Pakistan Federal Budget 2016-17

Sr.# Pakistan Federal Budget 2016-17 Title Download
1 Federal Budget Details of Demands for Grants and Appropriations 2016-17 Current Expenditure Download Now
2 Federal Budget Details of Demands for Grants and Appropriations 2016-17 Development Expenditure Download Now
3 Demands for Grants And Appropriations 2016-17 (White Book) Download Now
4 Federal Medium Term Budget Estimates for Service Delivery 2016-19 Download Now
5 Federal Budget Speech 2016-2017 English Version Download Now
6 Federal Budget Speech 2016-2017 Urdu Version Download Now
7 Budget in Brief 2016-2017 Download Now
8 Annual Budget Statement 2016-17 Download Now
9 Estimates of Foreign Assistance 2016-17 Download Now
10 Explanatory Memorandum on Federal Receipts 2016-17 Download Now

Main Elements of Budget Strategy

  1. Reduction of fiscal deficit: In FY2016-17 we will target a deficit of 3.8% compared to 4.3% in FY2015-16;
  2. Improvement in fiscal discipline: We are furthering advantages derived from reduction of fiscal deficit. In 2016-17 the fiscal deficit will be reduced from 4.3% to 3.8% of GDP. Through amendment in Fiscal Responsibility and Debt Limitation Act 2005 we are about to undertake two deep-rooted reforms in our fiscal management system. First, we are putting a statutory limit on the deficit of the federal government. Starting 2017-18, in three years the federal deficit would be brought down to 4% of GDP and thereafter to 3.5%. Second, the Debt to GDP ratio would be brought down to 60% of GDP in the next two years and then over a 15 years period it would be brought down to 50%;
  3. 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;
  4. Continued Focus on Energy: Energy has been our focus from the start. The country was facing a dreadful energy crisis in June 2013. We formulated short, solid policies to avert this crisis on permanent basis due to which considerable reduction in load shedding. Today load shedding is being carried out systematically. Implementation as the plan formulated by the Cabinet committee formed by Prime Minister Nawaz Sharif’s will result in 10,000 MW of additional electricity to be added in the national grid by March 2018. Beyond March 2018 Inshallah, Dasu, Diamer-Bhasha, Karachi Civil Nuclear Energy and many other projects will also be completed besides coal-based projects under China Pakistan Economic Corridor (CPEC).
  5. Exports Promotion: In this budget, we would be announcing additional measures to incentivize exports and taking other initiatives to ease the cost of doing business and improving the overall regulatory regime to facilitate exporters.
  6. Poverty and Unemployment: One major outcome of our economic policies has been the reduction in poverty and unemployment, both in the rural and urban areas. The recently published poverty report compiled with the support of World Bank, based on the Pakistan Social and Living Standard Measurement (PLSM), based on cost of basic needs, indicates that poverty has been reduced from around 64.2% in 2001-02 to 29.5% in 2014. Based on food energy intake the poverty during this period has reduced from 34.6% to 9.31%. Similarly, unemployment has also been reduced from 6.2% in 2012-13 to 5.9% in 2014-15;
  7. Income Support Program (BISP): This program is an effort to provide relief to the poor and weak segments of the society as a matter of our responsibility and their right. The following have been the main highlights under this program:
    • From Rs.40 billion in FY2012-13, we have progressively increased the size of the program to Rs.102 billion during the current year. We are further enhancing this allocation to Rs.115 billion, representing a nearly three-fold increase since 2012-13;
    • By End-June 2013, the cash transfer program was covering 3.7 million families, which will be increased to 5.3 million by the close of June 2016. By the end of next financial year the number of beneficiary families would further rise to increase to 5.6 million;
    • The stipend under the program in 2013 was a mere Rs.12,000 annually, which had been set in 2008. During the last three year we have increased the stipend to Rs.18,800;
    • Budget for Bait-ul-Maal has been increased from Rs.2 billion to Rs.4 billion.
  8. 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:
    • Rural Telephony & E-Services (RTEs) Program: To extend IT and Telephone services to far-flung areas four new projects were started in 2016-17 under Universal Services Fund. A part of this project in Balochistan, Kharaan, Washuk, Dera Bugti, Kohistan and in FATA Warisistan areas, new lines for Rs.2.43 billion are being laid in these areas. For ongoing projects Rs.9.52 billion will be allocated. In 2016-17 for provision of telephone services in rural areas an amount of Rs.11.94 billion have been allocated.
    • Broadband Program: The ongoing Broadband projects in Southern Telecom Region are expected to provide coverage to over 56,000 new subscribers in un-served/underserved areas in FY 2016-17. Furthermore, 125 Educational Broadband Centers (EBC’s) and 55 Community Broadband Centers (CBC’s) are to be established under these projects with subsidy of 482.5 million.
    • Optic Fiber Cable Program: Under this scheme in FY2016- 17 Rs.63.4 million have been allocated for on-going projects in Balochistan and Rs.1.9 billion for three new projects in Khyber Pakhtunkhwa, Balochistan, Sindh and Punjab; • Other than the above, work on; establishment of computer labs under Pakistan Bait ul Maal women empowerment centres, Prime Minister’s Information and Communication Technology scholarship, Prime Minister’s scholarship program for talented students of Balochistan and Prime Minister’s National ICT internship program, is underway. For the current year 2016-17 around Rs.1 billion will be spent on these schemes.
    • Construction of Cross-Border Optic Fiber System between China and Pakistan: Only recently the Prime Minister has inaugurated the establishment of cross-border optic fiber project which will further open relations between the two countries.

