAO 2003). The cereal
crops rice, wheat and maize make up 85 per cent
of world cereal exports, and are thought to be
particularly sensitive to climate change (FAO
2003).
Because of water scarcity and heat stress,agriculture is highly exposed to the effects of
climate change that will affect farm productivity.
There is likelihood that the cotton belt will shrink
and shift further north to cooler regions. The
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changed climatic scenario would affect planting
time, crop rotations with focus on new cropping
patterns and heat resistant crop varieties. With
decrease in rainfall by six per cent, net irrigationrequirements would increase by 29 per cent.
Reports indicate that decline in irrigated wheat
yield in semi-arid areas is expected to be in the
range of nine to 30 per cent for temperature
increases of one to four degree Celsius. Global
warming would have an impact on growing season
of plants and agriculture crops. There will be
shortened growing season length for wheat
(wheat-rice, and wheat-cotton, wheat-sugarcane
systems).
Dry land areas in arid and semi-arid regions aremost vulnerable to climate changes that would put
food security at a troubled threshold.
Because of the diversity in topography, soil type,
and climatic conditions, Pakistan supports a wide
variety of flora. However, due to biotic pressure
the natural forests are subjected to agriculturalexpansion, and other consumptive uses such as
fuel wood extraction, fodder collection, grazing of
livestock, and timber. Given these parameters of
social and economic nature, the climate change
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would further impact the forest products and
services and important tree species such as deodar
and fir would suffer great loss.
With increase in temperature and changes in
weather, graziers would move towards higher
altitude grazing grounds and pastures for grazing
of their livestock in summer. This would not only
cause depredation of livestock by predators but
competition for food would be more among
livestock and wildlife species.
In addition reports indicate that global warming
has caused shifting of vegetation zones to higher
elevations with significant threats to biodiversity
and ecosystems. With future global warming,
large forest areas in northern mountain areaswould shift from one biome to another. Conifers
of cold and temperate zone would show
northward shift, pushing against the cold
conifer/mixed woodland. Weedy species having
ecological tolerance will have an advantage over
others. High-elevation tree species such as Fir,
Acer, and Betula prevail in cold climates becauseof their adaptations to chilling winters. Increase in
temperature would not only result in competition
between such species and new arrivals but will
also reduce resilience of natural ecosystems and
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force migration of species through fragmented
habitat.
Flora and fauna having restricted ranges will alsoface increased threat of survival due to further
shrinking of forests and pastures, while changes in
precipitation will alter their structure. Climate
change would favour some invasive alien species
in different geographical zones..
Increased temperature would have large scale
effects on productivity, regeneration success, plant
growth, plant distribution, photosynthetic rates,
decomposition rates, incidence of fires, pest
outbreaks, diseases, and rate of mortality.
There is a great need to expand vegetation zone orgreen belts within the metropolitan cities and
towns that would not only help maintain
moderation in local or microclimate but it would
also help provide green spaces for recreation and
relaxation within the closed city environment.
That the climate change is an economic,developmental, and environmental problem, there
is a strong need for concerted efforts to adapt
strategies to mitigate climate change and
overcome environmental problems with a long-
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term approach.
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Punjab pledges lower borrowing
By Nasir Jamal
Monday, 22 Jun, 2009 | 03:17 AM PST |
In his budget speech Punjabs Finance Minister
Tanvir Ashraf Kaira pledged to reduce the
provinces reliance on foreign loans for its
development next fiscal year.
That represented a shift from the past and
reversal of the previous governments
development policies and strategy.
Well borrow Rs23 billion fewer this year as
compared to the last year, he had claimed. He
said the new coalition government of the PakistanMuslim League-Nawaz and the Pakistan Peoples
party led by Mian Shahbaz Sharif did not want to
add to the debt burden on the future generations.
But that was a year ago. Much water has already
flown from under the bridge.
Already into its second year in power, the
Shahbaz government has now decided to add at
least Rs34.6 billion to the provinces foreign debt
stock of Rs339.600 billion for financing its large
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annual development programme at Rs175 billion
next fiscal. Another Rs10.47 billion will come from
the federal government under the head of foreign
project assistance. But this amount, say officials, isreflected in the capital account as debt in the
following year.
The budgeted foreign assistance, a senior
provincial finance department official told Dawn,
would come from multilateral lenders, the World
Bank and the Asian Development Bank as
budgetary support for governance reforms ($145
million), education sector reforms programme
($110-120 million) and the millennium
development goals ($100 million). In addition, the
government is negotiating a $70-80 million loan
with the ADB for its urban sector developmentprogramme. The officials are hopeful of
concluding the deal in the next few months.
