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04 Fiscal Development

04 Fiscal Development

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Fiscal Development
10 against the target of 4.9 percent. The additional burden on expenditure was not supported by commensurate increase in revenues, but weaker economic activity constricted revenue generation process. Resultantly, fiscal deficit deteriorated to 4.3 percent of GDP in the period July-March 2011 as compared to 4.2 percent in the comparable period of last year. The target for 2010-11 has to be adjusted upward from 4.0 percent of GDP to 5.3 percent of GDP. Even meeting this target requires massive adjustment in development expenditure and some additional revenue measures in April 2011. Major Developments A low and declining tax-to-GDP ratio and increasing public debt stock has imposed a constraint on fiscal stimulus to support revival of growth momentum needed for the economy. The Reformed General Sales Tax (RGST) is in the Parliament. Other major reforms like harmonization of tax administration have taken place and strengthening of Risk Based Audit is under process. The government has also announced various temporary tax policy measures through Presidential Ordinance to generate additional revenues of Rs 53 billion during the last quarter of 2010-11. The administrative measures and vigilance will be helpful in generating another Rs 24 billion. These steps will also be helpful in achieving the revised collection target of Rs 1588 billion. Major development was the announcement of 7th NFC award in budget 2010-11 and for the first time the distribution of funds has been made on multiple criteria of population, poverty and backwardness, revenue collection/generation and Inverse population density. In addition to the above, number of economic and financial reforms

Fiscal policy is an instrument of economic development that can have major impacts on income distribution and poverty through taxes, public borrowings and public expenditures. Nearly four years after the start of global financial crisis, the global economy is now recovering. In advanced countries, the crisis was accompanied by a rapid and deep deterioration of public finances. The sluggish pace of fiscal consolidation has caused fiscal sustainability risks in major industrialized countries. The need for fiscal consolidation and sustainability is one of the key macroeconomic issues currently facing many developed and developing economies around the world. The sustained adjustment in the fiscal balance covering both revenue and expenditure measures, is urgently required. Previous challenges of fiscal & financial repair, reforms and rebalancing of global demand remained outstanding. Pakistan’s economy mainly remained immune to global financial crisis because of its lesser exposure to international finance. Loss of growth momentum in the wake of high commodity prices, coupled with the peculiar law and security situation, and power outages has aggravated threats to macroeconomic stability. Intensification of war on terror put additional burden on public finances at a time when weaker domestic economic activity is taking its toll on revenue mobilization efforts. Fiscal balance deteriorated in 2009-10, and some adjustment is expected in fiscal deficit but it is far off than target. Key reforms for revenue mobilization have to be delayed owing to peculiar internal and external pressures. It widened fiscal imbalance from 5.3 percent of GDP in 2008-09 to 6.3 percent in 2009-


Pakistan is characterized having lowest tax-toGDP ratio not only in peer countries but even in the region as well. National Highway Authority (NHA). Fiscal Policy Development Pakistan is confronted with the issue of stagnant tax to GDP ratio for more than a decade now. Dissolution of PEPCO has been initiated to ensure autonomy to power sector companies and human resource transfer plan of PEPCO employees is on track. financial and managerial audits of DISCOs and GENCOs have been completed to identify weak areas and ensure financial transparency. Technical. Pakistan Agricultural Storage and Services Corporation (PASSCO).Economic Survey 2010-11 were undertaken. The composition of the current Progress has been made including restructuring Board of Directors of eight Power Sector Distribution Companies (DISCOs). An overall framework for restructuring of following eight PSEs has been devised:• • • • • • Pakistan International Airlines (PIA). The total power sector subsidy in 2010-11 is expected to be in the range of Rs181. Trading Corporation of Pakistan (TCP) and Utility Stores Corporation (USC) The implementation of the power sector reform plan is in progress. Key issue of circular debt and receivables of power sector both current and previous are being addressed. and to move to a structural surplus and increased public sector savings. which are briefly discussed below: Austerity Plan Main objective of the plan is to provide a road map to attain austere and cost effective fiscal governance through: • • • • Rationalization of Expenditure Optimization of Available Resources Process Re-engineering and Efficiency of Operation Power Sector reforms The power sector reform plan developed by the government requires the following: • • • • • • Improved governance structure Supportive legal framework Financial sustainability Supply side management Demand side management Promote private sector participation in the sector The salient feature of the Austerity plan is the rationalization of government size through a reduction in the number of Federal Ministries and devolution of subjects to the provinces Restructuring of Public Sector Enterprises Restructuring of PSEs has been initiated in order to improve overall corporate governance of PSEs and service delivery. Pakistan Steel Mills. Pakistan Railway (PR).9 billion.4 billion to Rs 227. as overall tax-to-GDP ratio fluctuated in a narrow band of 9-11percent owing mainly to structural deficiencies in the tax and administration system both at federal and provincial government level. monthly fuel adjustments are being passed on to consumers. In this regard. In order to address this. Pakistan Steel Mills (PSM) and Pakistan Railway in line with the guidelines developed by the Cabinet Committee on Restructuring (CCOR). National Transmission and Dispatch Company (NTDC). There have been regular increases in power tariff in the form of surcharge to narrow down the cost and revenue differentials of the power sector companies. Efficiency gains are likely to reduce cost differentials and tariff differential subsidy. The estimated power sector subsidy is expected to decrease substantially in the coming years. work on NEPRA amendment to empower NEPRA to notify tariffs as determined from July 2011 is underway. Pakistan Electric Power Company (PEPCO). 48 .