Textile Sector

Textile sector is the primary manufacturing sector of Pakistan. In order to further enhance the export competitiveness of this sector the following measures are proposed in Budget FY2016-17:

  1. The existing scheme on Drawback of Local Taxes (DLTL) will continue in the FY2016-17;
  2. Technology Up-gradation Fund: Technology Up-gradation Fund (TUF) Scheme for the textile sector has been formulated which will be implemented from July 1st, 2016. This scheme will particularly benefit the SMEs to invest in new technologies to make Pakistan’s exports globally competitive;
  3. Duty Free Import of Machinery: The benefit of SRO 809, through which textile machinery can be imported duty free, will continue for FY2016-17 and scope would be widened to include more garment specific machinery. This incentive, along with LTFF and TUF, would encourage new investment in textile sector to increase exports;
  4. Withdrawal of Customs Duty on Manmade Fibers: Concessionary customs duty on the man-made fibers that are not manufactured locally will continue.
  5. Plant Breeders Right Act: One of the top priorities of the government is to ensure provision of quality seeds to growers. For this purpose, it is important to honor scientists with intellectual property rights of varieties they develop. The draft law is ready which will be implemented after approval of the Parliament.

Revival of Agriculture Sector

Agriculture is the backbone of Pakistan’s economy as it provides direct employment to 44% of the labor force and contributes 21% in the GDP. Agriculture also provides 70% of the raw material for textile industry. National food security is also dependent on agriculture. Therefore, enhancing agriculture sector performance is central to increasing GDP, enhancing industrial productivity and income of rural population.

Due to higher inventories, declining commodity prices and unfavourable weather conditions, agriculture sector has suffered very badly. All of this has resulted in significant erosion of farm incomes. To enhance agriculture productivity, Prime Minister Nawaz Sharif announced a historic package in September 2015 for Rs.341 for less expensive fertilizer, seeds, loans and availability of water. Key features of the package included:

  • Direct cash support to the tune of Rs.40 billion;
  • Subsidy of Rs.20 billion on urea – which reduced the prices of DAP by Rs.500 per bag;
  • Subsidy on import of urea to keep the prices low;
  • Concessional electricity tariff for agriculture Tubewells.

Keeping the view difficulties faced by the agriculture sector the Government has decided to take further special steps in the current financial year. Details are as under:

  1. Concessions of taxes and duties: Tax and duty concessions announced in Budget 2015-16 will continue in 2016-17. These concessions amount to Rs.15 billion and are expected to promote agriculture sector development,
  2. Reduction in prices of fertilizer: Fertilizer is a major input cost in the agriculture sector. In the past few months, through the provision of gas to fertilizer industry, the Government reduced prices of urea fertilizer from Rs.2050 to Rs.1800 per bag. Consultations of Government with fertilizer industry have resulted in further decrease of Rs.50 per bag. From 1st July 2016, the Government has decided that the price of urea is further reduced to Rs.1400 per bag. In this instance, just as in the past, the Federal and Provincial Governments will pay the cost of the subsidy, which will be Rs.36 billion, in equal shares. Similarly, use of DAP is very important for improving agriculture productivity. The current price of DAP is Rs.2800 per bag. Consultations of Government with fertilizer industry have resulted in further decrease of Rs.50 per bag. In this instance, the Government has decided that with effect from 1st July 2016, the price per bag of DAP will be Rs.2500. In this instance, just as in the past, the Federal and Provincial Governments will pay the cost of the subsidy, which will be Rs.10 billion, in equal shares.
  3. Enhancement in the target of agriculture credit: Availability of credit facilities to farmers especially the small farmers is one of the priority areas of this Government. Over the last three years volume of agriculture credit is being increased from Rs.336 billion to Rs.600 billion. For 2016-17 volume of agriculture credit target is being increased to Rs.700 billion.
  4. Reduction of cost of credit: The Government through SBP has developed a framework to reduce mark-up rates of ZTBL, NBP, Bank of Punjab and Punjab Co-operative by 2.0%.
  5. Credit Guarantee Scheme: Under this scheme, the Federal Government is sharing risk of non-payment of credit by small farmers by guaranteeing up to 50% of the financing by participating financial institutions. The small farmers have shown overwhelming interest in this scheme. Accordingly, the Government is allocating Rs.1 billion in 2016-17.
  6. Concessional electricity tariff for Agriculture Tube Wells: From 1st July 2016, current rate of off-peak rate of Rs.8.85 per unit for Agriculture Tube Wells is being reduced to Rs.5.35 per unit. For this special concession, the Government will bear expenses of around Rs.27 billion.
  7. Concession of customs duty for Dairy, Livestock & Poultry Sectors: To encourage further investment and development of dairy, livestock and poultry sectors, it is proposed that:
    • The rate of 5% for import of machinery for the dairy, livestock and poultry sectors is proposed to be reduced to 2%;
    • Incubators and brooders and machinery for animal feed stuffs presently subject to 5% customs duty in Tariff is proposed to be reduced to 2%.
  8. Concessions of Customs Duty for Fish Farming: To promote fish farming, the following relief measures are proposed:
    • Customs duty on import of fish feed pellet machines and water-aerators, be reduced from 5% to 2%;
    • Fish feed is subject to 10% customs duty whereas shrimp feed is at 20%. The duty on import of fish and shrimp feed is proposed to be exempted;
    • Similarly, customs duty on live baby fish that is subject to 10% is proposed to be removed.
  9. Relief on Cool Chain Machinery: For processing of food, customs duty on cool chain storage and in related capital goods will be exempt.
  10. Exemption of Sales Tax on Pesticides: Pesticides and its ingredients are chargeable to sales tax at reduced rate of 7%. This 7% sales tax rate is proposed to be abolished.
  11. Exemption to Silos: Exemption to machinery and equipment for the development of grain handling and storage facilities is proposed to extend to silos.