Besides obtaining foreign loans, the province
intends to raise another Rs12 billion from
domestic commercial banks. This loan will also
be used for specific economic projects, theofficial said.
The initiative, argue the keepers of the provincial
kitty in the White Paper for the financial year
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2009/10, to finance development projects through
borrowing reflects the resolve of the present
government to ensure intergenerational equity in
development expenditure, which requires that theusers of public goods should also pay for the
services and free current resources for social
sectors.
Few, if any, will disagree with the argument,
particularly when a government does not have
enough money to finance the huge development
needs of the people. The government must borrow
from all sources available to it to improve
economic infrastructure and provide quality
public services. The users do not mind paying for
the quality services.
But the problem is that governments try to show
these loans as their own resources and to conceal
the fact that these loans are used to finance budget
deficit. Thats why you did not find any mention
of these borrowings in the budget speech this
year, an analyst, who did not wish to give his
name, told this scribe..
He said the provincial government could actually
reduce its reliance on foreign loans for
development provided it developed a transparent,
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insecurity.
A deficit budget with an outlay of Rs214.181
billion for 2009-10, presented by Senior Ministerfor Planning and Development Rahimdad Khan in
the provincial assembly, envisages Rs51.156
billion for Annual Development Plan (ADP).
The revenue receipts are projected at Rs211
billion, almost 40 per cent higher than the revised
revenue receipts of the outgoing financial year.
Similarly, against the anticipated resource
availability, the estimated expenditures in the next
financial year will be Rs214.181 billion, reflecting
a deficit of Rs3 billion.
However, officials say the shortfall in revenue
would be much bigger than projected because the
15 per cent raise in pay and pension, announced
for public sector employees, has not been taken
into the account.
NWFP Secretary Finance Abdul Samad Khanconcedes that the impact of increase in salaries
and post-retirement remunerations, which comes
to Rs3.9 billion, has not been included in the
budget; that means the real deficit would be over
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Rs7 billion.
The budget deficit is likely to be still higher
because tax recoveries by the Federal Board ofRevenue (FBR), which forms federal divisible
pool, is not expected to grow as projected in the
federal budget that lead to lower transfers to the
provinces.
The provincial government, which drives almost
92 per cent resources from federal government
and foreign donors, has experienced a similar
situation this year as a shortfall of Rs4.36 billion
on account of federal proceeds has swelled the
deficit to Rs9.149 billion..
Besides, the ongoing conflict in the restiveMalakand region, which triggered a massive
displacement of over four million people has
added to the fiscal worries of the cash-strapped
province.
Expected mass exodus in the wake of military
operation in the adjoining South WaziristanAgency will multiply the financial woes and lead
to further contraction in revenue collection.
Of the total Rs211 billion revenue receipts, the
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contribution of the provinces own receipts (POR)
is merely three per cent.
The provincial tax collecting agencies despiteconsuming millions of rupees in the name of
reforms are still unable to increase the recovery of
PORs which are on the decline instead.
In the outgoing fiscal year, the recovery target for
PORs was Rs7.4 billion, but the data showed it
stood at Rs6.42 billion.
Law and order has been propagated as one of the
top priority areas by the incumbent coalition
government in the wake of fallout of ongoing
military operation in the Malakand region, but
the budgetary proposals are not commensuratewith the challenges the provincial government is
facing..
A sum of Rs11.48 billion has been set aside for the
public order and safety affairs, of which Rs9.67
billion would be spent on improving operational
capabilities of the police.
This amount will be spent on creation of special
elite force, incentives to be offered to the
constables and compensation to the heirs of police
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personnel killed in the line of duty.
The next year provincial budget carries a
developmental outlay of Rs51 billion, which isalmost 31 per cent higher than the outgoing fiscal
years figure.
Of which Rs32.54 billion would be spent on uplift
schemes being executed through provincial own
resources, Rs10 billion on federal projects, Rs5.74
billion on population welfare programme, Rs6.64
billion on foreign funded projects and Rs1.34
billion would be spent on uplift schemes to be
executed by the district and Tehsil governments.
However, execution of such an ambitious ADP is
still a big question mark keeping in view theimplementation capabilities of the line
departments. For example, the original ADP size
was Rs41.54 billion, whereas the revised estimate
put it at Rs39 billion.
