The government also decided to bring four major export sectors under zero-rating and stated that 10 percent increase in net pension to all federal government pensioners would be allowed from next fiscal year and 25 percent increase to those above 85 years of age. Gross revenue receipts of the federal government for 2016-17 are estimated at Rs 4, 915 billion for the next fiscal year.
The share of provincial governments in the taxes will be Rs 2, 136 billion and net resources available with federal government will be Rs 2, 781 billion, showing an increase of 12.1 percent. Total expenditure are estimated at Rs 4, 395 billion for the next fiscal year after an increase of 7.3 percent and current expenditure of federal government are estimated at Rs 3,400 billion. The defence budget has been increased to Rs 860 billion for the next fiscal year from is Rs 776 billion in FY16, and federal public sector development has been increased to Rs 800 billion from Rs 661 billion, the fiscal deficit has been estimated at 3.8 percent for the year.
Development expenditure has been raised to Rs 800 billion with minister maintaining that a strategy is also being developed for public private partnership. The government has earmarked Rs 32 billion for water projects, Rs 380 billion for energy projects and Rs 188 billion for transportation and communication and motorway would be given priority for generating employment opportunities.
The minister added the government has allocated Rs 78 billion for Railways with 28 billion for procurement of new bogies and Rs 21.5 billion for Higher Education Commission (HEC). The federal government has also allocated Rs 22.4 billion for vertical projects of health sector for the next fiscal year. The government increased withholding taxes on commission of members of stock exchanges from 0.01 percent to 0.02 percent, increased sales tax on import of mobile phones from Rs 500 to Rs 1000 and from Rs 1000 to Rs 500, and enhanced federal excise duty on cigarettes by 23 paisa and 55 paisa per cigarette on low and high brand respectively and federal excise duty on aerate waters has been increased from 10.5 percent to 11.5 percent. The government also imposed Rs 1.25 per kilo watt sale tax on electricity consumption on marble, cutting and polishing industry.
The finance minister said that after achieving economic stability during the first three fiscal years, now the government is taking steps to boost textile, industry and agriculture productivity to super growth. The minister added that the main focus of budget strategy is a reduction in fiscal deficit to 3.8 percent, raising tax revenue, addressing challenges in energy sector, and increasing GDP growth to 7 percent by 2018-19, limiting inflation to single digit and taking investment to 21 percent.
The government has allocated Rs 6 billion to increase exports under trade policy, and announced that existing scheme on drawback of local taxes (DLTL) will continue in the next fiscal year. The government also announced that mark-up rates on export refinance facility would be reduced to 3 percent and five major export sectors - textile, leather, sports goods, surgical goods and carpets - would be under zero-rated tax regime.
The zero-rated facility will be available on purchase of raw materials, intermediate goods and the purchase of energy i.e. electricity, gas, furnace oil and coal, however, 5 percent sale tax would be applicable on retail sales of locally manufactured finished goods of these sectors. The minister also claimed that all the pending sale tax refunds up to April 20 and whose RPOs have been approved would be cleared from August, 31 2016.
The government said that existing scheme on drawback of local taxes (DLTL) on textile sector will continue in the next fiscal year and technology upgradation fund (TUF) scheme for the textile sector has also been formulated. The benefit of SRO 809, through which textile machinery can be imported duty free, will continue for another year and scope would be widened to include more garment specific machinery.
The government for the revival of agriculture sector announced to reduce prices of per bag urea to Rs 1400 and DAP to Rs 2500 , saying that Rs 40 billion on subsidy on the two items would be equally picked up by federal and provincial governments. The Finance Minister said the agriculture credit would be increased to Rs 700 billion and per unit cost of electricity on agriculture tube well is being reduced to Rs 5.35 from Rs 8.85 which will have a financial impact of Rs 27 billion. The minister said the customs duty on dairy, livestock and poultry is being reduced to 2 percent from 5 percent. It abolished sales tax on pesticides. Duty on incubators and brooders has been reduced to 2 percent from 5.
The government announced to enhance tax credit for industry that provides employment to 50 persons from 1 percent to 2 percent and for those making over 90% sales to registered sales tax persons enhanced from 2.5 percent to 3 percent. Tax credit for Balancing, Modernisation and Replacement (BMR) of plant and machinery is being increased to June 30 2019 as well as 100 percent tax credit for establishing new industry has been increased to June 30, 2016 and customs duty on import of raw material has been increased from 3 percent from 5 percent.
The government also gave concession to the energy sector especially in concession of custom duty on LED lights and import of import of item used in renewable source of energy and extension in relief of import of solar panels. The incentives for financial sector have also been included in the budget, maintained finance minister. The government said the budget also contains a reduction in corporate tax to 31 percent, tax credit for enlistment. At present, 20% tax credit on tax payable for enlistment in stock exchange is available for two years instead of one year and enhanced mark up on house holding loans from one million to 2 million. The minister said that on large trading houses minimum tax is proposed to be reduced to 0.5 percent of the entire turnover up to fiscal year 2019 for distributors of FMCG, reduced WHT rate on supplies from 4 percent to 3 percent for companies and from 4.5 percent to 3.5 percent for others is proposed but the reduced rate will not be available to non-filers.
The government also proposed advance tax for alternate corporate tax and withdrew exemption from minimum tax to companies declaring gross losses and imposed a 10 percent capital gain tax on property that is sold within five year after acquisition. The government also increased withholding tax for providing and rendering services by print media and electronic media from 1 percent to 1.5 percent as well as imposed WHT on profit from term finance certificate for companies and prize bonds. The government has increased withholding tax on sale of property from 0.5 percent and 1 percent to 1 percent and 2 percent for filers and non-filers respectively and in case of purchase from 1 percent and 2 percent to 2 percent and 4 percent receptively for filers and non-filers.