|Sr.#||Federal Budget 2015-16 Title||Download|
Federal Budget Details of Demands for Grants and Appropriations 2015-16 Current Expenditure
|2||Federal Budget Details of Demands for Grants and Appropriations 2015-16 Development Expenditure||Download Now|
|3||Demands for Grants And Appropriations 2015-16 (White Book)||Download Now|
|4||Federal Medium Term Budget Estimates for Service Delivery 2015-18||Download Now|
|5||Explanatory Memorandum on Federal Receipts 2015-16||Download Now|
|6||Estimates of Foreign Assistance 2015-16||Download Now|
|7||Annual Budget Statement 2015-16||Download Now|
|8||Budget in Brief 2015-2016||Download Now|
|9||Federal Budget Speech 2015-2016 (English Version)||Download Now|
|10||Federal Budget Speech 2015-2016 (Urdu Version)||Download Now|
Main Elements of Budget StrategyThe main elements of our budget strategy are as follows:
- Reduction of fiscal deficit: We will continue to consolidate the gains we have made in reducing fiscal deficit. In 2015-16 we will target a deficit to 4.3% compared to 5% in 2014-15;
- Raising Tax Revenues: Part-II of the speech will deal with tax proposals. At this stage, however, I would say that the proposed reduction in deficit will be achieved through a combination of better tax collection and tight expenditure controls;
- Continued Focus on Energy: Energy is one of our key priorities. This can be judged by the fact that the Prime Minister is devoting considerable type to oversee developments in the sector. A Cabinet Committee on Energy has been constituted, which is headed by the Prime Minister himself. Keeping in view the current gap in demand-supply of power in the face of high GDP target, we plan to bring 7000 MW on stream besides setting up 3600 MW LNG-based projects. By December 2017, we will bring 10600 MW in the system. Beyond December 2017, other projects such as Dasu, Diamer-Bhasha, Karachi Civil Nuclear Energy and many other projects will also be completed.
- Exports Promotion: In this budget, we would be announcing additional measures to incentive exports and taking other measures to ease the cost of doing business and improving the overall regulatory regime to facilitate exporters.
- Investment to GDP Ratio: The Investment-to-GDP ratio, which was registered at 12.4% during 2012-13, improved to 13.4% during 2013-14 and is provisionally estimated at 13.5% for the current fiscal year. The combined effect of increased public sector investments has also played a role in reversing the declining trend. We are projecting this ratio to rise to 16.5% during 2015-16.
- Public Debt Management: Debt management has received special attention in our overall efforts for fiscal management. The fiscal consolidation we have achieved has paved the way for a reduction in public debt, which fell from 63.9% in 2012-13 to a now projected level of 62.9% at the close of current fiscal year. In the next three years, Debt to GDP ratio will be brought down to less than 60% in accordance with the provisions of the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005,InshaAllah
- Benazir Income Support Program (BISP): This program is an effort to provide relief to the poor and vulnerable people of society as a matter of our responsibility and their right. The following have been the main achievements in this program:
- From Rs.40 billion in June 2013, we have increased the size of the program to Rs.97 billion during the current year. We are further enhancing this allocation to Rs.102 billion, representing more than 155% increase since 2012-13;
- Until 2012-13, the cash transfer program was covering 4.1 million families, which would be taken to 5.0 million during the current year. By end of next financial year the number of beneficiary families would increase to 5.3 million, showing an increase of 29% since 2012-13; Besides the above program, we are providing an additional Rs.2 billion to Bait-ul-Maal for supporting its welfare activities, notably the hospitalization costs for the vulnerable people. The allocation has been increased by to Rs.4 billion for 2015-16, which is 100% increase.
Development & Promotion of ICT Sector
A number of initiatives were announced in the last budget for the development of promotion Information and Communication Technology (ICT). These initiatives have been operationalized with the following key features:
- Universal e-telecasters: A project for Universal e telecasters with an investment of Rs.12.0 billion has been approved. In the first phase 500 telecentres would be established in all provinces including FATA. For this purpose, 217 land sites across Pakistan have been selected. Program is at advance stage of implementation and would soon be rolled out.
