For the promotion of growth in the economy, its sustainability and enhancement of exports, the Sustainable Development Policy Institute (SDPI) has sent budget proposals to Ministry of Finance for a better formation of the Budget 2017-18.
The budget proposals of SDPI, a copy of which is available with Pakistan Today, are based on annual pre-budget seminar series organised by the institute in four provinces and in Islamabad during the past few months.
The key measures proposed by the SDPI ahead of the next budget include agriculture, taxation, investment, energy and export sectors. It proposes reducing indirect taxes on farmers for which an urgent evaluation of taxes on medium and small farmers may be conducted. Based on the tax incidence analysis, burden of indirect taxes on farm inputs may be gradually reduced.
It suggests the government improve allocation for food security in poorest districts for which a revision of Fiscal Responsibility and Debt Limitation Act should protect food security allocation and direct these protected expenditures towards the poorest districts in the country. It also proposed revisiting the Zero-Hunger Programme. In 2012, MNFSR had envisaged ‘National Zero Hunger Action Plan’ -a five-year plan that aimed to reach a total of 61 million food insecure people across the country with a total cost of USD 16 billion.
SDPI also suggests making ‘one-window’ operations ‘functional’. Pakistan is ranked low vis-à -vis peers by World Bank in difficulties faced by businesses in starting and exiting their business. The one window operations at SECP and FBR need more effective functioning. Reduced compliance costs of taxes will help formalise businesses: Most taxpayers are not complaining about the actual financial burden of taxes, but the costs associated with the compliance of various taxes. Multiple tax returns are filed with multiple tax authorities in Pakistan. Example from India: Starting this June, India will introduce a single tax return form at both Central and State levels.
According to the proposals, investment diplomacy is also fragmented across the foreign office, federal and provincial Boards of Investment. Some departments are entirely focused on China/CPEC, others are focusing on Central Asia and EU. Protecting share for SMEs through public procurement: With relevant changes in the Finance Act, a certain share for SMEs may be protected in all the public procurement at federal and provincial levels.
Introducing reforms in the taxation area, it says, there is a need for an inter-provincial working group on taxation. Even zero-rated entities are paying taxes due to overlapping mandates of federal and provincial tax departments. Working group may include all revenue authorities in the country with a mandate to remove multiplicity of taxes, the incidence of double taxation, and consolidation of taxes rendering minuscule revenue.
Restructuring the cabinet committee on exports, for such a high-powered coordination forum can then protect the budget allocation for trade policy initiatives, credit guarantee support for exporting SMEs, and empowering Central Bank for a more prudent exchange rate management.
Encouraging export diversification through the promotion of intra-industry competition: In the short term, the government may pursue simplification of tariff regime. Para tariffs and regulatory duties should be gradually abolished. In the medium-term, a move toward a uniform tariff regime is recommended.
Budgetary measures for promoting services trade: IT, health services, transport, communication and finance sectors have shown export potential. A time bound allocation under the trade policy for start-up services sector ventures is required to help them become exporting entities.
Long-term financing for livestock sector at reduced rates: This may be limited to Balochistan, Khyber Pakhtunkhwa, FATA, GB, and AJ&K. This will help build capacities in fruits and vegetables, fishing and forestry.
Progressive farming can be encouraged in rural economies. This may be done through effective support prices, tax-free import of agriculture machinery, rebate in the case of export to Afghanistan, Iran and beyond, and subsidised provision of related inputs for micro and small scale businesses in horticulture and pastoral concerns.
Budgetary measures for Balochistan: For promotion of exploration, development and production of Balochistan’s mineral resources in an environmentally sustainable manner, it is important that a) provisions under National Mineral Policy be discussed with local stakeholders in the mining sector, b) temporary and time-bound relaxation in corporate tax rates applicable under income tax ordinance may be allowed, c) effective exemption from taxation on refining or concentration of mineral deposits may be given, d) zero custom’s duty on import of machinery and intermediate inputs and e) deduction in the determination of taxable income if capital expenditure is incurred, should be allowed.
In the energy sector, investment to promote the efficiency of transmission and distribution of power is needed. Grid station network needs to be improved immediately. The aim should be to reduce the number of trippings and outage time, as well as to reduce line losses. This will encourage the energy producers to go towards cleaner energy initiatives due to tax rebates while producing and distributing greater units to the grid.
Focused Financing for DiamerBhashadam to enhance the life of all other hydropower initiatives. This will significantly decrease the sedimentation process. Also, in addition to focusing on mega hydropower projects, the government needs to support and incentivize the micro hydro energy projects to capture maximum potential from the water flow with least capital expenditure.
