ISLAMABAD, June 6: The government on Monday presented in the National Assembly what it termed a relief-oriented and investment-friendly budget for 2005-06 with a total outlay of nearly Rs1.1 trillion, a tax revenue target of Rs690 billion and projected defence expenditure of Rs223.5 billion.
The fiscal deficit has been projected at about Rs263 billion or 3.8 per cent which would be met through external borrowing of Rs212 billion and capital receipts of Rs51 billion.
Describing the budget as relief-oriented, Minister of State for Finance Omar Ayub Khan, who presented the budget, said the objective of the budget was welfare of people and making the country’s sovereignty absolute.
He announced an increase in pay and pensions of the government employees by 15 per cent and 10 per cent, respectively, with a total increase of 23 per cent to 29 per cent. This would have a budgetary impact of Rs25.5 billion.
The defence budget has been projected at Rs223.5 billion (3.1 per cent of the GDP), which is over 15 per cent (Rs29.5 billion) higher than the current year’s original allocation of Rs194 billion and 3.3 per cent (Rs7.2 billion) higher than the revised estimates of Rs216.3 billion. However, when seen in the context of inflation and as percentage of GDP, defence allocations have been reduced for next year.
Special relief has been provided in the budget to the sectors of textile, the SME, agriculture, pharmaceutical and export-oriented sectors as well as various industrial groups.
The budget 2005-06, larger than the current one by 21.7 per cent, proposes Rs272 billion for the public sector development programme (PSDP), which is 35 per cent higher than the current year’s original and revised allocation of Rs202 billion. However, the overall development expenditure, including those of Wapda and the National Highway Authority, would amount to Rs306 billion.
Poverty-related expenditures are estimated to go up to Rs324 billion, representing an increase of 16.5 per cent over Rs278 billion of the current year.
Revenue receipts in the budget 2005-06, on a gross basis, are estimated at Rs927.4 billion showing an increase of Rs16.5 billion over estimates of 2004-05.
Net capital receipts for 2005-06 have been estimated at Rs51 billion against the current budget estimates of Rs64 billion while external receipts are estimated at Rs212 billion, which is 35.8 per cent less than the current year’s.
The total tax revenue (CBR) target for the next year has been projected at Rs690 billion against the current year’s revised estimates of Rs590 billion, showing an increase of about 17 per cent.
Of the total tax revenue, direct taxes are estimated to increase to Rs215.4 billion compared with the revised estimate of Rs182.7 billion. Collection under income tax would increase significantly to Rs206 billion compared with the revised estimate of Rs175.4 billion.
Similarly, indirect taxes on commodities and transactions have been projected to increase from the revised estimate of Rs407 billion in the current fiscal to Rs474.6 billion in 2005-06. Tax revenue other than CBR has been projected to increase to Rs426 billion next year compared with the current year’s revised estimate of Rs363 billion.
Total debt-servicing cost, including foreign interest and debt repayment and domestic debt repayment, has been projected at Rs301 billion which is 9.6 per cent higher than the revised estimate of Rs274.6 billion of the current year.
The current expenditure has been estimated at Rs826.5 billion showing an increase of 5.3 per cent from revised estimates of Rs784.7 billion of the current year and 18 per cent higher than original estimates of Rs700.8 billion.
The expenditure for general public service has been estimated at Rs503 billion against the current year’s revised estimate of Rs469 billion and original estimates of Rs424 billion.
Public order and safety affairs would consume Rs187 billion next year compared with the revised expenditure of Rs175 billion this year, showing an increase of 6.8 per cent. Next year’s revenue receipt on account of petroleum development levy and gas development surcharge has been estimated at Rs32.5 billion which is slightly lower than revised estimates of Rs35.5 billion and about 48 per cent lower than original budget estimates of Rs62.5 billion.
Petroleum Development Levy alone has been projected at Rs15.9 billion which is 47 per cent higher than revised estimates of Rs10.8 billion during the current year and more than 66 per cent lower than the current year’s estimates of Rs47.5 billion.
