ISLAMABAD, June 7: The government has reduced import duties 1,800 items and suggested additional taxation measures in the new budget aimed at collecting over Rs10 billion net revenue. Fiscal deficit for the next year has been projected at Rs285 billion which is 3.8 per cent of GDP. The house rent in the salaries of government employees has been increased by 134 per cent and medical and conveyance allowances have been doubled. Thus, salaries of all government employees, including civil and defence, have gone up by 23 per cent to 29.4 per cent.

It has been decided to provide wheat flour to people through utility stores at lower than market rates (Rs12 per kg) in order to reduce inflation to 7-8 per cent next year and subsequently to 5 per cent in 2006-07.

This was the gist of a post-budget press conference addressed by Adviser to Prime Minister on Finance Dr Salman Shah, Minister of State for Finance Omar Ayub Khan and Minister of State for Economic Affairs Hina Rabbani Khar.

The briefing was marked by a protest lodged by journalists against ‘reluctance’ of economic managers to answer a question about the amount of foreign debt raised by the government over the past six years.

Dr Shah said the external debt had been brought down from $37.6 billion in 1999 to $36.62 billion. He said external debts of $27 billion had been retired during the past six years. Public debt burden, he said, continued to decline in the past five years.

Dr Shah conceded that inflation rate at 9.3 per cent had shot up beyond expectations, as against a target of 5 per cent. He said it was due to the accommodative monetary policy aimed at stimulating growth and rise in support price of wheat besides supply shortages as a result of increased demand.

The budget 2005-06, he said, aimed at achieving five objectives: promoting investment and sustaining growth, creating job opportunities, providing relief to common man, improving social indicators and strengthening physical infrastructure.

CBR chairman Abdullah Yousaf said that the Rs100 billion increase in the revenue collection target for the next year would be met through new tax measures of Rs10 billion while the remaining Rs90 billion would accrue on account of the expected impact of the growth in GDP and inflation factor.

He clarified that a 7.5 per cent federal excise duty on financial services announced in the budget speech was not correct and had been withdrawn.

Similarly, a six per cent withholding tax on local cars was also wrongly reported and there was no such tax on local cars. He said the number of taxpayers would be increased from 1.2 million to 1.4 million next year.

Describing the budget as investment-friendly, people-centric and farmers-friendly, the adviser expressed the confidence that the next financial year would witness substantial increase in the foreign direct investment (FDI), remittances and exports.

“All new measures have been taken to boost exports and achieve sustainability in growth by adhering to economic discipline during the next financial year,” he said.

He pointed out that one of the major challenges was to achieve sustainability in growth which had been a matter of concern in the late 1990s. He said that a 7 per cent GDP growth would be managed in 2005-06 against 8.4 per cent in the outgoing financial year.

He said the export regime had virtually been zero-rated as there were no duties and taxes relating to it in the next budget. “This will certainly increase our exports to over $16 billion against $14 billion of 2004-05.”

The adviser said that all incentives and concessions had been offered to exporters and farmers and added that the agriculture sector was likely to grow further due to more concessions given in the budget, especially relating to the duty-free import of urea, machinery and raw materials.

He said the private sector credit would be raised in the next financial year to give a boost to business activities. Last year, he added, Rs370 billion had been borrowed by the private sector from banks.

“This credit was the biggest in the history of Pakistan and this shows that our government is genuinely interested in helping the private sector to grow faster than before.”

He admitted that inflation at 9.3 per cent was a matter of concern which had also increased food inflation beyond the estimated 12.8 per cent in the outgoing financial year.

The government lost about Rs50 billion in the petroleum development levy by not effectively transferring the burden to the common man. Also, the government had paid additional funds to oil companies as part of the compensation. However, this loss was met through higher income from PTCL, OGDCL and other sources.

The adviser said that the $4.5 billion trade deficit would be bridged by $4.2 billion remittances and added that a 14.5 per cent growth in exports would also help reduce this gap.

The foreign direct investment, he said, would cross $1 billion at the end of the current financial year on June 30. He said fiscal deficit had been estimated at 3.8 per cent of GDP in 2005-06.

He did not agree that an additional Rs100 billion revenue would be a problem to collect in 2005-06 and said that due to various export-related incentives, the government would get more money in the shape of duties.

He said the system of refund was being scrapped which would help exporters increase their exports by having funds at their disposal which otherwise were stuck with the Central Board of Revenue.

In reply to a question, he said feasibility studies for the construction of the Kalabagh and Bhasha dams were ready and once a decision was taken the government would arrange for the funding required for these and other such projects.

Overall, he said, the budget 2005-06 would help revive economy, restore the investor confidence and improve the lives of the common man.