The shocks are absorbed by development expenditure.3*† 20.4 13.5 2.7 2005 5.5 9.9 percentage points) during the past 3 years.7 percentage point of GDP) is shared by current expenditure (1.8 2000 1. implying massive under-taxation.2 4. Nonetheless.8 16. a similar pattern holds for expenditure to GDP.7 2007 3.8 10.5 3. Pakistan’s expenditure remained lowest among developing countries at the same level of development.5 13.8 14.0 3. Pakistan has undergone many tax and administration reforms but no major improvement in revenues is observed in the past 10 years because on the revenue side.5 3.8 6.6 2.8 15. there is a limited fiscal space.2 2004 9.6 4.1 10. .8 4.3 20.7 18.1: Trends in Revenue-Expenditure Gap 23 22 21 20 19 Expenditure % of GDP 18 17 16 15 14 13 12 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11* During the decade of the 2000s.4 2008 1.1 13.3 3. respectively. Taxto-GDP ratio in the table-4. the total expenditure is expected to reach at Rs.8 14.2 3.7 5.5 13.2 percentage points) and development expenditure (0.6 3.0 3.4 14.5 16.0 3.7 2.4 18.5 5.8 14.5 15.4 10. Relatively. Total expenditure and total revenue witnessed near stagnation and both items moved up and down in very narrow band.1 hides many distortions.6 2006 6.5 13.8 5.2 10. viewed in terms of key fiscal parameters like revenue.574 billion or 14.6 10.2 2.8 11.9 16.8 14. Fiscal deficit as a percentage of GDP has declined from 7.8 2011(B) † Statistical discrepancy (both positive and negative) has been adjusted in arriving at overall fiscal deficit numbers.7 7.0 percent of GDP.9 10.6 percent of GDP. Table 4.3 percent in 2008-09 on account of a drastic cut in development expenditures. Consequently.9 2010 2.7 2.9 5.6 percent in 2007-08 to 5. The decline in total expenditure (1.Fiscal Development expenditure is narrowly based and offers little room to take burden of critical fiscal adjustment. expenditures and fiscal deficit indicate a notable change since 1990’s.6 2001 18. The lack of availability of external financing has further aggravated the fiscal predicament as the burden unfairly falls upon domestic financing.9 16. tax to GDP and hence revenue to GDP either remained stagnant or showed a secular decline.4 2003 7.3† 17.7 3.1 3.3 19.6 22. which is crucial for a sustainable economic growth. * Include earthquake related expenditure worth 0.4 2.3 3.0 10.4 4.7 3. with total expenditures showing an overall decline since 2007-08.8 4. 3257 billion or 18.1 4.4 14.0 18.3 percent in 49 Fiscal Deficit Revenue The fiscal position.3† 2002 4.3 16.9 3.2 11.6 14. The debt and security related spending is taking almost three-fourth of the current expenditure and thus room for adjustment is very low.8 4.8 13.5 percent of GDP for 2005-06 and 2006-07.5 14. On the other hand. Fig-4.2 18.0 14.3 2.1 4. However in 2010-11. total revenues are expected to rise by Rs 2.1 10.4 3.8 and 0. Tax 3.0 14.3*† 18.1: Fiscal Indicators as Percent of GDP Expenditure Revenue Overall Financial Real GDP Fiscal Total NonYear Growth Total Current Development Tax Deficit Rev. the fiscal consolidation witnessed in 2008-09 evaporated with an increase in fiscal deficit by 6.3 10.6 4.4 15.3† 16.5 2.1 2009 3.

