fiscal policy! pakistan budget 2013 to 2014

FISCAL POLICYPresented by: SIDRA ASAD RAHMA HASEEB TAYYABA ASHRAF

LAYOUT• FISCAL POLICY

• GOVERNMENT BUGDET

• NFC AWARDS

Definition

“Fiscal Policy with reference to public income and public expenditure is the strategy which guarantees the economic stability and development of country”

Objectives of Fiscal Policy

• Economic Stability• Increased Savings• Control Inflation• Stabilized Price Level• Desirable Level Of Consumption• Distribution Of Wealth

• Reduction in Burden Of Foreign Debts• Control on the Concentration of Wealth• Trade and Industrial Development• Financial Assistance to Lower Income Group

Components of Fiscal Policy

• REVENUE TOOLSdirect taxes indirect taxes

• SPENDING TOOLS Government expenditure: current spending capital spending transfer payments

Types of Fiscal Policy

There are two types of fiscal policy

• Expansionary Fiscal Policy• Contractionary Fiscal Policy

Expansionary Fiscal Policy

Government purchases Government Taxes

The goal of expansionary fiscal policy is to:• Close a recessionary gap • Stimulate the economy• Decrease the unemployment rate

Contractionary Fiscal Policy

Government Purchases Government Taxes

The goal of contractionary fiscal policy is to:• Close an inflationary gap• Restrain the economy• Decrease the inflation rate

Direct/ Indirect Taxes In Pakistan

Direct Taxes:• Direct taxation is defined as the tax which is directly levied on

the citizens of a country

• All individuals and business concerns have to pay direct taxes to the government on a regular basis

• During the fiscal year 2011-2012, the Federal Bureau of Revenue (FBR) expects to collect Rs 738.8 billion in direct taxes

• The direct taxes in Pakistan Include income tax, wealth tax, property tax.

Indirect Taxes

• An indirect tax is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer)

• During the fiscal year 2011-2012, the Federal Bureau of Revenue (FBR) expects to collect Rs 1,144 billion in indirect taxes

• In Pakistan, indirect taxes include sales tax, value added tax, GST and excise and custom duty

• The FBR has provisionally collected taxes worth Rs.1940 billion during last financial year 2012-2013, which may go to Rs. 1950 billion when figures get finalize”, said Ansar Javed (retired chairman of FBR)

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Outline• Budget• Components• Types of Budget• Government Budget • Budget 2013-2014• Revenue and Expenditure 2013-

2014

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BUDGET“Budget is the annual statement of the expenditures

and revenues of the federal government with the laws and regulations that approve and support

those expenditures and taxes”Major objectives include:

• Finance activities of government• Encourage economic growth and stability


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Components of Budget• Revenue Budget• Capital BudgetRevenue Budget:It consists of revenue receipts of government

and its expendituresRevenue receipts include tax and non tax

revenueRevenue expenditure includes payment for

day to day running of government and services it offers to citizens.


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Capital budget: The capital budget is different from the revenue

budget as its components are of a long-term nature

It includes capital receipts and payments Capital receipts are government loans raised

from the public, government borrowings from the Reserve Bank and treasury bills, loans received from foreign bodies and governments

Capital expenditures are Capital payments are capital expenditures on acquisition of assets like land, buildings, machinery, and equipment


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DEFICIT

BALANCED

SURPLUS


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GOVERNMENT BUDGET:Includes revenue and expenditures for capital

and revenue budget.Revenue budgetThe Receipts for this budget includes:a)Tax Revenue1.Tax on Income, profit and wealth• Levied on income, profit and property of people• Have different rates for different income groups

and property owners


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2. Taxes on Goods and Services Excise Duty • Levied on production of selected industries• Industries which have enjoyed tariff preferences

and have stability in market are subjected to excise duty

• Also levied on services provided by hotels, restaurants and advertisements.

Sales Tax• Levied on sale price of goods and services• Rate varies with the nature of commodity• Luxury goods have high sales tax then

necessities.


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Sub charge

• Difference between maximum sale price and production cost or import price of petroleum, natural gas etc. is realized by government and the surplus is the source of revenue.

3. Custom Duty:• Source of indirect tax• Tax on import and export of commodities is custom

duty• Rates vary with nature of commodity and

government policy• Luxury items have high rate to discourage import.


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b) Non – Tax Revenue• Income from Property and enterprises- Income from owned land, forests, mines

etc.• Trading:- Earned by Pakistan trading corporation• Interest and dividend:- Interest and dividends from investment• Minor head:- Receipts from civil administration- Miscellaneous : passport fee, copy right

fee etc.


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The expenditures for this budget includes:

1.Civil Administration - Expenditure on civil departments of

federal government.

2.Defense - Expenditure on maintenance and

operation of defense services 3.Law and Order - Expenditure on operation of police and

courts for maintaining law and order


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4. Community Social And Economic Services - Performed by government for welfare of

people such as construction of roads, railways, education etc

5. Subsidies - To increase production and keep prices stable,

government helps producers financially through subsidies

6. Debt Servicing - Includes payment of interest and repayment

of principal amount of debt


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Capital Budget:The Receipts for capital budget includes:1.Surplus from Revenue Budget:• Measured as: Government savings=

Government Revenues – Current Expenditure2.Domestic Borrowing:• It includes Bank borrowing and non- bank

borrowing3.External Borrowing:• External borrowing can increase investment

and growth• If amount is not used for productivity purpose,

it will not generate revenues.