Officials told Dawn that the Rs39 billion figure
was also exaggerated because the governmentsactual expenditures, as per the Civil Accounts,
showed utilisation of Rs17 billion as of May 31,
2009. This raises a question how the
implementation agencies would utilise Rs22 billion
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in the current month?
The relief measures include the setting up of a
Provincial Employment Fund with Rs500 millionfor extending soft loans to unemployed youth,
particularly from the rural areas. The main areas
of lending would be small cottage industry, food
processing industry, small scale trading, setting up
of shops and hotels and procuring tractors and
auto rickshaws.
All the government servants from grade 1 to 16
have been exempted from paying professional tax
with effect from July 1, while ratio of Unattractive
Area Allowance for government employees,
serving in Chitral and Kohistan districts has been
increased substantially.
Every displaced woman would be given Rs10,000
on giving birth in government camps. One year
fee and boarding expenses of the displaced college
and university students would also be borne by
the government.
The Finance Bill 2009 contains proposals for
increasing the revenues from different provincial
taxes and duties including property tax besides
bringing a number of new sectors into the tax net.
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The new sectors to be brought under professional
tax are restaurants, professional caterers, wedding
halls and chartered accountant firms. The move islikely to spark resentment from different
businesses and service providers, who are already
bearing the brunt of worsening law and order
situation.
President Sarhad Chamber of Commerce and
Industry (SCCI) Sharafat Ali Mubarik says the
upward revision of different taxes by the
provincial government would increase the
financial hardships of the business community.
The provincial government should curtail its
non-developmental expenditures instead ofincreasing the tax revenue to bridge its fiscal
deficit, he opines.
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Sindhs rising development spending
By Saleem Shaikh
Monday, 22 Jun, 2009 | 03:17 AM PST |
The Sindh government has announced its own-
financed Rs75 billion Annual Development Plan
(ADP) for 2009-10, Rs20 billion higher than the
revised estimated spending of Rs55 billion for the
outgoing year.
However, the overall provincial development
spending rises to Rs113 billion after including
Rs15 billion for district governments, Rs16.6
billion PSDP grants and Rs6.3 billion foreign
project assistance.
According to officials in the provincial Planning
and Development (P&D) Department, the number
of total ongoing and new schemes is around 1,757.
Some Rs44.91 billion will be spent on different
ongoing schemes, while Rs30 billion for newschemes.
The ADP funds have been allocated in a ratio of
60:40 for ongoing and new schemes respectively.
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The ratio is contrary to the Sindh governments
directive issued in March asking all departments
to work out the ADP on the basis of 80:20 ratio as
it was then agreed with the Asian DevelopmentBank that no unapproved scheme should be
included, P&D officials recalled.
All the provincial administrative departments
were told to get last years proposed schemes
approved for the ADP 2009-10 from the
Departmental Development Working Party
(DDWP) and Provincial Development Working
Party (PDWP) by March 31, 2009.
Officials in the revenue department said that as
the government had planned to finance the
provincial ADP from its own resources, it was (Rsin million)
decided to focus on increasing its own tax and
revenue receipts.
Sindh Finance Departments Additional Finance
Secretary (Resources) Dr Noor Alam told thisscribe that the revenue receipts for FY 2009-10
have been estimated at Rs118 billion from last
years Rs109 billion. The provinces own receipts
target has been set at Rs39 billion, straight
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transfers Rs50 billion, district support grant
(including other grants) Rs27 billion and
production bonus deposited by exploration Rs1.6
billion.
On the other hand, the current revenue
expenditure has been estimated at Rs213.39 billion
from outgoing years Rs184.95 billion and the
current capital receipts at Rs21.3 billion from the
outgoing years Rs20.93 billion, he added.
The provinces Cash Development Loan (CDL)
on scrap and GST on services dues against the
federal government stands at Rs19 billion and
Rs11 billion respectively. The negotiations with
the federal government for the reimbursement of
around Rs39 billion are in final stages, which willhelp meet the development expenditures in new
fiscal year, sources in the provincial finance
department revealed.
Experts however stress that the focus should be to
avoid misuse of funds and improve quality of
work and unnecessary delays in launching of theADP.
Timely release of the development funds are not
only helpful for implementation of
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schemes/projects on time, but also help generate a
significant number of jobs as well as create
momentum for development of industrial sector,
remarked Zulfiqar Halepoto, a social developmentexpert.