Su Saharan A a sia ubAfrica (16.6 [31. the region ca .5 per an der rcent.4} {18. a ent Fi ig-4. e Structure of Tax Revenue Pakistan h historicall a punctured tax base wi has ly ith some sectors are under-taxed and some are n not taxed at all. thereb necessit by tating upwar adjustment in the fis rd scal deficit t target from 4 percent o GDP at th time of b of he budget annou uncement to 5.Economic Survey 2010 c 0-11 he 2009-10.7 per rcent).0 0 8. This explains very low ta tax T s axto-GDP r ratio and fai ilure of man tax reform ny ms going on for the last two decades because on s nly nistration’s eff fficiency is ta axindicator of tax admin to-GDP ratio.1 {57. b because of rev venue shortfall overrun on power sector subsidies and elevated secur expenditur as ls. interest payments averaged 18.8 percent) Recent effor at budget c a ).3 perc cent as a share of GDP in 2009— e compared with Europe and Central As (21.8 percen and l nt) Afghanista (7.4%). ia’s overnment tax revenues aver raged 14.4%)— —and represente less than 1 percent of GDP in Paki ed 12 istan (10. This unfair d f .2 percent). reflects ele evated interest payments as a share of tot outlays in Bangladesh (1 t tal 17.5%) and Latin Am merica and Cari ibbean (16.3} To otal 267. B Billion) Tax Rev as % of v Direct D Year Total (FB BR) Taxes GDP G 2000-01 392. rity res. In particular. and Sri Lanka (25. Pet troleum secto accounts for around 2 or 27 percent of tax revenue. significant pressures ema anating from b both the revenu and expend ue diture sides. well as floo od-related exp penditures.2: Structure of Federal Tax R Revenue (Rs.2: FBR Tax Rev as % o GDP of 10. rts consolidation h have been mis ssed in Pakistan. arries a partic cularly heavy burden in the form of high interest paym e h ments.8]* Customs C 65 {24. hit mmer of 2010. Box-2: South Asian F Fiscal Consoli idation Dilemm ma South Asia has the large fiscal defic among deve a est cit eloping countr with the re ries egion-wide def ficit estimated at 8. India’s tax base is broad at 16.2 percent in 2009 by far the h t 9. Nepal (11.2 2 9.3}^ Indirect Taxes Sales Excise E 153. with th exception o Latin Ameri and the Ca g a as he of ica aribbean (11%) This ). Relative to total expend o ditures.3 9. tax mobilization in the x region is lo South Asi general go ow.3 percent of GDP. Reformi taxation sy ing ystem for additional revenue mo obilization is critically impor c rtant for sparin more resourc for social s ng ces sector developm ment. the catas strophic floo which h ods.0 0 9.4 9 124.6 49. On the exp penditure side.8 8 Table 4. which was 1.2 pe ercent).2] 50 .4 4 9. Meanwhile. Agricu ulture and s services sect tor accounts for three-fou urth of nation income b nal but its contri ibution hover red around 10 percent of GDP. reduce ed Pakistan in the sum growth and posed a further challenge to public finances by depressing budg b get reven nues and necessitat ting addit tional spend ding to me eet the hu umanitarian and recon nstruction needs.8 8 Percents 9.3 percent) I India (17.6 6 9. The high fiscal defi h icits in the reg gion reflects a number of lon ngstanding stru uctural factors with s.7 [68.2 percent in 2010. Large size of inform economy is mal peculiar c characteristic of developing countries b but Pakistan’s case is mo serious as tax-to-GD s ore DP ratio is t the lowest not only in t n the developin ng world but also in the region as it h t hovers at a 9 9. distribution h has proved t be distor to rtionary and incentivizin d ng massive t evasion. highest share a among developing regions and at least twice a high.5 percent). Pakistan (2 25.5 percent more than th budget e estimate for 2009-10 due to larg r ge additional subsidies for the elec l ctricity secto or.2 nt d percen as compared to around 15 percent in Sri Lanka and 16 perce in India.

9] 487.2 8.6] 619.9} 219.5 [35.5] 333.5} 138 {28.1 8.2] 165.6 [31.2} 261.9 {25.2 1161.7 {14.7 [39. For Pakistan.0 {64. Sales tax has becoming very important consumption tax and it accounts for two-third of indirect taxes.8 {13.4 9.3} 376.5 {15.9 {66.6 9.2 [67.6} 674.0 [39.9 {60.4 [68.9] 657. Reformed GST It is evident by international experience that adoption of a VAT is associated with a long run 51 .6} 162.6 {12.7} 205.2} 44. broadening of the tax base and improving the overall efficiency of the tax system.9 [30.9} 89. Similarly excise duty is being replaced by sales taxes and thus its share in the indirect taxes has declined.0 [60.2 {14.3} 59 {18.4] 47.2 {18} 47.5] 513.0 {20.1] 411. the provinces as well as the major stakeholders to ensure smooth implementation of R-GST.9} 47. this level of taxation has to be increased through major overhaul of the taxation system and administration.9 9.3} 180.0 [38.7} 148.4} 121 {15.3} 132.9 460.5] *as % of total taxes . which are as follows:Reforms increase in the overall tax-to-GDP ratio of about 3-5 percent.6 [68.6 518.2 142. R-GST/VAT is envisaged to be a key structural reform in documenting the economy.6 {24. Extensive negotiations are underway to develop a consensus with the political parties.3] 148.6] 444.2 1007.6 [64.2] 529.4} 117 {28.0} 516.2] 1009.7 9.4 {16.Fiscal Development 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11B 403.4 847.8] 353.2 9.9 9.8 799.4 713.1 1327 1667 9.3 [31.7] 312.8 588.4] 717. Trade related taxes or customs duty has lowered its share in indirect taxes from 24 percent at the start of the decade and 20 percent at the end of the decade.7 {65.9 [68. Going forward.5 [32. ^ as % of indirect taxes B Budget estimates Source: Federal Board of Revenue The internal structure of taxation has undergone substantial changes as the share of income tax has risen significantly from around 31 percent in 1999-2000 to 39 percent in 2010-11 and indirect taxes are paving the way for direct taxes.5 [60.6 {63.3 [60.4] 387.0 {63.6 {60.2} 294.4 [61.9} 166.7 [60.6} 117.3} 55 {11.6 {15. The main culprit is the falling share of customs and excise duties mainly because of tax and tariff reforms.8 {17.9} 92.1} 153. a number of additional Tax Policy and Administrative Reforms initiatives have been announced.8 9.8 {18.9] 176.5 [39.4 {60.6} 58.0 {20.4} 309.7 [39. It has been recommended by the Senate and National Assemblies Standing Committees. The proposed Federal Reformed GST (RGST) Bill was tabled in the National Assembly and provincial R-GST bills were also tabled in the provincial assemblies.5 {57.3} 71.3} 452.8} 150. The reforms needed to increase the tax to GDP ratio 13-15 percent during the next five years.1 {62} 235.1] 224.3 {25.

