post budget kashif mateen ansari 2015-2016 seminar · with rampant corruption in tax machinery...

Post Budget 2015-2016

SeminarPresident

ICMA Pakistan

Presented By :Kashif Mateen Ansari

Presentation Sequence

• Economic Overview

• National Budget 2015-16

• Consideration on Institute’s Proposals

Institute of Cost & Management Accountants of Pakistan

Economic Overview


Macroeconomic Situation


Sustainable Development Policy Institute (SDPI)Poverty in Pakistan – 40 % people living below poverty line!

Every third Pakistani is living his life below the poverty line.

Baluchistan: 52%; Sindh: 33% KPK: 32 %; Punjab: 19 %

Pakistan’s banking share of home mortgages is pathetically low – 0.24 percent of GDP; in

India it is 9 percent and in the developed world over 85 percent.



Terrorism is beyond Control

Karachi Bus Carnage Mastung Carnage



Electricity Shortfall

Power generation …. 9,500 mw Demand … 14,100 mw

Shortfall of 4,600 mw

According to National Transmission and Despatch Company (NTDC)



Unemployment The unemployment rate in Pakistan for the year 2014-2015 is 6 percent

Last 30 Years Average … 5.4%------------------------

Being Highest in 2002 … 7.8%Being Lowest in 1987 … 3.1%

According to Pakistan Bureau of Statistics

Some Facts


48% Pakistanis say unemployment leads to

increase in crime; 38% say it increases poverty.

Source: Gallup and Gilani Survey

Some Facts


Some Facts


32% Pakistanis say employment opportunities

are an effective way to reduce rich/poor divide in Pakistan

Source: Gallup and Gilani Survey

Some Facts




Reducing Interest Rates

Some Facts


The Finance Minister claims that around 2 to 2.5 million new jobs will be created in the country ONLY in the construction and 16

allied industries.

However creating enabling environment for this to happen is a big question…?



Business Community demands

• Ease of doing business in Pakistan• Facilitating local investors• Tax reforms … simple tax policies • Consistency in government policies • Power & Electricity • Utilities such Gas, water, sewage, etc• Law & order• Reduction in Corruption

Our Endowments


• Abundant land and natural resources • Human resources (huge English speaking population) • A large and growing domestic market (a growing middle

class) • Well-established infrastructure and legal systems (road,

rail, sea, IT) and• Geographic location as principal gateway to the Central

Asia Republics and connections to the Middle East and South Asia

Some Facts


MIXED SIGNALS ON PERFORMANCE RATINGS OF

GOVERNMENT

Gallup’s Annual Public Pulse Report 2014

Some Facts


Some Stark realities


Pakistan ranked 127 in 2014

from 107th in 2013

As per ‘Ease of Doing Business’ Index of the World Bank/IFC



Pakistan ranked 146th as compared to

India’s 135th position and Bangladesh’s 142nd.

As per ‘Human Development Index’ of UNDP



Pakistan is placed at 129 as compared to India at 71 and

Bangladesh at 109

As per The World Economic Forum’s ‘Global Competitiveness Index’



As per Economist Intelligence Unit’s ‘Food Security Index’

Pakistan is ranked below India

As per ‘Fragile States Index’ of Institute of Peace, Washington

Pakistan is in the high alert zone



Pakistan is ranked below

India

As per Economist Intelligence Unit’s ‘Food Security Index’

National Budget 2015-16


Salient Qualitative Features of Budget• Reduction in burden on poor and middle class

• Second phase of withdrawal of exemptions to further eliminate discriminatory tax exemptions and concessions.

• Expand the scheme of differential taxation for filers and non-filers for penalizing non-compliance without adding any further burden on the compliant.

• Customs tariff be rationalized to reduce both the number of slabs and the maximum duty rate.

• Reviewing tax laws and procedures to cut down on discretion.

• Removal of sectoral distortions in domestic taxes.

• Measures for broadening of the tax base and documentation of economy.