PPP leader Taj Haider says the revenue-starved
provincial government can easily generate huge
resources by launching low-cost housing schemes
for the poor. This will revive activity in the
industrial sector and generate employment.
Agriculture expert Taj Maree believes there is a
pressing need for increasing investment and
research in agriculture sector.
He stressed for strengthening of the irrigationsystem, introducing cost-effective latest
technologies and increase awareness in the
farming communities to help them enhance
production of different crops.
While Sindh Abadgar Board (SAB) Secretary
General Nawaz Memon regretted that Rs1.62billion were allocated for agriculture sector in the
outgoing fiscal year but merely Rs666 million had
been utilised by April 2009. The agriculture
sectors performance cannot improve if such a
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treatment continued to be meted out to the
sector.
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Regressive taxation
By Huzaima Bukhari & Dr Ikramul Haq
Monday, 22 Jun, 2009 | 03:17 AM PST |
The Finance Bill seems to have been designed to
tax the poor and protect the wealthy. The poor
will bear an increased burden of taxes, whereas
progressive taxes have not been levied on the rich.
It is almost tragic that the elected government also
placed its reliance on bureaucrats who are
responsible for our existing pathetic politico-
economic situation. Tax policy shows no concern
whatsoever for redistributive social justice. For
achieving the revenue target of Rs1.5 trillion for
fiscal year 2009-10, a resort has been made toregressive taxation: increasing the indirect taxes
and making presumptive taxes under the income
tax laws more stringent.
The lack of political will to tax the rich absentee
landlords exposes the tall claims of the so-calledpro-people budget, which is the most lamentable
aspect of the Finance Bill. PPP should have
prepared a sound tax policy through its own party
committees after taking a direct input from all the
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stake-holders. Rather it has just relied on
bureaucrats and elitist experts (sic) who stand
completely isolated from the masses and who take
guidance from foreign donors. They are leastconcerned about the welfare of common people.
There has also been no fundamental tax
restructuring. The government has failed to use
tax policy as a tool for rapid industrial growth. No
effort has been made for achieving judicious
balance between direct and indirect taxes and
diverting the money from unproductive to
productive sectors by imposing heavy taxation on
idle money and passive investment.
Revenues, in addition to finance public funding,
are meant for distributive justice, which is animportant function of tax policy. Economic justice
relates largely to distribution of tax burden and
benefits of public expenditure. It is a component
of the broader concept of social justice and the tax
policy is a democratic way to influence the
distribution of income and wealth on desired lines.
The main ingredients of this policy can be (a)
progressive direct taxation of income, wealth, and
property transactions, (b) taxation of commodities
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(customs duty, excise levy, and sales tax)
purchased largely by high-income groups, and (c)
subsidies (negative taxation) on goods purchased
by low-income groups.
We are moving from progressive to regressive
taxation which is bound to create a wide gap
between the have and have-nots. A successful tax
system reduces inequalities through a policy of
redistribution of income and wealth. Higher rates
of income taxes, capital transfer taxes and wealth
taxes are some means adopted for achieving these
ends.
There has been a gradual shift from equitable to
highly inequitable taxes and the shift to
presumptive and easily collectable taxes hasdestroyed the entire philosophy of taxes.
Regressive taxation has pushed more and more
people towards poverty line. In the absence of
industrial growth, neither the tax-to-GDP ratio
can be improved nor economic stability ensured.
Now widows, pensioners and senior citizens areasked to pay tax 10 per cent on income earned
from National Saving Schemes, whereas the rich
property developers are allowed to pass on the
burden of presumptive tax to the purchaser.
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The tax proposals of the present regime are no
different from its predecessors in protecting those
having monopoly over economic resources. Thereseems no concern for expanding the tax base on an
individuals ability-to-pay, in the form of higher
income tax rates for higher income earners, estate
duty, and property tax. Rich industrialists and
businessmen pay meagre personal taxes but the
poor people are compelled to pay 16 per cent sales
tax. It is as low as 3-5 per cent in Japan and
Singapore which are affluent societies..
The priority of all governmentscivilian or
military alikehas been fixing of ambitious tax
targets in utter disregard to their impact on lives
of common people, productivity and economicgrowth. The government itself can hardly provide
any meaningful tax relief package to the common
people or to trade and industry [due to huge fiscal
deficit]. Nor can it achieve a satisfactory level of
economic growth [due to retrogressive tax
measures]. This is a vicious circle in which our
policymakers find themselves trapped. They willhave to find ways and means to come out of this
tangle.