Economic Survey 2010 c 0-11 Fig-4.3 %age of To tax 3: otal 40. Th following tax measur Act he res have been taken throug these amen n gh ndments:1. leathe rs er. dated 15-03-2011. NTNs i issued etc.0 8. -06-2006 whe under sale tax ere es was b being charge on sugar at the asses ed ssable value of Rs 28. n.0 24.0 32. All these m measures are likely to gen nerate additio onal revenue of Rs 5 billion d 53 during remain ning period of 2010-11 Measu ures to impro tax admi ove inistration an nd collection nt measures taken to improve tax s o Recen admin nistration and strengthen tax collectio are d on listed below: structuring o the Organi of izational Setu of up a. zero-rating o five major z on export oriented sector (textiles. Special excise du rate has b uty been increase ed from 1 percent to 2. Bro oadening of T Base Tax • National Datab base and Registration Auth hority of Pakistan (N f NADRA) appr roached to he in elp id dentifying pot tential taxpay yers through datamining on 83 m m million CNIC holders based on C a taxpayer pro ofile which t takes into ac ccount ag education employmen residence type. th hrough Noti ification SR RO No. O Member (Inland Rev om One r venue) ha as replaced two M d Member dom mestic op perations. Inc come Tax Or rdinance 200 and Feder 01 ral Excise A 2005. Moreover. at ates 52 b. A one etime surchar of 15 percent has bee rge en impos on withh sed holding and advance tax xes payab during fina ble ancial year 20 011.549(I)/200 08. nt. ge. an l nd fertilizer both at domestic and import stage d es. d. carpets.231(I) )/2011. w ha been create by placing special emp as ed g phasis on skills that m n match FBR’s n needs.230(I) )/2011. c.88 p kg.5 percent on non-essenti 2 n ial items for the rem maining perio of tax ye od ear 2010-11. date S ed 07. Sales Tax Refun nds • An expeditiou payment refund sy n us t ystem (E EPRS) has been setup in F FBR and rolle out ed all over Paki l istan since J July 2010 w where refund claims of manufactu urers/exporter are rs be eing processe online wi ed ithin 48 hou of urs fil ling of the r refund claim Issuance o all ms. The facility of zero-rat ting on plant.0 Direct Tax Cus D stoms 2009-2010 Sale es Excise 2010-11(Jul l-April) FBR h rescinded its Notifica has d ation SRO NO O.0 0. of refund cheque has bee centralize to es en ed . Domest ed tic supplies o these sect of tors will now be liable to w sales tax a different ra of 4 and 6 percent. ba ank accounts. Withd drawal of sales tax e exemption o on agricu ulture inputs like tractors. FBR has c created a ded dicated Directorate General for pursuing these pot tential tax xpayers. (No and Sout The new team orth th). dated 11 1-06-2008. Now t these are subj jected to 17 p percent GST 2. Now s per sales tax at th rate he of 8 percent will be charged on the actual pr of e rice sugar. These good d ds are now liable for sa ales tax at t rate of 1 the 17 percent. sporting goods and surgical goo ods) has bee en restricted to regist tered manu ufacturers-cum mexporters and exporte for export purpose on ers t nly by an amendment in SRO NO 509(I)/2007. Res FBR • Th number o members has been red he of duced fro 12 to 8.564 (I)/200 dated 0506. throug gh Notific cation SR RO 09-06-200 No. and 3. date 15-03-2001. pesticides. Through a combination of Presiden ntial Ordinanc ce and with hdrawal of SRO base exemption e ns. amendme have been made in the Sales Tax A ents n e Act 1990. travel patte ern.0 16. Co ompliance an Enforcement Measure nd es • Fo ocused effor are bein undertake to rts ng en reduce non-file and shor ers rt-filers in in ncome tax and sales ta x ax. machinery an nd equipmen including parts thereof has also bee nt p en withdrawn by amend n ding SRO N No.

2011. Total expenditures (TE) rose to Rs 3. the government has disbursed Rs 30 billion under watan card scheme. In the current expenditure the decline is coming from non-interest-non-defence spending. Similarly. a. Private construction IT based forensic audit.4 percent.7 percent of consolidated public expenditures. mainly due to the impact of higher salaries and allowances for federal government employees in 2010-11. Current expenditures (CE) during 2009-10 not only surpassed the 2008-09 level but also the projected amount by a significant amount.0 percent in 2010-11 on account of slashing of development expenditures. To devise risk based selection criteria rather than random method for audit for major sectors of economy. is the development of a Pakistan Customs Valuation Gateway website containing data pertaining to commodities.2 billion or 20. that fiscal consolidation could not be maintained in 2009-10 largely because of a sluggish growth in revenues. Audit Policy 2010-11 (Tax Returns 2009) The audit policy and risk criteria have been developed for the financial year 2010-11 (for returns of 2010). persistence of security related pressure on public expenditures and greater than budgeted subsidies. to alleviate the brunt of an increase in current expenditure and to ease the deficit pressure. Customs Modernization Reform Under customs modernization reform. The elevated current expenditures was primarily due to higher than projected spending on defense and security related spending along with a significant continuation of subsidies for energy. Review of Public expenditure During July-April. f. flood relief measures claimed an unbudgeted 1.Fiscal Development finalize refund to taxpayers within seven days of their claims being cleared. the government resorted to limit the development spending below target level during 2009-10. To include with-holding agents and post-refund Sales Tax audit in the next Audit Plan.8 percent during the same period of 2008-09. a major initiative taken up under the restructured TARP. Transport sector. As discussed earlier. In order to 53 Public expenditure remained under tremendous pressure in the year under review as commensurate increase in revenues was not available. The expenditure overrun instead of reduction in development expenditures is a major cause of concern but equally important is revenue shortfalls. There is a need for . 3.9 percent of GDP in 200809. Directorate General of Intellectual Property Rights (IPR) has been established to enhance efficacy of customs in IPR related work and provide back-up for enforcement to Customs Collectorates. thus it remained at 3.007. and to increase much-needed social outlays over the medium term. Salient features of the policy are given below: 1. 2011. food items (wheat & sugar) and cash transfers.5 percent of GDP as compared to 3.531 billion or 19. To increase the professional capacity by creating sectors’ specialist in: • • • Textile sector. Hotel services. however it is likely to decline to 18. Consequently. during July-March.3 percent of GDP in 2009-10 as compared to Rs 2. as available in various international bulletins in an effort to control under-invoicing. Insurance Sector strengthening the public finances in order to enable the government for higher spending on development and poverty reduction. Expenses under the head of running of the civil administration increased by 23. Tax Audits 1. To expand audit coverage of large and medium taxpayers gradually 2. Petroleum exploration & refining Banking Sector. e.

