Pakistan Federal Budget 2014-15

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Sr. # Federal Budget 2014-15 Title Download
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Federal Budget Details of Demands for
Grants and Appropriations 2014-15 Current Expenditure
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Federal Budget Details of Demands for
Grants and Appropriations 2014-15 Development Expenditure
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Demands for Grants And Appropriations 2014-15 (White Book)
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Federal Medium Term Budget Estimates for Service Delivery 2014-17
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Explanatory Memorandum on Federal Receipts 2014-15
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Estimates of Foreign Assistance 2014-15
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Annual Budget Statement 2014-15
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Budget in Brief 2014-2015
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Federal Budget Speech 2014-2015 (English Version)
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11 Federal Budget Speech 2014-2015 (Urdu Version) Download Now

The allocation under the head of Economic Affairs in the budget 2014-15 has been projected at Rs 47,585 million, which is higher by 10.7% than the revised estimates for 2013-14, but lower by 9% as compared to budget estimates 2013-14. Major share of this head goes to Agriculture, Food, Irrigation, Forestry and Fishing, which is 43.1% of total allocation for Economic Affairs.

The NFC recommended that the Federal Government and Provincial Governments should streamline their tax collection systems to reduce leakages and increase their revenues through efforts to improve taxation in order to achieve a 15% tax to GDP ratio by the terminal year i.e. 2014-15. Provinces would initiate steps to effectively tax the agriculture and real estate sectors. Federal Government and Provincial Governments may take necessary administrative and legislative steps accordingly.

Agriculture occupies a central position in country’s economy as besides contributing more than 21% to GDP it houses more than 65% of population and employs nearly 45% of our labor force. It has also great export potential but little has been done to this end, except a few token efforts to provide some support for transport of agriculture produce. The key to improving agriculture productivity is access to seeds, water, credit, research and extension serves, markets and better pricing. Many of these responsibilities have been devolved to provinces and we are urging provinces to play their role in this regard. However, the federal government remains actively engaged with provinces in developing policies required for maintaining national food security and undertaking research in basic agriculture activities. With a view to develop a national policy for the long-term sustainability of agriculture on profitable basis it has been decided to establish a National Food Security Council. The council will be responsible for ensuring policy coordination across provinces and relating to productivity improvements, market reforms, value addition and prices that ensure stable incomes for farmers.

Within the areas where Federal Government can help the following package of incentives and support are being announced for the agriculture sector:

  • (a) Credit Guarantee Scheme for Small and Marginalized Farmers: The government is introducing Credit Guarantee Schemein order to encourage banks for financing to unbanked small farmers. Government, through the State Bank of Pakistan, will provide guarantee to commercial, specialized and micro finance banks for up to 50% loss sharing. The scheme will cover farmers having up to 5 acres irrigated and 10 acres non-irrigated land holdings. It will benefit 300,000 farmer households/families with a loan size up to Rs.100,000. Total disbursement under this scheme will be Rs.30 billion.
  • (b) Reimbursement of Crop Loan Insurance Scheme (CLIS) Premium: Farming is one of the most vulnerable occupations in the face of natural calamities, climatic changes and plant diseases. In order to cover the risk to various crops the Government has introduced the crop loan insurance scheme for farmers with landholdings of 12.5 acers. From this budget, the scope of CLIS premium reimbursement is being enhanced up to 25 acres. All farmers obtaining loans for production of 5 major crops are eligible to benefit from this scheme. 700,000 farmers households/families will benefit from this scheme. Total budget cost of the scheme is Rs.2.5 billion.
  • (c) Livestock Insurance Scheme: Pakistan is a major livestock and milk producer. But the majority livestock ownership is at subsistence level which increases the risk of loss. In order to mitigate the risk of losses of small livestock farmers, the Government is introducing the Livestock Insurance Scheme for all farmers getting financing for up to 10 cattle. The scheme will cover livestock insurance in case of calamity and disease. The scheme will benefit 100,000 Livestock farmer households/families. An allocation of Rs.300 million has been made in the current budget for the scheme.
  • (d) Reduction in Sales Taxes on Tractors: The previous government levied sales tax on tractors which w.e.f. 1st January 2014 stands enhanced to 16%. This has adversely affected local buying of tractors. To encourage use of tractors by the growers it is proposed that the sales tax will continue to be charged at the reduced rate of 10%.
  • (e) Establishment of Commodity Warehouses/Receipt Financing Mechanism: In order to develop a mechanism for establishment of quality warehouses, silos, cold storages and cold chains, and linking it to finance through warehouse receipt system, the Government, through the State Bank of Pakistan, is helping to develop a regulatory mechanism for establishment of a warehousing clearing system and introducing special incentives for potential investors. This scheme will cover all existing or new warehouses, silos and cold storage for farmers, aggregators, traders and other value chain players. Under the scheme, Rs.1 billion will be invested as GOP-equity for establishment of a PPP-company to regulate and monitor this system. Additionally, State Bank has decided to provide LTF facility for establishment of storage and cold-chain facilities.
  • (f) Agriculture Credit: Credit to agriculture is critical for enhancing famers’ productivity. We are conscious of the difficulties faced by the farmers in getting credit through the loan sharks. During the year, our Government has increased credit availability to agriculture sector from a targeted Rs.315 billion to Rs.380 billion. The State Bank has now decided to enhance overall credit to Rs.500 billion for the year 2014-15. With increased credit availability, and various insurance schemes, farmers’ problems with respect to access to financial sector will be addressed to a large extent.
  • (g) Incentives for Processing Industries of Special Areas: In some parts of the country, such as in Makran Division, Gilgit Baltistan, Swat District and FATA regions, agriculture produce suffers great losses for lack of processing and transport facilities. To encourage establishment of processing units at such places, Government is introducing a policy to support processing projects in Makran, Gilgit Baltistan, Swat Valley and FATA. These units will enjoy duty and tax-free import of machinery not locally manufactured and will also have access to SBP LTF facility and 5 years tax holiday. Additionally, a concessionary long-term financing facility shall be provided to them through State Bank of Pakistan.
  • (h) Airfreight Subsidy: Government has also decided to provide 50% airfreight subsidy for horticulture produce from Gilgit Baltistan.