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monetary stimulus will hasten a decline of the
dollar. Investors often buy crude and other
commodities as a hedge against the risk of
inflation posed by a weaker dollar.
Earlier, the Organisation of Petroleum Exporting
Countries dropped its daily demand forecast for
2009 by 230,000 barrels, estimating that global
consumption would shrink to 83.8 million barrels
a day.
At the same time, some analysts were heartened
by the International Energy Agencys June 18
report, which forecast a slightly less severe cut in
global demand, making an upward revision of
120,000 barrels a day to total daily demand of 83.3
million barrels.
The rise in oil prices in recent months has raised
concerns that an increase in fuel costs could hurt
any recovery in the global economy.
World energy demand has shrunk since the onset
of the financial crisis for the first time in a quartercentury, bloating stockpiles in consumer nations.
Energy companies are also storing fuel on tankers,
with some 62 million barrels estimated at sea,
according to shipbrokers and traders.
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high of $989.80 it hit earlier this months, as a
dollar rally dampened investors interest in gold
and made dollar-priced commodities more
expensive for holders of other currencies.
Among other precious metals, silver rose to
$14.22. Platinum was at $1224.0 an ounce, while
palladium was at $243.0. Both are, like gold,
tracking the dollar and overall interest in
commodities.
Copper
Last week, copper hit a near two-week lows as
doubts about the global economic recovery
renewed worries over metals demand Benchmark
copper on the London Metal Exchange was $4960a tonne on the close of June 16.
The metal used in power and construction earlier
dipped to $4,880, its weakest since June 4. A week
earlier, it hit an eight-month high of $5,388.
Industrial metals were little affected by data
showing that US consumer prices edged up inMay.
LME data showed copper stocks held in its
warehouses fell 1,875 tonnes to 283,175. That
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compares with levels around 500,000 in February
and March. Cancelled warrants stocks already
tagged for delivery have also fallen to around
17,000 tonnes from levels near 55,000 tonnes inearly March.
Goldman Sachs (G.N) expects the current
downward movement in the price of copper to be
short-lived amid growing expectations of a
recovery in global economic growth, and it
targeted copper as $5,800 per tones by the end of
2010.
The investment bank kept its 12-month copper
price target at $4,800 per tonne, unchanged from
its May forecast. Copper for three-months
delivery MCU3 on the London Metal Exchangeclosed at $4,980 per tonne on June 16.
Africas top copper producer Zambia is facing big
power supply problems and this has affected the
copper production in the country which may
result in a dip in global output. If that happens,
price of copper may witness a surge with Chinanot stopping its copper stockpiling exercise.
The mines have been affected by the power cut,
but the quantum of the effects is yet to be given.
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Copper mining is Zambias economic mainstay
and the mines are a major employer in this
southern African country of 12 million people.
Zambian economy has historically been based on
the copper mining industry. Output of copper had
fallen, however, to a low of 228,000 tonnes in 1998,
continuing a 3-year decline in output due to lack
of investment, and more recently, low copper
prices and uncertainty over privatisation.
In 2001, the first full year of a privatized industry,
Zambia recorded its first year of increased
productivity since 1973. The future of the copper
industry in Zambia was thrown into doubt in
January 2002, when investors in Zambias largest
copper mine announced their intention towithdraw their investment.
However, surging copper prices from 2004 to the
present day rapidly rekindled international
interest in Zambias copper sector with a new
buyer found for KCCM and massive investments
in expanding capacity launched.
China has become a major investor in the
Zambian copper industry, and in February 2007,
the two countries announced the creation of a
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Chinese-Zambian economic partnership zone
around the Chambishi copper mine.
Today copper mining is central to the economicprospects for Zambia, but concerns remain that
the economy is not diversified enough to cope with
a collapse in international copper prices.
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No breakthrough in resource mobilisation
By M. Iqbal Patel
Monday, 22 Jun, 2009 | 03:16 AM PST |
Finance Adviser Shaukat Tarin has said from
time to time that the burden of taxes should be
equitably shared by all. But this has not happened
in the Budget 2009-10.
Farm incomes continue to enjoy exemption from
tax that has a huge potential for revenue
generation .
Agriculture is also the sector that posted better
than expected growth of 4.7 per cent in the fiscal
year 2008-09.However, the salaried class isburdened with additional tax at the rate of five
per cent payable by individuals and association of
persons (AOPs) whose income exceeds Rs1 million
for tax year 2009 for the benefit of internally
displaced persons (IDPs). Besides, a new tax at the
rate of 30 per cent has been imposed on bonusincome of corporate executives for the
rehabilitation of IDPs.