defense expenditure rose to Rs 375 billion during 2009-10 against Rs 329.5 -2.7 -1.5 2.5 4. 18.9 20.2 -1.8 2. in absolute terms.9 6.1 16.04 -0.9 -3.0 -3 -2.4 3. growth in non-tax revenues decreased by 5. that in turn 54 had a bearing on revenue mobilization.4 7.5 percent in 2009-10 and likely to remain slightly below than this level in 2010-11. a significant part of PSDP for 201011 has been diverted towards rehabilitation activities.2 13.9 billion in the same period of 2008-09.4 -4.4 1. Fiscal Performance: July-March.0 16.9 17. (As % of GDP) Revenue Deficit/Sur plus (TRTotal CE) Primary deficit (TR-NI Exp) Year Total Expenditure (A) Current Expenditure (B) Interest Payments (C) Defense (D) Development Expenditure (E) Non Interest Non-Defence Exp (A-C-D) Fiscal Deficit 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11B B : Budgeted. accounted for 15.6 1.4 20.3 : Trends in Components of Expenditure which was 3.5 2.3 3. While as percentage of GDP it remained at 2.1 0.2 4.2 -1.3 -3.8 5 4.7 2.2 19.8 5.3 -4.3 -7.5 3.7 -0.3 -4.7 14.8 18.3 -4. the development spending is expected to remain conspicuously low at 3.4 -1.9 2.5 11.6 6.8 4 3.3 -3.4 12.2 percent during July-March 2010-11 and reached to Rs1.7 16.9 3.489 billion as compared to Rs1.7 2 1.2 3. Resultantly.2 1.6 2.1 13.7 percent mainly because of a decline in transfer of SBP profits.5 percent in 2009-10.4 15. On the other hand.4 percent of GDP.4 3.7 8 9 10 9.1 5. Nevertheless the budgeted target is set at Rs 442 billion for the 2010-11 which is around 2.4 4.4 11.3 13. and expected to decline further by 1.3 14.8 13.5 17 18.6 22.3 -2.7 -5.4 -0.5 18.1 percent of current expenditure in 2009-10. mainly due to a substantial fall in interest payments.8 3. Table 4. IMF released $450 million as Emergency Natural Disaster Assistance (ENDA).3 0.8 -1.4 percent of GDP.7 -2.4 16.Economic Survey 2010-11 meet the fiscal target for 2010-11.9 percent in 2000-01 to 82.4 5.3 3.9 0. However.4 percent.3 3.6 percent of GDP at the time of budget announcement.9 3.4 2.5 18.3 -6. Demand on fiscal accounts increased due to relief and rehabilitation support to flood victims.0 16.1 2.2 18.4 0.5 0.3 3.1 The share of current expenditures in total expenditure has significantly declined from 89. .8 3.5 -0.3 -4.402 billion in the same period last year. total revenues grew by 6. On the other hand defense expenditures.3 15.1 3.6 -5.6 2.7 13. The increase is mostly coming from higher tax revenues partially contributed by direct taxes on the back of advance income tax payments and growth in taxes on goods and services and international trade due to increase in rupee imports.2 2. 2010-11 Pakistan’s economy was jolted by devastating floods at the start of the fiscal year and thus started weakening economic activity.1 4.6 15.7 10. According to the consolidated revenue & expenditure of the government.