Industrial Development

Our industrial sector has shown good performance during the current year as it has registered a growth rate of 6.8%, while Large Scale Manufacturing (LSM) has registered a growth of 4.6% in FY2015-16. It is important that the process of industrial investment should be further accelerated in the country for which the following concessions are announced for the industry:

  1. Enhancing Tax Credit on Employment Generation: In order to promote industrial growth and employment generation tax credit @ 1% of the tax payable for a period of ten years that is allowed for every 50 employees in an industrial undertaking to be set up by June 2018, is proposed to be increased to 2%. This concession will be made available for 10 years to the industrial undertakings set up by June 2019;
  2. Tax Credit for Making Sales to Registered Persons: At present a manufacturer registered under sales tax who is making over 90% sales to registered sales tax persons is entitled to a tax credit of 2.5% of tax payable. The tax credit is proposed to be enhanced from 2.5% to 3% of tax payable;
  3. Tax Credit for Balancing, Modernization and Replacement (BMR) of Plant and Machinery: At present, tax credit on BMR is allowable at the rate of 10% of investment against tax payable for two years. In case of investment through 100% new equity, tax credit on BMR is allowable at the rate of 20% of investment against tax payable for five years. The period is proposed to be extended to 30th June 2019;
  4. Tax Credit for Establishing New Industry: Till 30 June 2016, 100% tax credit on tax payable is allowed if 100% fresh equity is raised for establishing new industry through issuance of new shares. This tax credit is allowable for five years from start of commercial production. It is proposed to reduce the condition of 100% fresh equity to at least 70% equity. In addition, period of setting up of new industrial undertaking, which is going to expire on 30th June, 2016 is also proposed to be extended to June, 2019;
  5. Tax Credit for Expansion of Existing Plant or New Project: At present, 100% tax credit on tax payable is allowed for expansion of existing plant or new project if 100% fresh equity is raised through issuance of new shares. This tax credit is allowable for five years from start of commercial production. It is proposed to reduce the condition of 100% fresh equity to at least 70% equity. Tax credit would be allowed, proportionately, on owned new equity. In addition, last date for installation of the plant and machinery which is going to expire on 30th June 2016 is also proposed to be extended to June, 2019;
  6. Exemption on investment in green-field industrial undertakings: Period of exemption to investment in green field industrial undertakings announced under Prime Minister's package of investment that is going to expire on 30th June 2017 is proposed to be extended up to 30th June, 2019;
  7. Reduction in Customs Duty on Raw Materials and Machinery: To further increase in GDP of industrial sector existing customs duty of 5% will be reduced to 3% on two thousand items of mostly machinery and raw materials, which will benefit industrial sector to the tune of Rs.18 billion;
  8. Abolishing regulatory duty on Bead Wire: Bead wire is the raw material of the tyres manufacturing industry which is currently subject to 10% customs duty and 30% regulatory duty. This item is not locally produced. In order to provide incentive to the local tyres manufacturers, it is proposed that regulatory duty may be exempted on import of Bead Wire
  9. Protection of local industry: To incentivize local industry, custom duty on the following items are proposed to be increased by different rates in the Finance Bill 2016:
    • Medium density fiber board,
    • Cement clinker,
    • Methyl Acetate, and
    • Semi-Printed / Printed Security Paper