Incentives for Agriculture:

To promote agricultural sector we are proposing concessions for encouraging tunnel farming by removing customs duty on import of plastic coverings and mulch film, anti-insect net and shade net. Sales tax on high irrigation equipment and equipment for green house farming is also proposed to be exempted.

Continued Focus on Energy Crisis:

The 4Es we have given in our Manifesto refer to economy, energy, education and extremism. Thus energy occupies a central position in our program. We had inherited an energy sector that was at brink of total collapse. Load shedding was running at 16 hours in urban and 20 hours in rural areas. A gigantic circular debt of more than Rs.500 billion had stranded a sizable amount of capacity for want of liquidity. Critical projects, such as Neelum-Jehlum and Nandipur, were delayed or nearly abandoned due to sheer negligence. We were not deterred by the enormity of the challenges facing the sector as we realized that without fixing this sector no realistic hope of economic revival couldbe made. We settled the circular debt and freed up and added some 1700 MW in the national grid. These initiatives have paid off as the provisional figures of national accounts show that the value-added in the power sector increased by 3.72% as against a negative growth of 16.33% last year. But more importantly, we are working on a comprehensive program to add more power, improve energy mix to reduce the need for tariff increase, attract private sector investment and invest in transmission and distrbution system to improve the efficiency of the entire power sector. I will be mentioning these initiatives in the context of the development plan;

Exports Promotion:

An emerging challenge on the horizon is the growth in exports critically needed to support a stable balance of payments over the medium to long term. Since 2000-01, our exports have grown at the rate of 8% compared to a growth rate of 13% for imports, leading to a large trade gap in the country. During the same period, the export to GDP ratio has declined from 13% to 10% whereas the import to GDP ratio has increased from 15% to 19%. This rising imbalance in the trade account has been significantly corrected by a remarkable growth in remittances, which have grown by nearly 25% during this period, with the result that our current account has been stable in recent years. Not surprisingly, the terms of trade for the country during this period have also continuously worsened, eroding competitiveness of our exports. This is not a satisfactory state of affairs. Our trade balance, largely due to lackluster growth in exports, is not consistent with our economic potential. There is no escape from facing the challenge of stemming the declining trend in country’s export to GDP ratio by giving a big push to the exports and redirecting our energies for enabling our industry and agriculture to create an exportable surplus in the country. To this end, this budget will be laying the basic foundations for a major thrust on export promotion. I will announce a number of initiatives aimed at giving boost to our potential exports.

Having stabilized the economy and announced a significant acceleration of investment program in the public sector let me turn to some special initiatives our government is announcing in order to meet the special needs of exports, in general, and textiles, in particular, commerce & industry, agriculture and housing. These sectors are central to economic development and there recent dormant performance has been a cause of concern.