FBR taxes witnessed a growth of 12.4 Consolidated Revenue & Expenditure of the Government Budget Prov.4 10. Fiscal deficit as a percentage of GDP stood at 4. other tax revenues neutralized this growth.891 2.8 335 Provincial 750 810 437. An efficient revenue mobilization can help to condense fiscal imbalances and fund much needed public goods and services.6 1020 Provincial Tax Revenue 80 66 35.Fiscal Development Within overall revenues.8 -771 As % of GDP -4 -5.889 1.835 1.6 0 23.351 1.Defense 442 442 269.6 percent during July-April.3 12. Total expenditure increased at much faster rate of 11.3 512 b) Development Expenditure & net 617 398 303 231 lending PSDP 610 390 286. Actual Prov.710 994.5 225 c) Net Lending 7 8 16.2 percent.574 2.3 Financing of Fiscal Deficit 591 903 625. Actual Projections Estimate Jul-Mar Jul-Mar 2010-11 2010-11 2009-10 2010-11 A.4 67.5 billion in the same period last year.3 percent during the first nine months of 2010-11 against the revised target of 5.9 353 .2 10.5 -63.588 909.667 1.641 2. 2011 and reached Rs 1156 billion against Rs 1026.3 percent for the whole fiscal year.60 1423 .027.2 17.Interest 699 727 473.4 351 B.80 2261 a) Current Expenditure 2. Negative growth in non-tax revenues neutralized further total revenue growth to just 6.257 3.1 Table 4.2 7.00 1.1 18.1 -23.90 1935 Federal 1.7 24.5 -4.837 18.063 18.5 12.025 1. Growth Jul-Mar 2010-11 6.2 -34. change in composition of public spending can re-adjust public resources away from current consumption towards growth 55 .1 28.776 1.00 a) Tax Revenue 1. Unsustainability of the fiscal balance emanates from the persistent growth in expenditure caused by flood relief activities.9 6.9 0 15.402.063 Slippages on Revenue & Expenditure during Last Three Years A well designed fiscal policy comprising of well articulated revenue and expenditure reforms is always supportive to promote economic growth.312 2. However. while on expenditures side.6 -5.8 -21.Privatization Proceeds 0 0 0 0 GDP at Market Prices 18.5 6 d) Provision for flood relief 80 39 e) Unidentified Expenditure 0 -1 0 56 C. Total Expenditure 3.283.4 2.60 1139 Federal 1. security related expenditure and delay in the implementation of tax reforms.029.2 1097 of which FBR Revenues 1.5 percent during July-March 2010-11 and thus widened the revenue-expenditure gap.3 685 . Overall Fiscal Deficit -683 -961 -625.720.1 19.809 1.2 -4.489.Non-Bank 333 350 322.063 14.5 332 .6 10.4 42 b) Non-Tax Revenue 686 576 372.5 505 .Bank 166 418 210. Total Revenue 2.7 11.6 61 ii) Domestic 499 768 533. and insufficiency of the external financing shifted more reliance on domestic resources to finance the fiscal deficit during July-March 2010-11. External resources for financing of budget deficit amounted to Rs 61 billion.9 746 i) External Sources 92 135 92.

3 percent of GDP in 2008-09 to 6.7 breaching fiscal deficit targets persistently.E 2. deepening of the global financial crisis. the revenue deficit improved considerably. 2008-09 Actual 1. nevertheless.499 2.3 percent in 2009-10.7 percent due to intensification of war on terror and over draft from the Punjab government.3 5.392 -582 4. . security spending.Economic Survey 2010-11 promoting investment.155 2. Additionally. While it could not be sustained in 2009-10 due to multiplicity of factors including widening of fiscal deficit on account of current expenditure and lower revenue collection. 2007-08 witnessed massive slippage in fiscal deficit. which was at 7.5 billion collected during the corresponding period of last year. The government curtailed development spending in order to dilute the impact of higher than budgeted current expenditures.078 3.E 1.9 2009-10 Actual 2. the devastation caused by floods during July and August 2011 obscure some of the optimism regarding economic activity and reforms.3 % Change -3.531 -680 5.007 -929 6. In spite of this.588 billion. Revenue collection of FBR stood at Rs1. Total expenditures increased by 4. FBR Tax Collection Tax collection by the FBR was targeted at Rs 1667 billion at the time of presentation of the budget for fiscal year 2010-11 under certain assumptions like higher growth trajectory.E 1. in 2008-09 under the IMFSBA. It was therefore.6 % Change 1. government’s effort for fiscal consolidation was relentlessly challenged by domestic and external sectors imbalances in confluence with deteriorating security environment. Consequently.6 percent growth over Rs 1.026.5: Slippages in Revenue-Expenditures 2007-08 Items Total Revenue Receipts (Net) Total Expenditure Overall Fiscal Deficit as % of GDP B. lower since 2007-08.6 21.156 billion during July-April 2010-11. The task of fiscal adjustment became even difficult.476 1. IDP 56 related expenditures together with electricity subsidies.6 percent of GDP against the target of 4 percent.8 B.3 % Change 2. aggressive taxation and tax administration reforms. thereby reflecting 12.809 2. During the last three years expenditure overrun surpassed the revenue increases. On the other hand 2008-09 observed a consolidation of the government’s fiscal position at the expense of development expenditures. fiscal deficit increased from 5. Consequently the target was downward revised to Rs 1.5 percent.5 - Pakistan has experienced overwhelming fiscal challenges in the recent past in particular during 2007-08 on account of revenue-expenditure gap that lies in the structural weaknesses of Pakistan’s tax system. Despite unfavorable economic conditions. However.851 2.4 B. However. fiscal deficit declined to 5. and persistent inflationary pressures etc.277 -777 7. Hence.877 -722 4.6 4. FBR exhibited reasonable performance during first nine months for current fiscal year.0 Actual 1.875 -399 4. thereby resulting in Table-4. Acute energy shortages have eclipsed prospects of better large-scale manufacturing ⎯ the main source of tax revenues. the government took various budgetary measures to attain fiscal consolidation.3 percent but still higher than the target of 4.