- Improved Connectivity for Remote Areas: For connectivity of remote area the Government has decided to invest Rs.2.8 billion laying optic fiber cables. Work on this program is going on at fast track basis. In consultation with Provincial Governments 128 tehsils and towns have been identified nationwide, which do not have optic fiber connectivity. Rural telecommunication is another program, which envisages investing Rs.3.6 billion on connectivity of rural un-served areas with the rest of country.
- Rationalization of International Clearing House (ICH): In October 2012, a new policy for International Clearing House (ICH) was initiated. There have been several problems with the policy as it resulted in losses to users and increase in grey traffic. Since government intends to provide relief to people, therefore, we have reformed this policy and rationalized the rates of international calls. This is benefiting expatriate Pakistanis and promoting legal traffic, which has increased from 367 million minutes per month in November 2014 to 1,100 million minutes per month by now - a three fold increase.
- Prime Minister’s National ICT Scholarship Program: As announced in the last budget, 500 IT scholarships with a total cost of Rs.125 million will be provided to the talented students from rural/non-metropolitan areas. The program provides fully funded 4 years undergraduate degree scholarships in ICT related disciplines in the leading ICT universities of Pakistan. Under the program 480 students availed the scholarship by joining in 21 top Pakistani universities. The program will be continued in the future.
Medium-term macroeconomic framework
- As always, our budget strategy is embedded in a three year medium term macroeconomic framework spanning the period 2015-16 to 2017-18, the main features of which are as follows:
- GDP growth to gradually rise to 7% by FY 2017-18.
- Inflation will be contained to single digit;
- Investment to GDP ratio will rise to 20% at the end of medium term;
- Fiscal deficit would be brought to down to 3.5% of GDP;
- Tax to GDP ratio will be increased to 13%;
- Foreign exchange reserves would be maintained above $20 billion,InshaAllah;
- In view of the performance we have registered in the first two years in office, we are confident to achieve the goals set out in the medium-term framework. We have no doubt that we would remain on course while pursuing the above framework.
The most important sub-sector claiming resources in our development plan is the water sector, where we are investing Rs.31 billion for projects in various parts of the country. A project that will be the future lifeline of Pakistan is the Diamir Bhasha Dam, which will store 4.7 MAF of water and generate electricity of 4500 MW. We have provided Rs.15 billion for land acquisition during the year and have kept a provision of Rs.6 billion for construction of lot 1 out of 3. In addition, another important hydropower project is Dasu, which will have the capacity to generate 2160 MW. We are committed to make these two dams a reality and preparatory works has already started.
- Water projects in Baluchistan are the second most important focus of water sector investments comprising construction of delay action dams, flood dispersal structures, canals and small storage dams. Main focus will be on the existing projects that can be completed within the next 1 - 2 years. In this regards, work is in advanced stages on projects such as Kachhi Canal (DeraBugti and Nasirabad), Naulong Storage Dam (JhalMagsi), extension of Pat Feeder Canal to DeraBugti and ShadiKaur Dam (Gawadar). Besides these large projects, we will also invest in building small dams in the province. This year we will start work on Basool Dam in Gawadar.
- Similarly, in Sindh, projects that are advancing gradually are Rainee Canal (Ghotki and Sukkur), extension of Right Bank Outfall Drain from Sehwan to sea, and Darwat Dam. In addition, this year we will start the work on MakhiFarash Link Canal project. In Punjab work on channelization of NullahDeg and Ghabir Dam (Chakwal) will commence. In Khyber Pakhtunkhwa, other than Dasu, funds will be provided for Keyal Khawar hydropower project, and other small dams. In FATA funding for Kurram Tangi in North Waziristan, and Gomal Zam Dam in South Waziristan will continue.
