A Busi­ness Bud­get

Enterprise - - Con­tents -

PML-N’s sec­ond bud­get since the party’s com­ing into power has been the sub­ject of con­sid­er­able de­bate. Spec­u­la­tions were rife about the seem­ingly tax­heavy bud­get in the off­ing and its af­ter ef­fects. Ac­cord­ing to Fi­nance Min­is­ter Ishaq Dar, this year’s fed­eral bud­get is pro-busi­ness with mea­sures in place to sus­tain the econ­omy, res­o­lu­tion of the en­ergy cri­sis and ag­gres­sive plans for in­fras­truc­tural de­vel­op­ment. The bud­get was pre­sented amidst the chal­lenges that the Pak­istani econ­omy is fac­ing with the key in­ten­tion of boost­ing growth, pro­vid­ing em­ploy­ment and en­hanc­ing wel­fare.

Over the last year since the PML-N gov­ern­ment came into power, the coun­try’s GDP has gone up for the first time in the last six years (4.1 per cent). This tar­get has been re­vised to 5.1 per cent for the com­ing year. Sim­i­larly, the in­dus­trial sec­tor has shown an im­pres­sive growth of 5.8 per cent, sur­pass­ing the growth tar­get for the year by one per cent.

Al­ready, trade and in­dus­try lead­ers are de­scrib­ing the cur­rent bud­get as growthori­ented and are op­ti­mistic that it will bring in in­vest­ment, pro­mote ex­ports and gen­er­ate more revenue for the na­tional ex­che­quer. The mea­sures in­tro­duced in the bud­get will en­cour­age in­dus­tri­al­iza­tion and cre­ate more jobs for the youth. Con­sider, for ex­am­ple, the in­cen­tives given to the tex­tile sec­tor – the largest in­dus­trial sec­tor in the coun­try – that al­lows for the pro­vi­sion of a two per cent duty draw­back to pro­cessed fab­ric on 10 per cent in­cre­men­tal value. Ex­perts say this mea­sure will boost ex­ports. Sim­i­larly, the two-year ex­ten­sion of cus­toms duty ex­emp­tion on the im­port of tex­tile ma­chin­ery is likely to bring in more in­vest­ment for the sec­tor.

The re­duc­tion in the ex­port re­fi­nance rate also bodes well for trade and in­dus­try since the ex­ports will go up once the costs come down. Also com­mend­able is the gov­ern­ment’s move to bring re­tail­ers un­der the tax net by reg­is­ter­ing them with un­der the sales tax act. This will yield a huge amount of revenue and help doc­u­ment the econ­omy bet­ter – com­pris­ing some 2.2 mil­lion re­tail­ers across the coun­try that have yet to be brought un­der the tax bracket. Un­der the given cir­cum­stances, the sug­ges­tion of tax­ing at a flat rate is a wise move since it will in­crease the trust and un­der­stand­ing of the tax payer and will gen­er­ate revenue.

This year’s fed­eral bud­get also brought re­lief for the dairy sec­tor as the lat­ter con­tin­ues to en­joy zero tax rating (that is, the ab­sence of value added tax on the com­mod­ity). This move will pos­i­tively im­pact the dairy sec­tor, re­duc­ing the costs of the milk pro­cess­ing in­dus­try and keep­ing the prices of pack­aged milk in check. The de­ci­sion to main­tain zero rating will in­crease gov­ern­ment rev­enues com­ing from the pro­cessed milk in­dus­try to rise sub­stan­tially, es­pe­cially since around 96 per cent of the coun­try’s milk in­dus­try is rep­re­sented by the un­pro­cessed milk pro­duc­ers who do not pay taxes. Had zero rating been re­moved on milk and re­lated items, the price of one liter of un­pro­cessed/un­pack­aged milk would have in­creased con­sid­er­ably, which would have trans­lated into an in­crease in the price of pro­cessed/pack­aged milk. Some 600,000 dairy farm­ers, mostly lo­cated in Pun­jab and Sindh, would have suf­fered as there would have been a de­crease in the de­mand for milk as a re­sult of the price hike. The sec­tor is hope­ful that this move will help with its ex­po­nen­tial growth, thus mak­ing a sig­nif­i­cant con­tri­bu­tion to the econ­omy.

When Pak­istan be­gan em­u­lat­ing the zero-rating model for the dairy in­dus­try, its pro­cess­ing ca­pac­ity dou­bled and in­vestors thought it lu­cra­tive to in­vest in cor­po­rate dairy farm­ing. It also led to the de­vel­op­ment of re­lated in­dus­tries re­lated to the breed­ing and feed­ing of milk pro­duc­ing an­i­mals, and in­stal­la­tion of mod­ern milk­ing equip­ment. As a re­sult, the sec­tor brought in some $500 mil­lion in for­eign di­rect in­vest­ment. Con­tin­u­ing with the zero tax regime will en­sure that all this progress does not go to waste and fur­ther con­trib­ute to the na­tional ex­che­quer. At the end of the day, the ben­e­fits of zero tax rating on the dairy sec­tor are im­mense since it is likely to bring in more cap­i­tal to the in­dus­try.

Even though naysay­ers claim that the fed­eral bud­get sounds am­bi­tious (with pos­si­bly unattain­able tar­gets) on paper, but it is likely to in­duce trade and in­dus­trial growth – a promis­ing sign for the over­all eco­nomic health of the coun­try.

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