respectively showing growth of 19.1 674.2 180. the gross and net collection has witnessed a growth of 16.6 13.3 19 417.7 billion and 125.3 71.0 12. edible oil.3 430 773.9 percent and 10.3 12. Rs Billion Achievement (Percentage) Revenue Heads A.6 percent. Within indirect taxes.026.7 1.234 78.3 24 638.9 billion and Rs 482.9 149. respectively over the corresponding period of last year. telecom.6: FBR Tax revenues during the period under review has been Rs 522.9 99. sales tax increased by 15.9 71.001 101. POL products.7 percent during the first nine months of 2010-11. plastic resins.6 13.6 141.3 482. Within net domestic sales tax collection.2 130.2 FEDERAL EXCISE Gross Refund/Rebate Net B.2 436. respectively.9 40.5 101. sugar and cigarettes.9 billion in this 57 .2 657.9 -28. natural gas.3 1.1 388. petroleum products and machinery.6 66. 2010-11.5 121. services.9 153.2 percent and 12.3 95. DIRECT TAXES Gross Refund/Rebate Net B.0 -96.156 % Change 521. respectively.0 percent has been registered in the net collection of federal excise duty (FED) during July-April 2010-11 as the net collection stood at Rs 101. A growth of 7.6 percent in gross and net terms.0 10.3 1320.8 19.2 billion and Rs 141.6 7.4 42.0 125.3 Custom duty collection has registered a growth of 14.8 percent of the total FBR tax revenues.2 1.9 47.8 112. On the other hand. INDIRECT TAXES Gross Refund/Rebate Net B.E) July-April 2009-10 2010-11 430. and collection on demand.5 460.9 516.5 billion. Major revenue spinners of custom duty have been automobiles. edible oil.6 1.1 15. Of net collection.2 1009. The gross and net collection has increased from Rs 130.6 percent.7 6. major contribution has come from POL products.8 percent and 15. Major revenue spinners of direct taxes are withholding tax.9 percent and 13.2 7.1 SALES TAX Gross Refund/Rebate Net B. The gross and net sales tax collection Table 4.Fiscal Development Direct Taxes The gross and net collection has registered a growth of 6. iron & steel and machinery have major contribution in the collection of sales tax from imports.2 52.7 16. It has accounted for 62. vehicles.0 7.3 30.3 CUSTOM Gross Refund/Rebate Net TOTAL TAX COLLECTION Gross Refund/Rebate Net 2009-10 (Actual) 2010-11 (B.0 14.6 65. while the rest originate from imports.0 18.9 726 522.9 0.025 95.4 1667 69.8 percent.7 5.4 799.6 billion during July-April 2010-11.3 161.8 78.2 0.092.7 66.7 billion during July-April 2009-10 to Rs 149. voluntary payments. almost half of total sales tax is contributed by sales tax on domestic goods and services. Indirect Taxes During July-April.3 662.

4 39.9 Total 2009-10 RE 697.8 94.1 29 7.1 26.3 31.8 56. support will be needed to harmonize with federal initiative.6 5.7 40 127.6 628.4 percent). services.2 36. • Provincial Budget The total outlay of four provincial budgets for 2010-11 stood at Rs 1.8 72. The major are cigarettes.1 258. • Major modification to the MTBF budget preparation implemented with effect from 200910 include the following: • • • • • Introduction of budget ceilings for all federal ministries.2 90.4 36.3 13.4 percent in budgetary outlay followed by Sindh (30. • Adopting programmatic basis of budgeting.5 53. POL products and Provinces have started MTBF initiative.8 2010-11 BE 308.8 2.9 20. First step towards result based budgeting Clear identification of the cost of services (outputs) to be delivered.6 50.Economic Survey 2010-11 period as against Rs corresponding period of revenue spinners of FED beverages.7: Overview of Provincial Budgets Punjab Items 2009-10 RE 359.5 74 2010-11 BE 100.290 billion.5 148 3. enacting budget preparation manual.8 187.1 339.7 116.3 68.7 199.9 Sindh 2009-10 RE 214. building on the existing output based budgeting methodology. Balochistan buoyed by more expected resource flows from the federation witnessed the highest increase of 37.8 percent). All Others Total Revenues (A+B+C) 58 .9 2010-11 BE 533. Preparation of ‘Medium Term Budget estimates for Service Delivery’ (GREEN BOOK). output monitoring function.9 422. Non-Tax Revenue C.6 569. linkages with PIFRA and design of curriculum for civil services trading and induction courses.9 245.6 12. however.8 17. Supporting the embedding of MTBF in PIFRA-II through Financial Management Application and necessary training to help the line ministries to take the charge of compiling their detailed budgets.9 3.1 1.4 123.5 Baluchistan 2009-10 RE 41.2 870.1 443.6 2010-11 BE 163. Institutionalizing the MTBF in the Ministry of Finance Medium Term Budgetary Framework (MTBF) Main objective of MTBF program is to align public expenditures with government strategies in more predictable way.5 944. natural gas.4 4.4 percent higher than the outlay of Rs 997 billion for the last year. capacity building within Finance Division.6 A. 95. Transition from Financial Advisers to Chief Finance & Accounting Officers through a viable transition mechanism.8 1232. Punjab (28 percent) and KPK (26.2 billion during last year. (Rs Billion) • • Table 4. Need to create linkages with provinces at the time of development of Budget Strategy Paper and find avenues to create a unified approach of output based budgeting across Pakistan. Total Tax Revenue Provincial Taxes Share in Federal Taxes B.3 KPK 2009-10 RE 82. which is 29. this reform will need 1-2 years to be fully functional.5 308.5 79.7 1.6 15. Strengthening the strategic process of budget preparation in each federal ministry. cement. Following areas need attention under MTBF reforms. • Further synchronizing the monitoring function with output monitoring (both financial and non-financial) which has become a regular feature of the Ministerial activities.8 322. The reform program is extending its domain to sensitive systematic issues such as working on Public Finance Act to allow MTF budgeting a legal cover.2 2010-11 BE 1106 161.8 26.2 32.