Accordingly, we have decided to give impetus to development in these sectors.

I had earlier highlighted the weaknesses in our exports performance that have emerged over the last decade. We must arrest this low exports growth and declining export to GDP ratio. The following measures are being adopted for promotion of exports:

  • (a) Setting up of EXIM Bank of Pakistan (Specialized DFI): The Government has decided to set up the Export-Import (EXIM) Bank of Pakistan to enhance export credit and reduce cost of borrowing for exporting sectors on long term basis and help reduce their risks through export credit guarantees and insurance facilities. The bank will provide liquidity to exporters. Its authorized capital will be Rs.100 billion while the initial Paidup Capital will be Rs 10 billion. Legal framework for the establishment of the Bank will be developed through an Act of Parliament.
  • (b) Exports Refinance Facility (ERF): The Government, through the State Bank of Pakistan, has arranged to reduce its mark-up rate on exports finance from 9.4% to 7.5%, which will bring it in line with such rate prevailing in the countries competing with Pakistan which will reduce the financial cost of exporters by 2%; (c) Long Term Finance Facility: The Government, through the State Bank of Pakistan has arranged to reduce its mark-up rate on long term financing facility for 3-10 years duration from around 11.4% to 9%w.e.f 1st July 2014 which will reduce financial cost of exporters by 2.4%;
  • (d) Removing Anti-exports bias in Imports: A tariff rationalization program, being announced in the present budget, will gradually remove the anti-export bias in country’s tariff policy and make  exports more competitive.
  • (e) Revitalizing Export Development Fund (EDF): The EDF was established through the contributions of the exporters for the promotion of exports. However, over the years projects undertaken with Fund’s resources were not entirely helpful to exports. The EDF Board has been reconstituted and its organization is overhauled with a view to make it more responsive and effective for the benefit of exporters.
  • (f) Establishment of Pakistan Land Port Authority: It has also been decided to establish Pakistan Land Port Authority to transform land ports into efficient facilitators of trade while being responsive to risks such as security issues, smuggling and human trafficking. This measure will help Pakistan to increase its exports through the overland route where numerous opportunities are offered by regional countries and connectivity to northern and western corridors;

Textiles Package

Textiles sector is the mainstay of country’s exports as it accounts for more than half of country’s exports. Its performance has been affected due to poor crops, delays in introduction of quality seeds and regulatory approvals for introduction of Bt cotton, widespread energy shortages, numerous local taxes and levies, high cost of finance and restricted trade regimes adopted by importing countries.

A meaningful export promotion policy will not be possible unless we provide the much-needed support for the development of this sector. Accordingly, the following package of support and incentives is provided for the textile sector:

  • (a) Draw-back for local taxes and levies to be given to exporters of textile products on FOB values of their enhanced exports if increased beyond 10% (over last year’s exports) at the following rates:
    • Garments 4%
    • Made ups 2%; and
    • Processed fabric 1%
  • (b) Mark up rate for Export Refinance Scheme of State Bank of Pakistan is being reduced from 9.4% to 7.5% from 1st of July 2014.
  • (c) The Expeditious Refund System is being improved and a fast track channel for manufacturers-cum-exporters is being created. I have already directed FBR to dispose of all their pending Sales Tax refund claims before 30th September 2014. In future, all admissible refund claims of exporters shall be disposed off within 3 months, if not earlier.
  • (d) The textile sector value chain will be given protection as per the study carried out by National Tariff Commission (NTC). This will provide a predictable tariff regime for the foreseeable future.
  • (e) Textile industry units in the value added sector would be provided Long Term Financing Facility (LTFF) for up gradation of technology from State Bank of Pakistan at the rate of 9% for 3-10 years duration.
  • (f) Textile sector enjoyed duty free import of machinery under textile policy 2009-14. This facility will end on 30th June 2014 (SRO-809). It is proposed that in view of the need to take full advantage of GSP plus facility, this concession would be allowed for another two years.
  • (g) Use of Bt Cotton will be promoted by expediting regulatory approvals. To enable availability of quality seeds requisite amendments in Seed Act 1976 will be made and Plant Breeders’ Right Act will be promulgate.
  • (h) A new vocation training program will be launched to train 120,000 men and women, over the five year period, for skills required in the textile sector, especially in the value added sector such as garments and made ups. The scheme will have following features;
    • Total Cost: Rs 4.4 billion
    • Monthly stipend of Rs.8,000 per month
    • 3 months training program
    • To be run through TEVTA institutes and textile industry