This burden should have been shared equitably
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for such a noble cause by the privileged class of
law makers and rulers also. The legislature,
judiciary, the armed forces, the president,
governors have been given relief from this levybecause their salaries, perquisites and benefits are
exempted from tax under the Second Schedule of
the Income Tax Ordinance 2001 (Ordinance).
Thus the budget continues to tax those who are in
tax-net. It did not broaden its scope to bring the
privilege class into the tax-net.
The capital gains on real estate transaction
continue to enjoy exemption from tax while the
rate of capital value tax on transfer of immovable
property has been enhanced from two to four per
cent. The genuine property owners would bear
this burden while the speculative and non-productive investors may find a way to escape
from this levy by transacting the property through
the power of attorney. Thus the government will
fail to curb speculative tendency and encourage
productive investment.
This would have an adverse affect on purchase ofimmovable property for real estate business under
the Real Estate Investment Trust Scheme. The
Securities Exchange Commission of Pakistan had
sought exemption from CVT on such properties.
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The budget proposes removal of the five per cent
federal excise duty (FED) on sales of locally
produced vehicles to give relief to the rich classwhile it withdrew the exemption from FED on the
import of ware potatoes and onion, which are a
necessity for the poor who will have to bear the
burden of this levy. This measure has been taken,
as claimed by the minister of state, to provide
protection to growers. In fact, its main
beneficiaries would be special interests.
The government has undertaken Tax
Administration Reform Programme (TARP)
sponsored by the World Bank and the DFID. The
main focus of TARP has been on promoting
voluntary tax compliance through an enhancedlevel of tax-payers facilitation. The FBR has hired
costly foreign consultants for smooth
implementation of reforms. But the budget
reflects a policy shift. It has opted a reverse gear
tax policy to raise high tax revenue and has
reintroduced tax measures which were provided
in the (repealed) Income Tax Ordinance 1979.
Section 147 is to be amended to change the mode
of payment of advance tax by the companies and
association of persons on the basis of actual
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turnover of the quarter instead of income. The
repealed ordinance had provided for appointment
of a firm of chartered accountants by the FBR to
conduct audit of any person. The Finance Bill2009, under reverse gear tax policy, proposes to
insert sub-section (1B) to section 210 whereby a
commissioner is empowered to delegate the
powers to a firm of chartered accountants for tax
audit u/s 177 and to obtain information, records
or computer etc u/s 176. It proposes to reintroduce
section 113 of minimum tax on the companies,
where no tax is payable or the tax payable is less
than 0.5 per cent of the turnover from all sources.
Presumptive tax regime has been abolished in case
of import u/s 148 and on export u/s 154 and u/s
153(6). The tax deducted at import stage, taxcollected by the authorised dealer on the proceeds
of export of goods by an exporter and tax
deducted from payment on account of services
rendered by the non-corporate taxpayers were
treated full and final discharge of tax liability of
importer and exporter respectively.
The tax so deducted has now been made minimum
tax meaning thereby that such tax would either be
adjusted against final tax liability to be
determined on finalisation of assessment or
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refunded in case of final tax liability which is less
than the amount of tax so deducted at source.
Besides it, such taxpayers will now require to file
return of income instead of filing a statement.
A new tax has been imposed on the exporters
whereby the Collector of Customs has also been
authorised u/s 154(3C) to collect tax at the rate of
one per cent at the time of clearing of goods
exported. Thus an exporter will be required to pay
two per cent tax on value of goods, one per cent on
clearing of goods and one per cent on realisation
of export proceeds for the same goods. This will
discourage exports. Similarly rate of withholding
tax on import of commercial nature has been
enhanced from two to four per cent.
To broaden the tax net, it has been made
mandatory to obtain national tax number (NTN)
for purchase of property, obtaining commercial
and industrial electricity and gas connections and
opening of a bank account
Section 114 is proposed to be amended wherebyNTN holders or any person having immovable
property with an area of 50 sq. yd., a flat with a
covered area of 2000 sq feet or a motor vehicle
having engine capacity of 1000cc or more,
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importers, exporters and service providers, shall
file normal income tax return. These measures
will promote documentation and broaden the tax
net. Salaried taxpayers whose income exceedsRs0.5 million or more shall file returns of incomes
along with proof of deduction of tax and wealth
statement. Though the scope of filing of return of
income has been extended to hunt for new
taxpayers, it would enhance the discretionary
powers of tax collectors. Similarly, powers have
been given u/s 121 to the commissioner to make
the best judgment assessment of a person who
does not file the prescribed statement of his
receipt u/s 115(5), and u/s 138 for recovery of tax
out of property through arrest of tax payer; the
scope of prosecution u/s 191 has been extended in
the case of those persons who have failed to file areturn of income etc. All these measures have a
negative aspect too as these would enhance the
discretionary powers of tax collectors.
