PESHAWAR:
A cash-strapped Khyber-Pakhtunkhwa government announced a Rs249 billion budget for fiscal year 2012 on Saturday that included several tax increases on wealthier residents in the province even as other taxes were reduced to help spur economic activity in the province most affected by the Taliban insurgency.
The impact of the war against terror was evident on both sides of the provincial ledger: Khyber-Pakhtunkhwa is expected to receive Rs18 billion from the federal government beyond its normal share in order to compensate the province for the impact of terrorism in the upcoming fiscal year, while Peshawar continued to spend nearly twice as much on security and law enforcement as education and health combined.
The provincial allocation for public safety and law enforcement is Rs23.2 billion while education has been allocated Rs5.4 billion and health will get Rs9 billion in the fiscal year ending June 30, 2012.
Khyber-Pakhtunkhwa Finance Minister Humayun Khan presented the budget in the provincial assembly on Saturday, the fourth consecutive budget under the ruling ANP-PPP coalition.
The province is heavily dependent upon the federal government for most of its revenues. Less than 3% of the Khyber-Pakhtunkhwa budget is financed by revenues generated by the provincial government itself. Over 77% is received as grants or transfers from Islamabad. About 13.3% of its revenues come from profits due to the hydroelectric power generated in the province, a transfer made the federal water and power ministry to the provincial government.
Total federal transfers to the province, excluding profits from power generation, come to Rs192.3 billion, which is 18%, or Rs29.3 billion higher than last year. However, since the provincial government decided to follow the federal government’s policy of raising civil servant salaries by 15% and pensions by 20% – in addition to a slew of other increments – about half of that sum (Rs14 billion) will be spent on salary increases alone.
The provincial government is also expected to increase the size of its own work force by almost 7,000, though most of the jobs will be created at the district level. Local governments in the province have been allocated Rs50.8 billion for salaries.
All of these decisions have been made even as the provincial government complains that salaries and pensions have begun taking up an increasingly larger share of its total outlays. “The salary budget of the province is increasing at an alarming rate,” admitted the government in one of the provincial budget documents.
However, it also pointed out that increasing personnel was also necessary to administer the assets that were built through the projects financed by the development budget.
Meanwhile, the provincial development budget was set at Rs85.1 billion, a 31% increase over actual spending last year. Much of the budget is expected to be spent on flood relief activities, as well as increasing the capacity of law enforcement agencies to combat the Taliban militancy.
Tax policy changes
The Khyber-Pakhtunkhwa government is targeting affluent residents of the province for tax increases even while it reduces many other taxes and government fees.
The government will increase taxes on commercial property situated on GT Road and Jamrud Road, but is unlikely to raise taxes on other areas, though some affluent urban neighbourhoods may be placed in a higher tax bracket for property taxes.
Transfer fees for vehicles and re-registration fees have also been increased. Tobacco development taxes will also be increased in addition to electricity inspector taxes.
However, capital value taxes on property will be decreased from 4% to 2%. In addition, the provincial government has decided not to raise agricultural income taxes, even as it admitted the need to improve tax collection.
Published in The Express Tribune, June 12th, 2011.
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