Budget 2016-17: Going all-out to support agriculture sector, says Dar

New budget strikes a balance between fiscal consolidation imposed by IMF and some incentives for the industrial sector

Using the occasion for self-congratulation, Finance Minister Ishaq Dar presented budgetary proposals for financial year 2016-17 before the National Assembly on Friday.

Approved by the federal cabinet, the new budget of Rs4.42 trillion appears to strike a balance between fiscal consolidation, imposed by the International Monetary Fund (IMF), and some incentives for the industrial sector.



The federal government unveiled Rs800 billion development budget, an amount that is Rs100 billion higher than last year but still comes across as less given the huge financing requirements of about 866 projects including the pressing needs of the China Pakistan Economic Corridor (CPEC).

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Economic growth

Economic growth in the past two years has increased by 4.7 per cent, hitting an eight-year high.

"This would have been better if the cotton crop hadn't suffered a fall in growth of 28 per cent," he said.

However, analysts as well as economists feel the growth rate is low and not enough to meet the growing job demand.

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Tax measures

The government on Friday proposed a massive increase in direct and indirect tax rates under the guise of making the lives of non-filers of income tax returns miserable. The new tax measures include limiting tax-free cash withdrawal facility and banking transactions facility to just one account.

To promote the corporate sector, tax rate for it will be brought down to 31%.

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Tax revenues

Referring to tax revenue, Dar took pride in announcing that tax collection has increased by a historic margin of 8 per cent. "We will reach our target of Rs3.96t and wish to push the tax-to-GDP ratio to over 10% next year."

The increase has come on the back of higher tax rates. Meanwhile, the tax net has fallen with the number of returns filers going below the 1-million mark.



Fiscal deficit

The government's aim is to restrict the fiscal deficit at 4.3% of the GDP, said the finance minister



11% hike in defence budget maintained

Pakistan has raised its defence spending by around 11% for the coming financial year as it sought to sustain the recent gains against terrorism and to counter external threats, mainly from India.

For year 2016-17, the government allocated Rs860.1 billion compared with Rs775. 8 billion spent by the three armed forces in the outgoing fiscal year, showing an increase of Rs85 billion.

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Pakistan Stock Exchange

The finance minister said, "Market capitalisation has increased over the last four years, while the pending merger of all three stock exchanges was also settled."

Tax measures proposed in the federal budget for 2016-17 will reduce trading volumes and drive investors away from the stock market, according to capital market representatives.

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Minimum wage set at Rs14,000

Minimum wage increased to Rs14,000. Last year, the amount went up from Rs12,000 to Rs13,000.

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Payment of debt

The federal government will spend Rs1.8 trillion during 2016-17 on public debt retirement and payment of interest on the huge borrowing piled up on the nation. This spending is close to half of the federal budget presented by Finance Minister Ishaq Dar on Friday with an outlay of Rs4.394 trillion.

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Federal budget deficit

The federal budget deficit - excluding provincial surpluses - will be brought down to 4% by 2017, and 3.5% by 2018.



Rate of inflation

The rate of inflation, which was recorded at 2.82 per cent, is the lowest in the past 10 years, claimed Dar.



Telecom sector

The proposed budget 2016-17 has been termed negative to neutral for the IT and telecom sector, as increased rate of sales tax on import of mobile phones would slow down the growth of 3G/4G mobile subscribers and impact the central bank’s efforts in documenting the economy through digital financial inclusion, experts said on Friday.

A total of Rs11.4 billion allocated for the telecom sector.

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Benazir Income Support Programme

The government has doubled the budgetary allocation for Pakistan Baitul Mal in the upcoming fiscal, while the Benazir Income Support Programme (BISP) has taken preference over other poverty alleviation schemes.

The government has increased the BISP allocation to Rs115 billion for 2016-17 – up by Rs13 billion from the Rs102 billion set aside last year.

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Energy subsidy target goes down further

The government has announced a further cut in consumer subsidies, particularly on energy supplies, and has withdrawn the concession on fertiliser sales in the budget for the next fiscal year 2016-17.

According to the budget book, the subsidy amount has gone up from Rs137.603 billion to Rs140.6 billion, but in relation to the total size of the national economy, it has slipped to 0.4% of gross domestic product (GDP) for the next fiscal year compared to 0.5% in the outgoing year. In 2014-15, the subsidy stood at 0.7% of GDP.

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Health sector

The Government has allocated Rs24.95 billion for health projects from the Public Sector Development Programme (PSDP) in FY 2016-17.

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Government salaries, pensions

The government increased the basic salary for federal government employees by 10%.

Pensioners older than 85 years will see a 25 per cent increase in compensation.



Behbud and pensioners' saving scheme

The upper limit for each will be increased from Rs4 million to Rs5 million.



Tax on foreign drama serials

Withholding tax imposed on all media houses airing foreign drama serials.



Foreign exchange reserves

Foreign exchange reserves target has been set at $30 billion, the finance minister said.



Promoting exports 

The government has decided to zero-rate the local supplies of textile, leather, carpets, surgical and sports sectors from July.

The import of textile machinery will continue to be exempted from customs duty.

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Increase in price of cement

The formula for Federal Excise Duty (FED) collection from the cement industry is going to be changed from the next fiscal year, said Finance Minister Finance Ishaq Dar during his budget speech.

“The government intends to charge FED of Rs1 per kg,” he said as he addressed parliament.

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Adhoc allowances will be made part of basic salary

In case of pensions, the minister said, adhoc allowances will be made a part of basic salary.



Education sector

The government has allocated Rs108.9 billion for education in the new fiscal year which is even marginally less than the Rs109.03 billion allocation of the outgoing fiscal year.

The government has allocated Rs84.1 billion for current expenditures and Rs24.7 billion for development expenditures. The Rs108 billion includes allocation for federal education ministry and higher education in the country.

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Agriculture sector

The agriculture sector has suffered due to floods and depressed prices. The PM announced a Rs341-billion Kisan package in September 2015 to help farmers.

For the coming year, fertiliser price will go down to Rs1,400 per bag, going down from Rs1,850.

The price of DAP fertiliser will be reduced from Rs2,800 to Rs2,500 from July 1.

Beginning from July 1, off-peak tariff for agriculture tubewells will go down from Rs8.85 per unit to Rs5,35 per unit. The government will bear a burden of Rs27 billion due to this measure.

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