• Increasing the share of the direct taxes.


GDP Growth

2014-15

Target - 5.1 %

Achieved - 4.24%

Gap: (0.86%)


Agricultural Sector Growth

2014-15

Target - 3.3 %

Achieved - 2.9%

Gap: (0.4%)


Industrial Sector Growth

2014-15

Target - 6.8%

Achieved - 3.6%

Gap: (3.2%)


Services Sector Growth

2014-15

Target - 5.2%

Achieved - 4.95%

Gap: (0.25%)


GDP Growth Forecast

2014-15: Revised 4.2%2015-16: 5.5% 2016-17: 6.5% 2017-18: 7.0%


Per Capita Income (9.3% Growth)

US$ 1,512 in 2014-15

as against

US$ 1,384 in July-March 2013-14


Tax-to-GDP Ratio

2013-14 - 9.0%

2014-15 - 9.7%

2017-18 - 13% (Budget Target)


Inflation (44.82% Decline)

4.8% in July-April 2014-15

as against

8.7% in July-April 2013-14


Fiscal Deficit

2013-14 = 5.5%

2014-15 = 5.0%

2015-16 = 4.3% (Target)

2016-17 = 3.5% (Target)


Foreign Exchange Reserves

Recent

US$ 17 Billion as of today out of which

US$ 12 Billion are SBP Reserves

Target for 2015-16 is

US$ 19 Billion


Gross Revenues (Tax and Non-Tax)

2014-15 (Budgeted): Rs. 3,945.50 Billion

2014-15 (Revised): Rs. 3,952.47 Billion

2014-15 (Achieved in 9 months – Jul to Mar)

Rs. 2,682.6 Billion (73.5%)

2015-16 (Target): Rs.4,312.75 Billion

(9.11% higher)


Total Expenditures

2015-15 (Budgeted): Rs. 3,463.2 Billion

2015-15 (Revised): Rs. 3,480.8 Billion

2014-15 (Spent in 9 months – Jul to Mar)

Rs. 3,199.1 Billion

2015-16 (Target): Rs. 3,482.2 Billion (Almost at same level)


Expenditures Details


Poverty Reduction Strategy

• 4.5 percent of GDP to social and poverty related expenditures.

• Prioritized 17 pro-poor sectors through the Medium Term Expenditure Framework (MTEF) in the PRSP-II.

• Benazir Income Support Programme (BISP) is continuing to eradicate extreme poverty through provision of cash transfers. Cash grant has been increased to Rs.1,500/- per month from Rs.1,200/-. BISP budgetary allocation has been increased to Rs.97 billion in 2014-15 from Rs.75 billion in 2013-14.

• Pakistan Poverty Alleviation Fund (PPAF) also provides assistance in microcredit, water and infrastructure, drought mitigation, education, health and emergency response interventions.

• Under Zakat, a total amount of Rs. 4778.18 million is distributed in bulk amongst the provinces and other administrative areas for the year 2014-15.

• Pakistan Bait-ul-Mal (PBM) is also making efforts for eradication of poverty by providing assistance to destitute, widows, orphans, invalid, infirm and other needy persons through different initiatives and in last fiscal year (1st 3 quarters) it disbursed an amount of Rs.2.28 billion to its core projects.


ICMA Pakistan’s

BUDGET CONSIDERATIONS

Vs

MEASURES PROPOSED IN

FEDERAL BUDGET 2015-16


Minimize the gap between ‘revenue’ and ‘expenditure’ by taking measures to broaden the tax net. This would help increase the tax to GDP ratio.


BUDGET 2015-16

CNIC of an individual to be used as NTN.

Tax-to-GDP ratio to increase upto 13 percent by 2017-18.


