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Budget 1991-92.

Budget 1991-92

Finance Minister Sartaj Aziz presented a budget of Rs. 258 billion showing a budgetary gap of Rs. 18.5 billion, which is to be bridged by tax mobilisation efforts. In fact the budget deficit has reached an all time high of about 90 billion rupees which is sought to be met to the extent of: a) 18 billion rupees from the new resource mobilisation measures, b) 48 billion rupees from external borrowings, and c) 24 billion rupees from internal loans. While the last year's budget had made a provision of deficit financing in the amount of 5.88 billion rupees, the revised estimate puts the figure at 12.68 billion rupees.

According to Press reports, this figure had increased to 37 billion rupees some time in April. The decline may have occurred on account of retirement of loans in anticipation of the budget. But one notes also that no deficit financing is proposed during the next year. Our dependence on borrowing has increased tremendously; we will be borrowing 48 billion rupees externally, 10.33 billion rupees more than during the current year. Internal borrowing is proposed at a slightly lower level (24 billion rupees) than last year's at 25.86 billion rupees. The Prime Minister's concern over the galloping rise in our debt burden at the rate of 250 million rupees a day apparently finds no reflection in the Budget proposals. The appropriations for defence and debt-servicing at 151.66 billion rupees take away 98.87% of the total revenue receipts and 84.6% of the current budget, leaving only 15.4% for the performance of the other functions of the government, law and order, civil administration and economic and social services. A substantial portion of the revenue budget and the entire programme of development is to be financed from borrowing and there seems to be no deceleration in this trend, at least not in the budget presented on May 30. A disconcerting feature about the budgets in Pakistan has been a disproportionate dependence on indirect taxes, 86 per cent up to 1989-90. Last year efforts were made to raise the share of direct taxes which have, in the revised estimates, gone up by about 1%, and the budget proposals for the next year seek to raise this share further by 2.64% to 17.64%.

Despite the tight situation the budget manages to provide relief to the tax payers by lowering the highest tax slabs, with consequential adjustments in the lower ones. The exemption for the National Savings Schemes, about whose continuance, apprehensions were expressed, has been protected. Relief is sought to be provided by simplification of procedure, curtailment of discretion of tax functionaries and avoidance of contact between the tax assessees and the assessors. However, increase in phone charges is rather excessive, especially in view of the deplorable state of maintenance and the level of efficiency of the utility. Already a call costs much more than the tariff rate as one is certainly lucky if the call goes through in one attempt. The increase puts a premium upon inefficiency. In order to make the size of the ADP impressive at 72.66 bln. rupees (otherwise it is about half of this amount), the proposed outlays of Wapda, OGDC, the Telephone Corp. and the Highway Authority have been included although these organisations fall outside the purview of the budget.

What one finds hard to reconcile with the IJI Government's promises and professions concerning human development is the drastic slashing of funds in the ADP for the relevant projects. According to the revised estimates for 1990-91, the expenditure on education, science and technology, health, population, social and women's welfare and rural development amounted to 9.841 billion rupees. This has been reduced by over 70% to 3 billion rupees. This amount is less than what is collected as Iqra surcharge, a levy imposed specifically for education. The Baitul Mal, a laudable institution by itself, which is really meant to provide charitable support and not human development will not compensate for this reduction for its allocation is only three billion rupees. The underlying reason for this cut may be the transfer of these responsibilities to the provinces; if this is so, one does not find it reflected in a proportionate reduction in the concerned federal ministries' allocations. There is no objection to the private sector being entrusted some responsibility in this behalf, but it should be realised that, being profit oriented, it would only look after the needs of the well-to-do and hardly take care of the demands of the 30 per cent of the people who live below the poverty line.

Corporate Sector: The corporate sector, seems to be worst hit by the proposed budgetary measures, as is evident from the Finance Bill on the one hand and a wider scope of "Presumptive Tax, Schedular Tax and Withholding Tax' at different categories, on the other. The finance bill proposes to tax on bonus announced by a company in the hands of company as well as of shareholders. The rate could not be specified at this stage as a number of details of the bill were not available now. The government has also proposed direct deduction of tax. on dividend, bank profits, interest on account or deposit with the bank, profit or interest on bonds, debentures, securities and other financial instruments, prize on the prize bond, raffle, lottery and other similar sources of income at a rate of 10% and 7.5% as the case may be. The bill proposes that dividend from companies, including private limited companies, would be subjected to withholding tax at an increase rate of 10%. It also proposes to withdraw the tax exemption limit on dividend income and all the income accrued from the dividend, if the bill is passed by the parliament. The bill where proposes deduction at source, no allowance or refund of tax so deducted or collected or any loss under any provision of the ordinance would be allowed. A new section 143B would also be introduced under which any person falling under section 80B would require to furnish details of his income up to September 30, every year.

A provision regarding minimum tax to be recovered, may bring such companies too in the net, whose income was exempted or sustaining losses. The tax rate proposed in such cases was at 0.5 per cent of the turnover. The bill also proposes withdrawal of tax credit facilities on the investments to be made after June 30, 1991. The proposed withdrawal would affect the investment made in shares, debentures or Equity Participation Fund, debenture or negotiable bonds, share capital of industrial undertakings. The bill strangely proposes withdrawal of tax credit on the investment made on plant and machinery under the BMR. This decision was considered as bad decision from the industrialisation point of view. The industrialists termed this proposal as anti-industrialisation measure. The current expenditure during 1991-92 would be Rs. 185.64 billion showing a rise of 8.1 per cent over the revised current expenditure of Rs. 171.64 billion. As a ratio of GDP the current expenditure in 1990-91 worked out to 22.13 per cent against 16.78 per cent in 1988-89. On expenditures like defence and debt servicing the Government has no control. The defence would take Rs. 70.95 billion or 38.25 per cent of the total expenditure while 43.48 per cent or Rs. 80.71 billion would be taken away by debt servicing.

The defence expenditure has been swelling from year to year. It has now increased from Rs. 51.10 billion in 1988-89 to Rs. 63.59 billion in 1990-91 and to Rs. 70.95 billion in 1991-92 indicating an increase of 11.6 per cent. Defence expenditures, after adjusting for price changes, grew every year by over 11 per cent during the Fifth Plan period and by almost 6 per cent during the Sixth Plan period. In the non-Plan period, 1972 to 1978, when prices had risen rapidly, defence expenditures had fallen in real terms by 2.4 per cent per year. In the draft Seventh Plan it was proposed that for the next five years this growth rate be restricted to 3 per cent per year but it proved to be a wishful dream.

There is, of course, some scope to lessen our dependence on imports of defence material. At present we import the bulk of our material requirements, and with efforts this ratio can be brought down. But given the scale of optimal plants in the defence industry, a very major reduction in import requirements does not seem possible except in the long term, and only where a friendly government allows the technology transfer involved. Defence strategy relies on intelligence, to provide us early warning of enemy mobilisation, a pre-emptive air-strike capability and superior tactical abilities of our ground forces, to permit deep penetration in a forward defence strategy; but ultimately, on effective diplomacy, to secure a quick cessation of hostilities in the event of war. This calls for expensive imports of airborne warning systems and fighter aircraft, together with the most modern material for ground forces, most of which are not available without special political relationships with the supplying countries.
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Title Annotation:Pakistan's expected government expenditure would be Rs. 185.64 billion
Author:Haidari, Iqbal
Publication:Economic Review
Date:Jun 1, 1991
Words:1541
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