The budget 2005-06 has allowed duty-free import of 2,500 tractors to meet the local agriculture requirement besides permitting import of 200 bulldozers to Balochistan and 100 bulldozers to the NWFP for better water utilization.
The budget proposes to reduce many tariff lines pertaining to agriculture but dairy, poultry and fish farming sectors would remain protected.
It proposes to rationalize tariff on CBU (completely built units) car imports by reducing duty slabs to only 3 slabs — 50 per cent duty on cars up to 1500cc engine capacity, 65 per cent duty for 1501cc to 1800cc and 75 per cent duty for capacity of more than 1800cc.
In order to facilitate the textile sector, the GST zero rating has been allowed to the entire chain of the sector. Similarly, zero rating would also be allowed to carpet, leather, surgical goods and sports goods industries.
The import and supply of raw materials and parts used in the manufacturing of plant and machinery have been zero-rated for sales tax purposes.
Certain consumer items of daily use like soap and detergents which are chargeable to sales tax as well as excise duty have been exempted from excise duty.
Sales tax exemption has also been allowed to import and supply of CNG to Euro-2-equipped buses aimed at reducing pollution.
INCOME TAX: The tax rates for salaried persons have been reduced to 3.5 per cent-30 per cent, from the existing rate of 7.5-35 per cent. Also, it has been proposed that if the source of income of a person is only salary, then they need not file income tax returns or employer’s certificate if their employer has filed mandatory tax deduction statement of his employees.
The existing tax reduction limit of 50 per cent for teachers and researchers has been enhanced to 75 per cent. Similarly, senior citizens are allowed tax rebate at 50 per cent subject to the upper income limit of Rs300,000. This upper limit of income is proposed to be enhanced to Rs400,000.
Moreover, perks carrying zero marginal cost to employers would be exempted from tax to benefit teachers and employees of hospitals, hotels, transport companies and educational institutions.
Limit of contribution towards approved pension fund for claiming tax credit is being enhanced from Rs200,000 to Rs500,000.
Taxpayers are allowed tax credit on donations made by them to non-profit organizations. In order to encourage philanthropy, it is proposed to convert this credit into straight deduction from income for tax purposes in case of donations made to specific welfare institutions.
The profit on investment up to Rs150,000 in National Savings Schemes is exempt from withholding tax whereas 10 per cent tax is withheld on investments in TFCs (Term Finance Certificates). It is proposed to bring investors in TFCs at par with them, and to allow similar exemption from withholding tax for investments up to Rs150,000 in TFCs.
In order to provide an incentive for investment in IPOs (Initial Public Offering), the limit of investment for claiming tax credit is proposed to be enhanced from Rs100,000 to Rs150,000.
The tax rates for banking companies have been reduced to 38 per cent, public companies 35 per cent and private companies 37 per cent. The budget proposes to exempt capital gain of insurance companies. To encourage enlistment, a reduction of one per cent in tax is proposed for companies enlisted on the stock exchange during next year.
A reduced corporate rate of 20 per cent would be applied to the SMEs that transform into companies, and no turnover tax be payable by them.
In order to revive shipping industry, the rate of withholding tax has been reduced to one per cent from three per cent.
Large trading companies have been exempted from Presumptive Taxation so that more such firms are attracted to make investment in the country.
To broaden the next net it is proposed that cash withdrawals from banks of amounts exceeding Rs25,000 be charged 0.1 per cent withholding tax. The banks will not be asked for transaction details of their clients in this respect. However, taxpayers will be entitled to adjustment of this tax.
At present, imported cars are subjected to 6 per cent withholding tax. The same tax would now be applicable for sale of locally-manufactured new cars. However, that tax would be adjustable.
The sales tax regime has been rationalized by zero-rating imports and supplies consumed by textile, carpets, leather, surgical and sports goods’ export sectors. As a package deal their tax rate is being revised upward by 0.25 per cent.
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