These measures will virtually defeat the voluntary
self-assessment scheme envisaged u/s 120 of the
ordinance. It is suggested that the ordinanceshould provide a safeguard against counter
productive actions of the tax collectors and ensure
that the assessments are not be made under
duress.
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With a view to give incentive to the manufacturer
who is registered under the Sales Tax Act 1990,
the bill proposes a tax credit at the rate of 2.5 percent of the tax payable u/s 65B to him ,provided 90
per cent of the sales are made to registered
persons.
The budgetary measures have failed to make a
breakthrough in revenue mobilisation and the
desired tax-to-GDP ratio may not be achieved.
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Focus shifts to low cost housing
By Anand Kumar
Monday, 22 Jun, 2009 | 03:16 AM PST |
AFFORDABLE and low-cost housing have
suddenly emerged as buzz-words in the Indian
real estate sector. The industry was among the
worst-hit following the economic slowdown, and
both buyers and financiers disappeared from thescene.
During the boom years, most developers paid
virtually no attention to the lower-end of the
market. Builders were busy promoting sprawling,
three- and four-bedroom penthouses and
apartments, with fancy fittings and accessories ranging from Jacuzzis in bathrooms to terrace
gardens. Developers were also bidding record
sums for land that was auctioned by government
agencies in and around the major Indian metros.
But the global financial crisis, which has alsodecelerated the growth rate in India, came as a
major shock to real estate developers. Many were
left holding vast tracts of land for which they had
paid huge sums, hoping to build their land
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banks.
Dozens of overseas developers and financiers
including from the US, Europe, the Gulf andSouth-East Asia had also entered into tie-ups
with Indian partners, promoting multi-billion-
dollar projects across the country. Consequently,
real estate prices zoomed, touching stratospheric
levels.
In Mumbais posh localities, apartments in
exclusive buildings were being sold at rates
upwards of Rs100,000 (about $2,000) a sq ft. Let
alone the middle-classes, most affluent people
could also not afford buying modest apartments in
south, central and western Mumbai.
Cities like Delhi and Bangalore also saw prices
soar to record levels in recent years, despite the
brisk construction activity. Techies working for
the information technology sector and other
fast-growing segments such as financial services
and telecommunications were among the buyers
who were fuelling rapid growth in the real estateindustry.
Hundreds of thousands of young Indians
employed in these sectors were earning handsome
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salaries and had access to cheap housing loans.
The housing industry had never had it so good
and developers were on a roll.
But the global crisis had a severe impact on
Indias IT sector. Many have lost jobs in recent
months, and fresh graduates find it difficult to get
employment, especially in the high-wage sectors.
The liquidity crunch has also seen developers
starved for funds. Banks and other lenders are
hesitant to extend loans and international
partners including private equity funds and
venture capital funds are eager to off-load their
stakes.
Many of the top international developers arefacing problems back home and want to liquidate
their holdings in India. The result: some of the
most ambitious projects outside cities like
Bangalore, Mumbai, Delhi and Chandigarh have
been put on the back-burner. Real estate
companies are selling off projects or land parcels,
desperately trying to raise funds.
* * * * *
THE crisis has led many of the leading developers
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homes at affordable rates. The company is
promoting a 70-acre township on the outskirts of
Mumbai, offering flats ranging from 300 to 465
sq ft priced between Rs400,000 and Rs700,000.
We have got a good response for this project,
explains Brotin Banerjee, managing director and
CEO, Tata Housing. The company has sold
thousands of forms for the first lot of 1,300
apartments. Over the next two years, Tata
Housing plans to build 15,000 low-cost homes in
Mumbai, Bangalore, Delhi, Chennai and Kolkata.
It has branded these units as Shubh Griha.
Banerjee expects the company would earn
revenues of over Rs7 billion in the next four years
selling low-cost homes. These would account forabout 20 per cent of its revenues; the premium
segment would get it 50 per cent of the revenues
and affordable (or mid-income) about 30 per cent.