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The Expenditure for this budget includes:

• Expenditures for agriculture• Water and power• Education• Health• Transport and communication• Development of factories


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BUDGET PAKISTAN 2013- 2014

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BUDGET 2013-2014

The budget 2013-14 has the following salient features:• The total outlay of budget 2013-14 is Rs 3,985

billion. This size is 24.4% higher than the size of budget estimates 2012-13.

• The net revenue receipts for 2013-14 have been estimated at Rs 1,918 billion indicating an increase of 7.9% over the budget estimates of 2012-13.

• The net capital receipts for 2013-14 have been estimated at Rs 493 billion against the budget estimates of Rs 478 billion in 2012-13 i.e. an increase of 3.2%.


• The external receipts in 2013-14 are estimated at Rs 576 billion. This shows an increase of 50.1% over the budget estimates for 2012-13.

• The current expenditure is Rs 3,196 billion and development expenditure is Rs 789 billion. Current expenditure has been estimated to be higher than the revised estimates for 2012-13 by around 9.9%, while development expenditure by 37.7% in 2012-13 over the revised estimates of 2012-13.

• The size of Public Sector Development Program (PSDP) for 2013-14 is Rs 1,155 billion. Out of this, Rs 615 billion has been allocated to provinces. Rs 115 billion to New Development Initiatives and Rs 10 billion to Earthquake Reconstruction and Rehabilitation Authority (ERRA).


• Standard rate of sales tax increased from 16% to 17%.

• Hybrid cars appear to be fortunate to have been granted reduction in taxes. Curiously, the relief is envisaged for cars over 1800cc!!

• FED at 40 paisa per kg on imported seeds and at Rs 1 per kg on locally produced oil imposed.


KEY TARGETS• Fiscal deficit to be reduced to 6.3

percent by 2013-14 compared to 8.8 percent in the outgoing year.

• Rs. 2.6 trillion to be collected as taxes.

• Inflation to be contained in single digit.• Tax on the GDP ratio to be raised to

15%.

NFC AWARDS

DEFINITION

The NFC Award or National Finance Commission Award, is the distribution

of financial resources among the provinces of Pakistan by the federal

government on annual basis.

FEATURESThe main charter of NFC is to recommend on the following:

• The distribution of specified taxes, duties between federation and provinces.

• The disbursement of grants to provincial governments.

• The borrowing powers exercised by federal and provincial governments.

• Any other financial matter referred to commission.

WORKING• Certain types of taxes collected in each province

are pooled and then redistributed according to the NFC formula.

• Taxes included in the pool are– income taxes– general sales tax– wealth taxes– capital gains taxes– custom duties

BACKGROUND• 1971 incident: separation of East

Pakistan from West Pakistan

• Major issue arose about the “Distribution of Resources” among the provinces.

PROVINCIAL SHARE IN 1970 AWARD

Punjab Sindh Khyber-Pakhtunkhwa

Balochistan

56.50% 23.50% 15.50% 4.50%

FINANCIAL ARRANGEMENTS IN 1973 CONSTITUTION

It was made obligatory for the government to compose NFC at an interval extending not more than 5 years resource distribution among the federation and their respective units.

• In this award fewer taxes were included in the divisible pool which consisted of income tax, sales tax and export duty while the criterion used for resource redistribution was recommended to be population.

THE FIRST NFC AWARD 1974

Punjab Sindh Khyber-Pakhtunkhwa

Balochistan

60.25% 22.50% 13.39% 3.86%

THE 2ND NFC AWARD 1979

Punjab Sindh Khyber- Pakhtunkhwa

Balochistan

57.97% 23.34% 13.39% 5.30%

THE 3RD NFC AWARD 1985 The third NFC award 1985 as of its

previous 1979 award failed to produce any fruits. The resource distribution from divisible pools remains same as of 1974 up to 1990.

THE 4TH NFC AWARD 1990• After almost 16 years of break in declaring a

consensus NFC award, the 1990 NFC award came up with some positive recommendations in April 1991 under the democratic government of Prime Minister Nawaz Sharif.

• The most significant development under this award was the expansion of the divisible pool. Still population remained the sole element for revenue sharing criteria in the NFC award.

• The sharing of the divisible pool between federal and provincial governments continued to remain at 20:80 percent, respectively.

Punjab Sindh Khyber- Pakhtunkhw

a

Balochistan

57.88% 23.28% 13.54% 5.30%

THE 5TH NFC AWARD 1996• The shares in 5th NFC awards

remained the samePunjab Sindh Khyber-

PakhtunkhwaBalochist

an

57.88% 23.28% 13.54% 5.30%

THE 6TH NFC AWARD 2000• Provinces were demanding for higher

share in the divisible pool (up to 50 percent) as well as the diversification of the distribution criteria.

THE 7TH NFC AWARD

THE 7TH NFC AWARD 2010• Provincial share of the divisible pool would increase

from the present 47.5% to 56% in the first year of NFC (2010-2011) and 57.5% in the remaining years of the award under the vertical distribution of resources

• Share of Provinces was approximately Rs.39 billion

• The federal government has agreed to cut tax collection charges from 5.0 per cent to 1.0 per cent and this amount would also be added to the divisible pool

MEASURES TO BE TAKEN• (1) Backwardness and development gap• (2) Inverse income distribution (rural urban income disparity)• (3) Natural resource endowment• (4) Revenue generation/revenue collection• (5) Population density• (6) Poverty• (7) Area• (8) Non-formula transfers• (9) Environmental consideration

REFERENCES• www.finance.gov.pk

• www.fbr.gov.pk

• www.statpak.gov.pk

• www.wikipedia.com

• Economy of Pakistan, Saeed M. Nasir

fiscal policy! pakistan budget 2013 to 2014

Economy & Finance