However budgeted current expenditure for the current year exceeded the revised estimates by 317 billion rupees - an amount greater than 298 billion rupees noted last year. In this context it is not credible that the current expenditure would actually be less than the revised estimates for the current year by 19.9 billion rupees.
Secondly, the usual annual juggling of subsidies is how the decline in current expenditure is justified from an accounting perspective. Thus 208 billion rupees earmarked for subsidies for 2012-13, an expenditure item that is almost doubled by the end of the year compared to what is budgeted, is another unrealistic figure. In the current year revised subsidies allocation exceeded budgeted subsidies by a whopping 346 billion rupees with the comparable figure for 2010-11 being around 269 billion rupees. Two items under current expenditure defy logic: military pensions will decline in 2012-13 by around 8 billion rupees and an allocation for provision for pay and pension reforms envisaging 35 billion rupees (25 billion rupees budgeted last year but received no allocation) given that pays and salaries witnessed a rise of 20 percent as has become the norm.
Third, the claim that Public Sector Development Programme (PSDP) would receive the 300 billion rupees earmarked in the current year''s budget is also not credible as by May 18 only 166 billion rupees had been disbursed and it is rather difficult to believe that 134 billion rupees more would be released for the PSDP in this month. In this context an increase from 303 billion rupees (revised estimates for the current year) for PSDP to 360 billion rupees in 2012-13 are again not credible figures based on our resource constraints.
Other development expenditure notably the government''s flagship 2012 Benazir Income Support programme would surprisingly receive only 10 billion rupees more than in the current year, and subsidy to TCP for import of urea would be reduced from 44.9 billion rupees (revised) against the budgeted 12 billion rupees this year to 26 billion rupees in 2012-13.
The major contributor to the country''s low growth and rising social unrest, the energy crisis, would receive 183 billion rupees, an amount that may hold the inter-circular debt at bay for seven to eight months but it would resurface unless power sector reforms are undertaken. The Finance Minister also stated that the cabinet has empowered him to tell the House that however much money is needed for the energy crisis will be released. This is a statement that is meaningless in its unspecificity whereas one expects a budget to be extremely specific.
So where would the money come from to finance the PSDP and the current expenditure? The Finance Minister acknowledged that national tax (inclusive of taxes collected on behalf of the provinces) to Gross Domestic Product ratio was 9.6 percent while the Federal Board of Revenue''s tax to GDP ratio further deteriorated to 8.6 percent in the current year (from the 10.56 percent the PPP government inherited in 2007-08 which declined to 10.2 percent in 2009-10 when Dr Sheikh took over the Finance portfolio). Incidentally these two figures are not the same as those contained in the budget documents where tax to GDP ratio for the current year is given as 10.3 percent and FBR tax to GDP ratio as 9.5 percent. Discrepancies like last year between the claim in the speech and the documents is also evident with respect to total budget outlay.
To raise the ratio major revenue generating measures were introduced in the budget: (i) 5 to 10 percent capital gains tax on sale of property throughout the country expected to generate 1.5 billion rupees, (ii) 2 percent capital value tax on immovable property in Islamabad, (iii) gradually taxing income earned by banks from Money Market Funds in the next two years at the normal 35 percent rate of taxation; (iv) sales tax increase on steel sector from 6 to 8 rupees per unit electricity consumption - a sector that is already suffering massive losses, (v) petroleum levy would generate 120 billion rupees (an amount that the government was unable to generate this year), (vi) increase in excise duty on cigarettes to generate 10 billion rupees, and (vii) making all manufacturers withholding agents for their dealers/distributors to net Rs 15 billion.
The budget focused on introducing a Tax Honour Card which would facilitate the card holder in some government offices. This is unlikely to ensure compliance with a tax system that is regarded as inequitable, anomalous and unfair. There is little doubt that the public may well question how many parliamentarians possess the Honour Card and how many got the card legitimately and how many through exercising their influence. Be that as it may other measures announced in the budget envisage a decline in revenue though they do go some way in rationalising the tax structure including (i) higher rate of sales tax - 22% and 19.5% - at import stage would be replaced by the standard 16 percent rate, (ii) enhancement in the basic exemption limit from Rs 350,000 to Rs 400,000 for all categories of taxpayers including salaried persons, (iii) Turnover Tax to be reduced from one percent to 0.5 percent, (iv) tax Slabs for salaried persons reduced from 17 to 5, (v) income and profit would be exempted to the Venture Capital Company till 2024 (a commitment that may be challenged if the political government changes), (vi) transfer from one retirement fund to another retirement fund would be exempt from taxation, (vii) capital gains of the retirement funds would be exempted from withholding tax provision, (vii) rate of sales tax reduced on tea as well as excise duty on cement.
Foreign inflows were estimated at 274.8 billion rupees - around 96 billion rupees more than in the current year and, more realistically, programme loans in 2012-13 are scaled down to 41 billion rupees though this amount too maybe an overstatement given that the International Monetary Fund is unwilling to give a Letter of Comfort that would ensure that the country is embarked on the needed economic reform agenda - a prerequisite for multilateral and bilateral support.