- Besides, numerous schemes of lining of water courses will be undertaken in Khyber Pakhtunkhwa, Sindh and Punjab to reduce water wastage together with flood protection and drainage schemes all over the country.
I have already stated the focus we have on the energy sector. We have taken a number of steps to address structural problems of the sector including reduction in system losses, improvement in recoveries, elimination of theft and settlement of inter corporate circular debt. However, our real focus is on developing additional resources of energy so as to permanently overcome energy shortages.
- As in the past, we have allocated the largest amount of resources to add new and economical capacity in the country. During the current year a sum of Rs.248 billion will be invested in this sector up from Rs.200 billion allocated in last year’s budget. Of this, Rs.73 billion will come from the PSDP. The government is aiming to almost end load shedding by December 2017.
Large projects that are part of this year’s allocation are:
- Rs.52 billion have been allocated for Stage 1 of Dasu Hydro Power Project which will produce 2160 MW of power;
- Rs.21 billion have been allocated for land acquisition and construction of Lot 1-5 for Diamir-Bhasha Dam and Hydro power Project having a reservoir of 8 MAF and 4500 MW of power;
- Rs.11 billion have been allocated for Neelum Jhelum Hydro Power Project having a capacity of 969 MW;
- Rs.11 billion have been allocated for completion of Tarbela-IV Extension Hydro Power Project with a capacity of 1410 MW;
- Rs.5 billion have been allocated for Up-gradation of Guddu Power Project having a capacity of 747 MW of highly economical power;
- In addition a number of other projects such as two Karachi Nuclear Coastal Power Projects (2200 MW) with Chinese assistance; Chashma Civil Nuclear Power project (600 MW); Golan Gol Hydro Power Project (106 MW); Evacuation of power from wind power projects at Jhimpir and Gharo Wind Clusters; Interconnection of Chashma Nuclear Power Plants III and IV.
- This year we will start work on new important projects such as:
- Interconnection scheme for import of power from CASA-1000
- Evacuation of power from 2160MW Dasu HPP Stage-I
- Evacuation of power from 1320MW Power Plant at Bin Qasim
- Alliot switching station and its interconnection with SukiKinari HPPAddition of a number of hydel projects, coal based plants, wind energy and nuclear projects will correct the energy mix to provide cheap electricity to the people of Pakistan while improvement of the transmission and distribution system will reduce the system losses. The drive against energy theft willfurther reduce the burden on the common man.
Development of Gawadar
Keeping in view the significant role Gawadar has to play for strengthening the economy of Pakistan in the coming days, the government takes the development of this area very seriously. Accordingly, we are allocating significant resources for a host of development projects aimed at uplift of this area. Some of them are:-
- Rs.3 billion are being allocated in 2015-16 for New Gawadar International Airport
- A provision of Rs.2 billion has been made for Gawadar Development Authority in next budget, and
- For necessary facilities of water treatment, supply its distribution in Gawadar, we are making a substantial allocation of Rs.3 billion.
Status of Initiatives in the Budget 2014-15
Before I announce the new initiatives in the Budget 2015-16, I find it necessary that I bring to this House’s attention the status of initiatives I had announced in the last budget. In the Budget 2014-15, the government had announced to undertake a number of new initiatives aimed at strengthening various sectors including textiles industry, exports, agriculture, health, telecommunication, taxation and social safety nets. Such initiatives included the establishment of various new organizations e.g. Land Port Authority (LPA), Mortgage Refinance Company (MRC), National Food Security Council (NFSC) etc. Furthermore, a number of new schemes were announced to be launched including Credit Guarantee Scheme for Small and Marginalized Farmers, Reimbursement of Crop Loan Insurance Scheme and introduction of Health Insurance System etc. Being fully cognizant of the significance of these well-designed initiatives, we have strived hard for their implementation over the last year and I am proud to announce that despite the resources constraints and the gigantic economic challenges, out of total 34 new initiatives announced in the previous budget, 20 have been fully implemented while the work on the remaining is continuing.
