fiscal policy nasir r. zaidi
TRANSCRIPT
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Presented To:
Dr. Shahida Wizarat
Presented By:
Nasir R. Zaidi(MBA-R)
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Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
Fiscal Deficit - Definition
The shortfall of funds that takes place when agovernment's total expenditure exceeds the totalrevenue that it generates in a given year (excludingmoney from borrowings).
In practice, Fiscal Deficit refers to the phenomenonwhen a government faces an imbalance betweenits income and expenditure.
It results in creating budget deficit thereby,affecting whole economy of a countrycounter-productively.
Source: http://www.investopedia.com/terms/fiscaldeficit
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Fiscal Policies
Expansionary Fiscal Policy
An increase in government expenditures or a decrease in taxes
that causes the government's budget deficit to increase or itsbudget surplus to decrease.
Contractionary Fiscal Policy
A decrease in government expenditures or an increase in taxesthat causes the government's budget deficit to decrease or itsbudget surplus to increase.
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Fiscal Policy - Schools of Thought
Classical View
This view says that expansionary or contractionaryfiscal policies are unnecessary as there are marketmechanisms working altogether. Followers of this
view believe that the government should run abalanced budget every year.
Keynesian View
This view says that expansionary and contractionaryfiscal policies can be used to positively influencemacroeconomic performance. Increased spendingand decrease in tax rates would stimulate aggregatedemand.
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Revenues
Tax Revenue
Direct Taxes Indirect taxes
Non-TaxRevenue
DividendsRoyalty on oil
and gas
Profit generatedby state ownedorganizations
Sources of Revenue
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Direct Tax
If impact and incidence of tax is on the same person, it iscalled a direct tax, "pay as you earn
Example: Income tax
Indirect Tax
If impact and incidence of tax is on two differentpersons, it is called an indirect tax. The burden of anindirect tax can be passed on by supplier to the finalconsumer
Example: Sales Tax
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Dividends
The government earns by investing in companies listed inStock Exchanges.
Royalty On Oil & Gas
The government increases its income by getting royaltiesfrom parties involved in exploration of natural resources.
Profit Generated From Stated Owned Organizations
All earnings that come from companies owned by state.Example: P.S.O
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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TaxRevenue
FEDERAL
DirectTaxes
IncomeTax
CorporationTax
IndirectTaxes
Sales TaxImport /
Export Duty
PROVINCIAL
DirectTaxes
CapitalGains
Tax
Tax-Professionals
IndirectTaxes
StampDuty
MotorVehicle
tax
How Revenue Is Generated?Federal & Provincial Level
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Governments Expenditure
Expenditures
CurrentExpenditures
InterestPayments
Administrativeexpenditure
DefenceExpenditure
Subsidies
DevelopmentExpenditure
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
Debt Servicing Ministries, Advisors, Cabinets Military Expenses Energy Issues
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FISCALDEFICIT
PoorGovernance
Narrow TaxBase
UndertaxedSectors
RampantCorruption No
Agricultural
Tax
TaxAvoidance
InconsistentPolicies
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Fiscal Deficit
The target for FY12 budget deficit has been revised to 4.7 percenthowever, it will still be challenging to achieve
During FY11, the fiscal deficit rose to 6.6 percent against the target of
4.0 percent. This was due to higher subsidies including arrears of
electricity on expenditure side and less than target FBR revenue.
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Fiscal Deficit
- Growth of14.7% in Total Revenue
- Increase in Expenditures by 12.7%
- Overall Fiscal Deficit stands at 2.5% of GDP
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
FiscalDeficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Fiscal Deficit
- Direct Taxes Collection Up By Rs.15.9 bn
- Direct Taxes Collection Up By Rs.12 bn
- Total Tax Collection Up By Rs.13.4 bn
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Compared to previous year, the overall surplus of provincial governmentsduring FY12 amounting to Rs 20.6 billion does not portray a healthy picture.
Last year, the provincial surplus stood at Rs 100.0 billion after the provinces
started to receive a greater share of the federal revenue due to the 7 th NFC
award. The overall balance of first half means that only 16.5 percent has been
achieved so far. Factors related to both the expenditure side as well asrevenues account for this poor performance.
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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How To Overcome Fiscal Deficit
Fiscal
Imbalance
ReduceExpenditures
IncreaseRevenue
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Reduce Expenditures
- Reduction In Interest Burden Repay Loans First
- Reduction In Subsidies(electricity, gas, water)- Reduction In Overheads(underutilized human and material resources)
- Closure of Sick Units(Eg: PIA, Pakistan Steel Mill, Railways)
Increase Revenues
- Enlargement ofTAX BASE - not TAX RATE
- Privatize - wherever necessary
- Neat and clean taxation system - reduced red tapism
- Tax on agriculture (21% of GDP comes from agri-sources)
- Rewards /rebates for tax payers to increase confidence
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Conclusion
- The FY 2011 fiscal deficit stood at 6.6%. The target for FY 2012 has also been
revised upwards to 4.7 per cent from earlier estimate of4 % per cent.
- Containing fiscal deficit to 4.7 per cent in this fiscal year looks like an extremelydifficult task, especially as it is presumably election year.
- International oil prices are also rising which means energy subsidies will
increase - increasing governments expenditure and increasing fiscal deficit.
- Slow implementation of reforms as demanded by the International Monetary
Fund (IMF) is one of the main reasons for a high fiscal deficit.
- Pakistans investment rate was only 13.4% at end of last fiscal year, which was
the lowest since FY74. Low investment lead to higher fiscal deficit. The low
saving rate, coupled with dubious foreign investors led to record low investment
rate in the country.
- Government must focus on investing in energy solutions, enforcement of law and
order while lowering tariffs on smuggling prone items. Increasing the share of
direct taxes in revenue and lowering the slab of indirect taxes in the forthcoming
budget to achieve key economic targets set for the year 2012-13.
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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Recommendations
a. Broadening Tax Base
(agriculture, educational institutions etc)
b. Increasing the Elasticity of Tax System
c. Mandatory Documentation of all Sectors
d. Reconciliation of Bank Accounts with NTN with active
participation of commercial banks
e. Improving Tax Collection & Investment Environmenti. Confidence Building Measures (CBMs)
ii. Rebates and Tax Credit
iii. Outsourcing of audit function
iv. Revising Import Duty Structure
v. Reviewing Indirect Tax rates
Introduction
Fiscal Policy
Sources of
Revenue
Expenditure
Fiscal Deficit
Overcoming
Fiscal Deficit
Conclusion
Recommendat
ions
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