As expected, the government stayed the course charted for economic progress and development of the country. It has proposed a 35 percent increase in the allocation for development expenditure (Rs.272b) over the revised estimates for fiscal 2004-05 (Rs.202b). This increase in development expenditure assumes greater significance when viewed in the context of only a 5.3 percent increase in current account expenditure.
Allocation to the health division has been increased by more than 50 percent from Rs.6b to Rs.9.4b. The Khushal Pakistan Programme II has been enhanced from Rs.2.0b to 7.5b and Rs.5b have been earmarked for the Khushal Fund. Provincial programmes in the social sector have also been increased from Rs.54b to Rs.68b. These allocations do exhibit that the government is at last cognizant of its failings in the past in the social sector and does realise the need to make amends. It cannot but be noticed that the allocation for defence of the motherland has declined in real terms.
As against revised expenditure of Rs.216b last year, Rs.223b expenditure on defence has been proposed for fiscal 2005-06, an increase of about 3.33 percent as against an inflation target of about 8 percent.
Fiscal deficit is expected to rise somewhat from 3.2 to 3.8 percent of the GDP. Bank borrowings are projected at Rs.98 billion, while Rs.30.5 billion are expected to be raised through the issue of dollar 500 "Globalised Bonds" on the international capital market.
True to expectations, the budgetary measures as announced quite rightly, seek to give impetus to exports and agricultural output. Impediments and irritants in these sectors have been addressed. Import duty of 5 percent on Urea has been withdrawn, duty on tractors has been reduced from 20 percent to 15 percent, while import of bulldozers, angle-dozers, graders and levellers has been exempted from import duty.
As regards exports, a zero rated scheme (Sales Tax & Custom duty) is proposed to be introduced that would also apply to their use of utilities' services. The export of textile, leather, carpets, surgical and sports goods would surely receive a fillip from the measure.
Since these items are also consumed locally, there would be a loss of revenue on such sales, which would be recovered by levying a 3 percent tax inclusive of a 1 percent income tax as final discharge of tax liability on retail outlets whose annual sales exceed Rs.5m.
There have been other adjustments and measures to limit or suspend the imposition of pecuniary provisions by employing a carrot and stick policy and giving a further opportunity to delinquents to clear their outstanding government dues in return for waiver from the payment of penalties and additional tax.
The astonishing part of the budget proposals, specially from a government that is committed to documentation of the economy and proclaims to be business friendly, is its attempt to tax documentation itself through the levy of central excise duty at the rate of 7.5 percent on fee and commission charged by banks and leasing companies for services such as letters of credit, guarantees, broking and foreign currency dealings, lease management, documentation and processing fee.
This measure combined with the levy of 0.1 percent on cash withdrawals exceeding Rs.25,000 from bank accounts makes it clear that this government is also prone to expediency and seeks to use banks and financial institutions as tax collecting agents just for the ease of collection with scant regard for practical difficulties. We wonder if railways and airlines would accept cheques for sale of tickets.
These proposals certainly militate against documentation and promotion of banking habit. No wonder, Omar Ayub skipped this part in his speech. We, therefore, urge the government to review these proposals from perspectives other than resource generation alone. Another matter of concern is that reliance on indirect taxes remains unabated and so does the dependency on the withholding tax regime.
The tax base is still as narrow as before and should be a cause of great embarrassment to this government that undertook a survey of households and businesses with much fanfare and cost only a few years ago.
The rationalisation of import tariff on Completely Built-Up (CBUs) cars that reduces the effective duty rates by 25 percent to 50 percent undoubtedly reflects the public pressure to which the government has at long last yielded despite strong lobbying against it by the industry. In any case, this is far better than succumbing to demands to allow import of reconditioned cars. The incentive to facilitate the use of CNG in automobiles, particularly in public transport is both environment and people friendly.
A glaring omission in the Budget is the 'hands off' attitude of the government in respect of real estate and the share market. The unprecedented rise of scrip values and property prices, the windfalls reaped by the major players in these sectors need no mention, being well-known to all and sundry. It is a general expectation and genuine too that gains made in any sector should yield some share to the state.
It was, therefore, hoped that there would be some measures in the budget to carve a share for the exchequer. There were warnings too from within the ranks of these trades that any effort at that would be to the government's own peril in so far as privatisation of state entities is concerned.
The nature of real estate stock being as it is in our country and the gains accruing to a privileged class of our society perhaps did not allow the government to claim a share of the windfall.
The real pro-poor proposals are those relating to soaps, detergents and bicycles that hopefully would result in a reduction in their prices. The increase in minimum wage has more cosmetic value than anything else because this would not have any bearing on the informal sector which is more labour intensive and not governed by any official pronouncements. The increase in pay and pensions of the government servants was long overdue and so was the respite in tax to the salaried class.
It may not be unrealistic to expect as a follow-up an upward revision in profit rates of National Savings Schemes next month. These steps would help mitigate the misery of this strata of society that is worst hit by the high inflation.
Notwithstanding some shortcomings and failings, the budget is most definitely business friendly and reflects the government's earnest desire to accelerate economic activity and growth.
The removal of sales tax from the whole supply and production chain of leading export items such as textiles and leather, etc. is a bold initiative designed to ensure unhindered export of these items and also remove irritants, maladministration and frauds in tax refunds.
The exemption of Capital Gains Tax to insurance companies represents the removal of an anomaly to which this important service sector had unnecessarily been subjected so long. Finally, as always it would take a minute reading of the budget documents with their numerous annexures and SROs to fully comprehend their impact for more detailed comments.