I have already noted somewhat weak performance of the exports during the year. The main reason behind this is the major decline in global commodity prices, particularly those of cotton and rice. Even though a small country cannot affect global prices, we need to look at some of the irritants that may be impeding our exports competitiveness. The following measures are being adopted for promotion of exports:
- EXIM Bank of Pakistan (Specialized DFI): will be helpful in enhancing export credit and reducing 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 start operations in 2015-16.
- Exports Refinance Facility (ERF): In the last budget, the Government, through the State Bank of Pakistan, had arranged to reduce its mark-up rate on exports finance from 9.4% to 7.5%, This rate was reduced in February 2015 to 6.0%, and it will be further brought down to 4.5% from 1st July 2015;
- Long Term Finance Facility: In the last budget, the Government, through the State Bank of Pakistan had arranged to reduce its mark-up rate on long term financing facility for 3-10 years duration from around 11.4% to 9.0% to allow export sector industries to make investments on competitive basis. This was further reduced to 7.5% in February 2015 and will be further brought down to 6.0%;
- Removing Anti-exports bias in Imports: A series of measures being announced in this Budget relating to rationalization of tariff and taxes having bearing on the export industries will gradually remove the anti export bias in country’s tariff policy and make exports more competitive.
- Export Development Initiatives: Ministry of Commerce is formulating initiatives for (a) production diversification, (b) value addition, (c) trade facilitation (d) enhanced market access and (e) institutional strengthening. An allocation of Rs.6 billion has been made to support initiatives. The Export Development Fund (EDF) Board has been reconstituted to also support this program.
- Establishment of Pakistan Land Port Authority: The initiative for establishing the Land Port Authority of Pakistan was announced in the last budget. We have completed the requisite formalities for its formal launching. In the meanwhile we have invested Rs.352 million for the establishment of infrastructure at the Torkham Border to enable it to operate under the conditions of a modern port environment.
Textiles Industry is the mainstay of Pakistan's economy. It accounts for more than 50% of our exports value and is the single largest employment provider in the manufacturing sector. It has a very long production chain from cotton picking to ginning, spinning, weaving, knitting, processing and stitching, whereupon considerable value-addition is done at each step. In recognition of its significance, the government had announced a special package for Textiles Sector in the Budget 2014-15. The following facilities announced in the package shall remain available for the textile sector during the FY 2015-16:
- Under Textiles Policy 2014-19 financial package of Rs.64.15 billion has been approved in order to double the textiles exports and create 3 million additional jobs by the year 2019.
- To resolve the various issues pertaining to textile sector and for implementation of Textiles Policy 2014-19, the government has restructured the Federal Textile Board with majority members from the private sector.
- The benefit of Drawback of Local Taxes & Levies Scheme shall remain available for the textile exporter in the FY 2015-16 under which they shall be entitled to the drawback on FOB values of their enhanced exports if increased beyond 10% of their previous year’s exports, as per following rates:
- Garments = 4%,
- Made-ups = 2%; and
- Processed fabric = 1%
- Since 1st July 2015, Export Refinance Facility and Long Term Finance Facility will be available for textile-exporters at the most reasonable rates of the history i.e. at 4.5% and 6% respectively.
- The Custom Duty on import of textile machinery under SRO 809 is zero for the Year 2015-16 as well.
- In order to facilitate and incentivize the investments in plants and machinery, Technology Up-gradation Fund Scheme will be launched in the FY 2015-16, as per the provisions of Textiles Policy 2014-19.
- Government is committed to introduce latest seed technology. To this end, amendments in Seed Act have been passed by the National Assembly, whereas Plants Breeders Right Act will be also be promulgated on priority basis.
- Spadework has been completed on a mega project worth Rs 4.4 billion for training of 120,000 unskilled men and women over a period of 5 year. This scheme shall be launched in FY 2015-16.