The cost of construction for low-cost housing has
been pegged at Rs700 a sq ft.
Other builders are also rushing in with theirprojects. Unitech, the second-largest property
developer, has launched Uni Homes, which will
comprise modest apartments of 650 sq ft and
priced between Rs1 million and Rs1.5 million,
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depending on the city where it is located.
The company, which has a land bank of around
8,000 acres, plans to invest Rs17 billion in buildingthese homes all over India.
Other developers that are quickly getting on to the
low-cost bandwagon include DLF the largest
realty firm in India Akruti City, Parsvnath,
Ansal API, Omaxe (all from Delhi), Puravankara
(Bangalore) and HDIL and Lodha (Mumbai).
* * * * *
INDIA has been facing an acute shortage of
housing for years. The current housing backlog
adds up to a whopping 25 million housing unitsand every year the number keeps growing. Most
developers have focused only on the upper-end of
the market, with the result that the middle- and
lower-classes have no options other than to live in
slum colonies or in tiny flats far from their work
place.
Lack of affordable housing has resulted in the
creation of shanty towns in all major Indian cities.
Organised gangs forcibly acquire vacant land
mostly owned by governments and other public
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bodies develop slum colonies on them and rent
out units to the poor and migrants.
The land mafia in urban India has strong politicallinks to virtually all the parties and it becomes
impossible for authorities to clear up the slums.
Unlike in the developed world, Indian cities like
Mumbai also do not have a vibrant rental market.
Developers prefer selling off homes as the returns
are high, instead of renting out units.
Laws relating to land in India are also opaque and
most transactions attract controversy. The United
Progressive Alliance (UPA) government faced
massive criticism over its special economic zones
(SEZs) policy, with critics accusing developers of
these zones of acquiring hundreds of acres of landfor real estate purposes.
Acquisition of farm lands has also become a
controversial subject; Ratan Tata was forced to
move his Nano project out of West Bengal
following stiff opposition from a local politician
Mamata Bannerjee, who is now the railwayminister who objected to the transfer of land.
Mukesh Ambani of Reliance Industries, the
largest private sector company in India, has also
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been facing problems relating to land acquisition
for his mega SEZ project outside Mumbai.
In the absence of land titles, clear holdings andtransparent deals, most land acquisitions are
shrouded in mystery and attract controversies.
Most state governments have failed to reform
land-related laws, thanks to the close links that the
land mafia has to many politicians.
When a government or a private sector player
decide to develop a new township, expressway,
SEZ or other major project, politicians get an
inkling and begin buying up land in its periphery.
Once work begins on the project, they hope to sell
the land at a premium, raking in huge profits.
In Bangalore, for instance, relatives of powerful
political families succeeded in stalling several
projects including the international airport and
a much-delayed expressway for years, as they
wanted to buy up vacant land in the surrounding
areas, before the work could be taken up.
The success of low-cost housing in India clearly
depends on how fast state governments are able to
reform land-related laws. Housing costs are high
in India mainly because of the exorbitant price
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that developers have to pay while acquiring land.
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Budget 2010: treading the same path
By S. M. Naseem
Monday, 22 Jun, 2009 | 03:16 AM PST |
The most specious defence of budget 2009-10 so
far ironically by a leading economist has been
that it was a war-time budget and it was not
possible to make any significant change in the
economic management within the confines of anannual budget.
On the contrary, it is in such times that
governments can undertake policy paths not
treaded before.
The Great Recession that the world economy isfacing today requires all countries to re-examine
the patterns of Pavlovian behaviour at all levels
personal, community, corporate and state - that
they have become conditioned to change them in
keeping with the new and emerging realities.
Unfortunately, such a change is hardly evident inthe new budget.
There was no dearth of rhetoric and pious
intentions in the long speech delivered by Ms
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Khar, perhaps the youngest minister to present
the budget in parliament. The most stirring of
which was the quotation at the end of her speech
from Zulfiquar Ali Bhutto, our founder leader,delivered before she was born, exhorting
politicians to adopt A new look amid a new style
as the old ways will no longer appeal to the
people, even though she had not long ago served
in a cabinet post under President Musharraf.
However, her speech contained very little that was
new and different from the policies of his earlier
patrons. Indeed, it was full of excuses why the
government was unable to fulfil the promises it
made.
The reasons No, we cant -- implicit in thespeech are several, including policies of the past
governments, the need for stabilisation policies,
IM
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