9 22.8 56. The accelerated growth was mainly due to increase in provincial share in federal revenues under new NFC award and of combined with federal and foreign developmental grants to the provinces.2 20.9 497.8 291. the consolidated fiscal balance deteriorated in 200910 since an exceptional growth in total expenditure has outpaced revenue growth.7 20.8 18.3 2010-11 BE 268.7 308.4 ‐0.3 453.9 722.3 109.1 162.8 112.8 54 453 2010-11 BE 386.5 996.2 79.1 21.1 93. Allocation of Revenues between the Federal Government & Provinces Fiscal decentralization or decision making at lower level is believed to be an effective strategy to promote economic growth and development. Acount Total Exp (a+b) 504.2 0 27.9 1002.6 Despite a significant growth in total revenues.3 2010-11 BE 127 69.3 554.3 KPK 2009-10 RE 109 46.5 262 99.2 ‐2.2 134.7 9. Ministry of Finance The overall provincial revenue receipts for 201011 are estimated at Rs1233 billion.9 ‐8.5 19.6 2010-11 BE 865.4 2. Total Tax Revenue Provincial Taxes Share in Federal Taxes B.1 50.5 155.5 21.5 2008-09 612 57.8: 3-Years Overview of Provincial Budget 2008-09.5 1289.8 83. It is the empowerment of fiscal responsibilities to the sub-national governments.8 112.2 119.9 2009-10 697.9 19.3 0 26.3 179.4 580. However.0 FY10 13.5 57.8 688.5 FY09 21.2 611.9 314 118.5 424.2 132.3 9.2 870.9 403. (Growth) 2007-08 A.2 113.8 291.5 100.8 193.9 759.2 704.1 195. On the other hand KPK managed to have a surplus balance on account of a large sum in received in the form of federal loans and grants along with the profit from hydro electricity.7 27.4 ‐2.3 32.8 61.Fiscal Development Punjab Items 2009-10 RE 318. which is up by 42 percent compared to last year.6 48.3 179.8 59. total revenue of the provinces registered a growth of 20 percent in 2009-10 as compared to 18 percent in Table 4.3 135. Account ii) Cap.7 291.3 11. Province-wise breakup reveals that the rise in overall balance was entirely generated by Punjab and Sindh.7 a) Current Expenditure b) Development Expenditure i) Rev. All Others Total Revenues (A+B+C) a) Current Expenditure b) Development Expenditure i) Rev. Non-Tax Revenue C.5 996.4 13.6 628.7 116.8 196. involving devolution of powers to tax and spend along with arrangements for correcting the imbalances between resources and obligations.9 2010-11 BE 83.8 Total 2009-10 RE 704.3 68.1 38.4 26.1 ‐4.7 58 52. The 59 .3 ‐7.3 Sindh 2009-10 RE 224.3 Baluchistan 2009-10 RE 52.8 19. Acount Total Exp (a+b) Source: Provincial Finance Wing.8 36.7 80.7 13. Account ii) Cap.

1 297.2009-10 In the 7th NFC award. Billion) 2009-10 574.Economic Survey 2010-11 distribution of resources and fiscal equalization transfers are a controversial issue around the world.8 2.0 0.9 54.5 21.8 0.6 2010-11B 865.0 0.0 0.8 18.6 0.6 70.8 167. While the share of the federal government in the net proceeds of divisible pool stood at 44 percent in 2010-11. 60 .9 2006-07 320.3 29. poverty/backwardness (10. an increase of 51.1 81.0 40.7 24.0 510.4 0. significant efforts have been made in order to restructure the balance between the federal and provinces.6 24.6 2008-09 477.5 17.3 19.077.5 percent in the remaining period of the NFC award.6 26.8 40.2 381.5 2007-08 391. the transfers to provinces has been projected to increase to Rs 1.3 18.1 385.5 16.119. However in Pakistan.3 during 2009-10 to 56 percent in 2010-11 and it would increase to 57.0%) and area or inverse population density (2.6 14.6 25.7%).6 billion in 2009-10.9 33.4 31.3 0.0 753.1 1.5 percent in 2011-12 onwards.0 710.0 16. Hence.4 465.3 28.2 82.0 Source: Budget in Brief.8 63.0 626.4 82.7 348.5 2.6 percent in the 2010-11 over the actual transfer of Rs 710. (Rs.2 21.1 1.9 1.6 56.8 19.3 16.077 billion.0 0.4 0.5 1.1 439.0 587.7 18. the distribution of the resources has been made on a multiple criteria which consist of population (82%).3 15.9: Transfers to Provinces (NET) 2004-05 Divisible Pool Straight Transfer Special Grants/ Subventions Project Aid Agriculture Sector Loan-II Japanese Grant Total Transfer to Province Interest Payment Loan Repayment Transfer to Province(Net) 204.5 35.4 40.6 2005-06 244. revenue collection/ generation (5.3 65.3%). while it will remain at 42. The 7th NFC award is the major development under which the share of the provinces increased from 45 percent Table 4.1 0.7 244.9 25.

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