Agriculture remains a major focus of our government despite the devolution of much of the operational responsibilities to the provinces. It is on the agenda of the government to take requisite measures to give positive price signals to farmers, protect them from vagaries of market fluctuations and support them in the face of natural calamities.
A number of tax incentives are provided to help agriculture sector, which be discussed in Part-II. Here I give an account of measures we had announced last year:
Credit Guarantee Scheme for Small and Marginalized Farmers: The Credit Guarantee Scheme announced in the last budget has been made operational. Under the scheme, the 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 while the government will have a contingent budget cost of Rs.5 billion.
Crop Loan Insurance Scheme (CLIS): Crop loan insurance scheme is already in operation and will continue in the future.
Livestock Insurance Scheme: Livestock is contributing more to agriculture than the major crops. Recently, significant investment has been made in this sector. To encourage more investments and to incentivize farmers to engage in livestock development, last year we announced a scheme for reimbursement of premium for livestock insurance to mitigate the risk of losses of small livestock farmers. This scheme is now operational and allows small farmers having 10 cattle to get this support. The scheme will cover livestock insurance in case of calamity and disease.
Agriculture Credit: We have given boost to agriculture credit,as we know the role of credit in enhancing the output ofagriculture. During the year, we had targeted a credit flow of Rs.500 billion, compared to Rs.380 billion during 2013-14, an increase of 32%. I am pleased to inform this House that in first10 months of the year 2014-15, the credit to agriculture has been registered at Rs.369 billion, which is in line with our target. For the next year, we are targeting a 20% increase to take it Rs.600 billion. Together with the insurance schemes mentioned earlier, the farmers will have much better access to financial sector than in the past.
- Interest Free Loans for Solar Tube Wells: In order to facilitate the small growers and to reduce heavy expenditure incurred on diesel/electricity tube wells, it has been decided after the approval of Prime Minister Muhammad Nawaz Sharif to provide interest free loans for setting up new solar tube wells or replacing the existing tube wells with solar tube wells. It is estimated that the cost of half cusec solar tube well may be up to Rs1.1 million. Against a deposit of Rs.100,000 the government will provide interest free loans through the commercial Banks. The government will pick up the mark-up cost on these loans. Under this scheme it is proposed to provide mark-up free loans for 30,000 tube wells in the next 3 years. All farmers with landholdings up to 12.5 Acres will be eligible to apply for this loan. In case the number of applications in any one-year is more than 10,000, the beneficiaries will be selected through transparent balloting. After installing solar tube well, a farmer using diesel engine for five hours a day will save Rs.1660 per day and a farmer using electric pump for five hours a day will save Rs.466 per day in running costs.
- Increase in the Value of Production Index Units (PIU): The present value of PIU was fixed at Rs.2000 in July 2010. This is woefully shortage of the current values of agriculture land. In order to enable farmers to raise larger financing facilities, it has been decided to increase the PIU to Rs.3000 with effect from 1st July 2015.
- Reduction in Tax Rate for Companies:The government has been encouraging corporate culture and documentation in the economy and has introduced a policy of reducing corporate income tax rate by 1% annually from 35% until the tax rate is reduced to 30%. Accordingly the rate was reduced to 33% in the preceding year. It is proposed that, continuing with the policy, the rate may further be reduced to 32% for Tax Year 2016. This will encourage businesses to join the formal sector.
- Exemption to Electricity Transmission Projects:Energy is critical for the economic growth. In order to attract Private Sector Investment in electricity Transmission Line Projects, it is proposed to exempt profits and gains derived from Transmission Line Projects for a period of 10 years, provided that the project is set up by 30th June, 2018.
- Tax Credit for new investment in shares:The government wants to encourage saving and investment in documented sectors by the general public. At present, an individual is entitled to tax credit for an investment made in shares offered by public company listed on stock exchange subject to a maximum of 1 million rupees. To encourage investment in new companies quoted on stock exchange, it is proposed that this limit be enhanced to 1.5 million.