Repositioning of image of revenue collection authority aspartner in country’s progress rather than agent taking awaythe hard-earned money


BUDGET 2015-16

The powers of FBR to issue exemptions/concessions have been withdrawn and those of Federal Government have been limited to exceptional circumstances


No additional tax burden on existing tax payers, especially corporatesector. This would encourage business activities and investment in thecountry


BUDGET 2015-16• Corporate tax rate has been reduced to 32% from 33%

• An additional one-time-tax (super tax) has been imposed @ 3% on annual income exceeding Rs. 500 million on individuals and companies.

• The income tax rate is proposed to be reduced to 7% from10% for non-salaried individual tax payers and Association of Persons earning taxable income from Rs.400,000 to Rs.500,000.


Bring the undocumented sector under the tax net. This can beachieved by reducing the cumbersome processes and doing awaywith rampant corruption in tax machinery


BUDGET 2015-16

To encourage the informal sector to contribute towards revenue, it is proposed that adjustable advance income tax @ 0.6% of the amount of transaction may be collected on all banking instruments and other modes of transfer of funds through banks, in the case of persons who do not file Income Tax returns. This provision shall not be applicable on taxpayers.


Increase the allocations for education, health, housing andtransport to improve the quality and standard of living of thecommon people.


BUDGET 2015-16

A combined outlay of • Rs. 75.58 billion for education (17% increase); • Rs. 11.01 billion for Health (8.79% increase); • Rs. 2.25 billion for housing (12% increase);


In order to meet budgetary targets we have resorted tooppressive taxes, shifting incidence on the poorer segments ofsociety and exempting the rich.


BUDGET 2015-16

It is proposed to levy a one-time tax on affluent and rich individuals, AOPs and companies earning income above Rs. 500 million in tax year 2015 at a rate of 4% of income for banking companies and 3% of income for all others.


Keeping in view of high increase in general price level, the basic tax exemption limit for salaried class persons be enhanced from present Rs. 400,000 to Rs.500,000 per annum (i.e. Rs.41,666/‐ per month).


BUDGET 2015-16

• The Salaried tax payers have been provided relief by reducing rate of tax to 2% from 5% for taxable income from Rs.400,000 to Rs.500,000

• 7.5% Ad-hoc Relief Allowance on running basic pay will be offered to all federal government employees with effect from 1st July, 2015


The government should consider to provide tax holidays and incentivesto innovative and new industries, especially those established inundeveloped areas.


BUDGET 2015-16

• 3-Year tax holiday is proposed on setting up new industries in agricultural delivery chain (e.g. cold chain, warehousing) before 30th June 2016.

• 4-years income tax exemption on companies which set up ‘halal’ meat production plants and obtain ‘halal’ certification by 31st December 2016.


• The target is ambitious for FBR to collect revenues at Rs.3,104 billion.

• For the first time in Pakistan’s history, the 2015-16 Budget actually targets for a decline in currentexpenditure by Rs.20 billion.

• Subsidies are to be slashed, primarily to the power sector, by Rs 105 billion in 2015-16. Theimplication is that there will be a 15 per cent to 20 per cent increase in electricity tariffs, sooner orlater.

• Further, no provision has been made for retirement of the circular debt

• The fiscal deficit target of 2015-16 is based on the generation of a large cash surplus by theProvinces combined of Rs 297 billion (almost 1 per cent of the GDP). This is highly unlikely giventhat during the 9th NFC deliberations, the Provincial Governments will have a strong incentive toestablish higher expenditure benchmarks.

Brief Remarks about Macroeconomic Factors of Budget


Conclusion

• Overall, the Budget of 2015-16 is based on assumptions. Lets Hope they prove to be robust and realistic.

• We further look forward that unlike past practice, there will be no need for a series of minibudgets to meet the quarterly quantitative performance criteria of the IMF.



Find ways to handle

• Poverty

• Inequality

• Economic Growth

• Justice

Rapid industrial and economic growth and socio-economic justice should be our main objectives. Tax being a by-product

will automatically increase.


post budget kashif mateen ansari 2015-2016 seminar · with rampant corruption in tax machinery...

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