- Tax Credit for Enlistment:At present, a 15% tax credit is available to a company, if it opts for enlistment in any registered stock exchange in Pakistan. To encourage enlisting of companies on stock exchange, it is proposed that the credit be enhanced to 20%.
- Reduction in Withholding Tax On Token Tax and Transfer of Vehicles:
- On demand of the Provincial Governments, the rates of adjustable advance Income Tax collected with Token Tax is proposed to be reduced by around 20 to 25% in the case of Income Tax Returns filers.
- The rate of adjustable advance Income Tax collected on transfer of vehicles is proposed to be reduced by around 75% in the case of Income Tax Returns filers and also reduced by around one-third in the case of non-filers.
- Expanding the Scope of Small Company:Income Tax Ordinance provides a reduced rate of 25% for taxing the income of a small company as an incentive for corporatization. To make the concession more meaningful the limit of capital at Rs 25 million is proposed to be enhanced to Rs 50 million for qualifying as a small company.
- Relief to Small Taxpayers:Salaried taxpayers earning taxable income from Rs 400,000 to Rs 500,000 are chargeable to tax at a rate of 5%. To provide relief to this class the rate of tax is proposed to be reduced to 2%. Non-Salaried individual taxpayers and Association of Persons earning taxable income from Rs 400,000 to Rs 500,000 are chargeable to tax at a rate of 10 %. To provide relief to this class the rate of tax is proposed to be reduced to7%.
- Option to Exporters to Opt Out of the Final Tax Regime:At present the tax withheld on the export proceed realized by an exporter is the final tax on his income. The exporters are being authorized to opt for assessment under the normal regime and the withheld tax will be treated as minimum tax in such cases.
Now I will present the proposals relating to Customs:
Tariff Reform Last year, on the direction of the Prime Minister, tariff reforms were initiated and the maximum slab of 30% was reduced to 25% which resulted in reduction of tariff slabs from 7 to 6. This year, it is proposed to further reduce the maximum rate from 25% to 20%. It will bring down the number of slabs from 6 to 5. We are also determined to reduce the slabs to 4 by the year 2016.
Revenue Measures relating to Sales Tax and Federal Excise Duty, Now, I present proposals relating to sales tax and federal excise duty.
- Increase in rates on cigarettes:Cigarette smoking is a health hazard and for discouraging people from smoking, rates of federal excise duty on cigarettes are proposed to be increased from 58% to 63%. For making informal sector pay due taxes on cigarettes, adjustable FED is proposed to be levied on filter rods @ 0.75 rupees per filter rod.
- Rates of Further Tax:For encouraging sales tax registration and penalizing non -compliant businesses, rate of further tax is proposed to be enhanced from 1%to 2%.
- Mobile phones:Sales Tax payable on various categories of imported mobile phones is proposed to be increase from 150, 250 and 500 rupees to 300, 500 & 1000 rupees respectively. On the implementation of new rates RD imposed on import of mobile phones will be withdrawn.
- FED on Aerated Waters:At present, aerated waters are chargeable to FED at concessionary rate of 9%. It is proposed to increase this rate to 12%.
- Rationalization of sales tax rate on export oriented sectors. The applicable rates on export oriented sectors are 2%, 3% and 5% which are far below the standard rate of sales tax @ 17%. Certain irresponsible tax payers are misusing this concessional tax regime. In order to curb the mal practices it is proposed to rationalize the rates to 3%, 3% and 5%. I would also like to announce that the refund due to the export oriented sectors relating to tax periods till 31st May, 2015 shall be issued by 31st August, 2015. Similarly the value addition tax on commercial imports of these sectors is being reduced from 2% to 1% and 100% sales tax adjustment will also be allowed.
Second Phase of Elimination of SROs
Exemptions and concessions allowed under different concessionary regimes cause huge loss to the national revenue. These exemptions and concessions have been granted over the previous decades prima facie to reduce costs of inputs for industry, incentivize exports, encourage local investors, attract FDI, and provide relief to general public. However, these concessionary regimes in the shape of different SROs created a complex and opaque tax structure hampering trade and breeding malpractices. The scope and impact of these concessions were so pervasive that in 2013 we learnt that the share of non-dutiable imports was 62%. But the general public was simmering under high prices and no benefit on these concessions was passed on to them. These concession benefited special classes and awarded plethora of discretionary powers on Government functionaries.
- When our government undertook this gigantic task of analyzing these concessions, it was apprehended that it would be very difficult to touch the widespread and complex concessionary regime in our socio-economic milieu. It goes to the unwavering will and commitment of the Prime Minister of Pakistan that despite presence of strong and influential pressure groups, the process of elimination and curtailment of exemptions has been initiated and in the budget 2014-15, approximately 1/3rd of these concession with a tax cost of Rs. 105 billion has been withdrawn and rationalized. This historic achievement has been recognized and appreciated by all sections.
- This year, as a 2nd phase of the plan of rationalization of concessionary regime in-depth deliberations and wide-ranging consultations for minimizing the remaining concessions have been conducted. Exemptions and concessions relating to customs, sales tax and income tax amounting to 120 billion rupees are proposed to be withdrawn.
- This process of withdrawal of discriminatory SROs will help to further rejuvenate economic activity especially by SMEs and reduce the cost of doing business in the country. The equity in taxes will breed competitiveness and provide a better and reliable environment for local and international investors.
- I would also like to announce that the powers of the FBR to issue exemptions/concessions have been withdrawn and those of the Federal Government have been limited to exceptional circumstances. This reflects our belief in the supremacy of the Parliament.
Tax Reforms Commission
In my last budget speech, I announced formation of Tax Reforms Commission for analyzing and reviewing the entire tax policy and tax administration. Subsequently, the Commission was formally established. It comprises eminent experts in taxation and law and leaders of the business community. The Commission is doing a commendable job in identifying areas of tax structure and administration where policy intervention is required for improving the system. The TRC has submitted its interim report and the final report shall be submitted by July this year.
By the grace of Almighty Allah the economy is out of turbulent waters. The challenge that we have accepted for the next three years of our currenttenure is take the economy on a higher trajectory of growth. In order to do so it is important to have a special focus on those areas of economy that can be catalysts in economic growth. Accordingly, we have decided to give special incentive packages to the Construction, Agriculture, Manufacturing and Employment Generation Sectors. These sectors can be engines of economic growth that can pull other sectors along for the following reasons.
- These sectors form a significant part of national GDP
- These sectors are labour-intensive and employ a large number of people
- Agriculture has a short gestation period and its effect on the broader economy will be felt sooner.
- Construction Industry has a ripple effect on sixteen other sectors of the economy.
- Manufacturing leads to employment and thus has direct effect on the quality of life of a large number of people
Employment Credit to Manufacturers
In order to encourage the companies to generate employment, it is proposed that if a company, being a manufacturer, is set up during next three years and employs more than 50 employees duly registered with Social Security and Employees Old Age Benefit Institution an employment tax credit equal to 1% of the income tax payable for every 50 employees may be provided to the company, subject to a maximum of 10%.
- Exemption to Greenfield Projects:Under Prime Minister’s Package exemption was allowed from explaining source of investment for new investment in Greenfield industrial undertakings. On demand of various investors and business community, it is proposed that this exemption be extended up to 30th June, 2017.
- Import of Solar Panels:Certain items are only exempted from Sales Tax and Customs Duty on import if they are not locally manufactured. However, import of Solar Panels and certain related components was exempt from this ‘local manufacturing’ condition until 30th June 2015. It is proposed that exemption from Sales Tax and Customs Duty in this manner may be extended for one year to 30th June, 2016.
- Domestic Production of Solar and Wind Energy Equipment Manufacturing:At present commercial imports in respect of items for dedicated use for renewable sources of energy such as solar and wind are exempt from withholding tax on import. However, no exemption is available for the domestic manufacturers of solar and wind energy plants and equipments. It is proposed to grant exemption, for 5 years, to industrial undertaking engaged in the manufacturing of equipment, plant and items required to produce solar and wind energy.
- Concession of Customs Duty for Power Units:“Local manufacturing”condition is not applicable on import of machinery, equipment and other capital goods for power units valuing US $ 50 million and above. It is proposed that the condition of ‘US $ 50 million and above’ may be replaced with the condition of ‘power units of 25 MW and above’.
Incentives for Agriculture Sector are as follows:
Tax Holiday for Agricultural Delivery Chain:It is proposed that for new industrial undertakings engaged in
- setting up and operating cold chain facilities, and
- setting up and operating warehousing facilities for storage of agriculture produce;
May be granted Income Tax holiday for 3 years if they are set up before 30th June, 2016.
- ‘Halal’ Meat Production:Pakistan’s share in one trillion dollar global halal food market is a pittance. In order to encourage new investments in the halal meat production and to increase the use of modern and state-of-the-art machinery and equipment in this sector, companies which set up ‘halal’ meat production plants and obtain ‘halal’ certification by 31st December 2016 are proposed to be allowed tax exemption from Income Tax for four years from the date of set up.
- Relief to Rice Mills:Due to low demand in international market rice mills have suffered huge losses. In order to provide relief to them, it is proposed that Rice Mills may be exempted from minimum tax for the Tax Year 2015.
- Exemption on Supply of Fish:Supply of agriculture produce including fresh milk, live chicken birds and eggs is exempt from deduction of withholding tax subject to certain conditions. It is proposed that exemption from withholding tax on supply of agricultural produce may also be extended to supply of fish.
- Import and Local Supply of Agricultural Machinery and Equipment:In order to promote farm mechanization and enhance productivity it is proposed that non-adjustable sales tax at reduced rate of 7%, instead of existing rate of 17%, may be charged on the local supply and import of certain agricultural equipment/machinery used in Tillage and seed bed preparation, seeding or planting, irrigation, drainage and agro chemical application etc.
- Import of Agricultural Machinery:At present Customs duty, Sales Tax and withholding tax on import of agricultural machinery in aggregate is 28% to 43%. It is proposed to reduce Customs Duty, Sales Tax and Withholding Income Tax cumulatively to 9% as under:
- Customs duty from existing rate of 5-20% to 2%;
- Sales Tax from 17% to non-adjustable Sales Tax at 7%; and,
- WHT from 6% to 0%
- Interest Free Loans for Solar Tube Wells:In order to facilitate the small growers and to reduce heavy expenditure incurred on diesel/electricity tube wells it is proposed to provide interest free loans for setting up new solar tube wells or replacing the existing tube wells with solar tube wells. It is estimated that the cost of half cusec solar tube well may be up to Rs 1.1 million. Against a deposit of Rs.100,000 the government will provide interest free loans through the commercial Banks. The interest on these loans will be picked up by the government. Under this scheme it is proposed to provide interest free loans for 30,000 tube wells in the next 3 years. All farmers with landholdings up to 12.5 Acres will be eligible to apply for this loan. In case the number of applications in any one year is more than 10,000 the beneficiaries will be selected through transparent balloting. After installing solar tube well, a farmer using diesel engine for five hours a day will save Rs.1660 per day and a farmer using electric pump for five hours a day will save Rs.466 per day in running costs.
Compensation to Mirani Dam Affectees
A tropical cyclone had hit the site of Mirani Dam on 26th June 2007 and heavily damaged houses, orchards and property of the residents in its vicinity. The issue of compensation against these damages has not been given due attention in the past. In order to provide relief to the affectees, Prime Minister Muhammad Nawaz Sharif has decided that Federal Government and Balochistan Government will jointly compensate for the damages to the tune of Rs.3.5 billion.