Fiscal Policy of Pakistan 2016-17
Fiscal Policy in Pakistan
Government Receipts
The Government receipts consist of the following four sources:
1.Revenue Receipts (Net of Provincial Shares): In Pakistan, the
heavy dependence is upon revenue receipts, about 65-70% of the revenue is
estimated to be drawn from revenue receipts. It includes tax revenue, non-tax revenue,
and surcharges.
(a) Tax Revenue: In taxes we have direct taxes such as income tax,
and wealth tax. Indirect taxes such as central excise, sales tax, and custom
duty. Direct tax comprises about 70% of Pakistan’s total tax revenue.
(b) Non-Tax Revenue: It includes income from government property
and enterprises and receipts from Civil Administration and other functions.
(c) Surcharges: Surcharges on natural gas and petroleum fall under
this category.
2. Capital Receipts: Capital receipts include external borrowing
and internal non-bank borrowings consisting of unfunded debt, public debt,
treasury and deposit receipts besides the revenue account surplus and the
surplus generated by public sector, etc.
3. External Resources: External resources are loans and grants
which come from various sources. These sources include consortium,
non-consortium and Islamic sources of aid:
(a) Consortium: Consortium provides aid at both bilateral and
multilateral levels:
(i)Sources of consortium bilateral aid are Belgium, Canada, France,
Germany, Italy, Japan, Netherlands, Norway, Sweden, United Kingdom and United
States.
(ii) Consortium multilateral aid comes from Asian Development Bank
(ADB), International Bank for Reconstruction and Development (IBRD), Int.
Development Association (IDA), Int. Finance Corporation (IFC), and Int.
Fund for Agricultural Development (IFAD).
(b) Non-Consortium: Non-consortium sources of loans and grants
mostly provide bilateral aid. These include Australia, China, Czech Republic,
Denmark, Finland, Rumania, Switzerland, Russia and Yugoslavia.
(c) Islamic Aid: Bilateral aid from Islamic countries come from Saudi Arabia,
Kuwait, Qatar, United Arab Emirates, Turkey, Lebanon, Libya and Iran. While
multilateral Islamic sources of aid are OPEC Fund, and IDB.
Loans and grants received by Pakistan can be classified into ‘project’ and
‘non-project aid’. Non-project aid can be further decomposed into food,
non-food, BOP and Relief aid.
4. Self-Financing by Autonomous Bodies: This is actually the
surplus left after meeting all the expenses of these bodies. This surplus is
available to government for revenue and development expenditures.
Government Expenditure
Government expenditure is classified into current expenditure and development
expenditure:
1. Current Expenditure: It comprises mainly debt servicing,
defence, general administration, social services, law and order, subsidies,
community services, economic services, grants to Azad Jammu and Kashmir,
Railway and others.
2. Development Expenditure: Public Sector Development Program
(PSDP) is another name given to Government’s development expenditure. The
priority areas are transport and communication, power and water. These three
sectors combined cover about 50% of total allocation of PSDP.
The share of current expenditure is always remain substantial, it constituted
around 70-80% of total Government expenditure. Non-development expenditure is
generally regarded as being excessive and therefore subjected to persistent
public criticism. With sharp increase in population, constant threat from the
enemies and increasing cost of corruption, non-development expenditure is
subjected to a rising trend which could only be controlled by rapid economic
development. On the other hand, negligence of non-development expenditure may
result into ill-equipped and under-staffed hospitals, dispensaries and
educational institutes, and arrears in maintenance of roads, dams, bridges,
electricity and forests. Non-development expenditure should be economically
managed in order to ensure the economic development of Pakistan.
There are six major heads of current expenditure of Federal Government of
Pakistan:
1. Defence,
2. Debt servicing,
3. Subsidies and grants,
4. General administrative,
5. Social services, and
6. Others.
Tax Structure of Pakistan
1. The narrow base enigma has been a base in Pakistan’s tax structure from the
beginning.
2. In 1987 when population of the country was more than a hundred million, the
total number of taxpayer was just over a million.
3. The main base taxes imposed are direct and indirect taxes.
1. Direct tax of the Federal Government comprises of income tax, wealth tax and
corporate tax
2. Indirect tax, on the other hand, consists of custom duty, excise duty, sales
tax, import duty and all others.
4. Indirect tax contributes the predominant share to the total tax collection.
Direct taxes have persistently dropped their share in total tax revenue.
5. Indirect tax, on the other hand, contributes more than 70% of the total tax
revenue. Indirect tax is regressive. It may cause the inflation to rise and its
incidence is fall on poor class of the economy.
Deficit Financing in Pakistan
Following are the sources of deficit financing in Pakistan:
1. Printing new currency notes
2. Public borrowings
3. Foreign loans, aid and grants
4. Using previous balances, and
5. Borrowings from banks including from the central bank.
Dr. Mahboobul Haq defines deficit financing in the following words:
(i) Net borrowings by the government from the banking system which includes the
State Bank of Pakistan (SBP) and commercial banks but excludes non-banking
institutions and individuals, and
(ii) Net borrowings by the Government from the SBP only.
But the public debt does not only constitute the above sources, it also
includes money lent to Government out of the balances of the banks which would
have been held if the Government had not borrowed them.
Deficit financing is a sound and necessary instrument of the Government finance
and its role, its desirability and limitations of its use in mobilising
revenue, must be properly analysed in the context of its broad implications on
the economy and compared to the adequacy of other techniques of resource
mobilisation.
It was planned in Third Five-Year Plan that there will be no deficit financing
during the said plan but the government had to revise the plan. In the Fourth
Five-Year Plan there were annual plans and major upsets in the economy. In the
Fifth and Sixth Five-Year Plans, though there were very large amounts of
foreign remittances but there was not remarkable reduction in deficit
financing.
A well-managed deficit financing could be a key to greater economic
achievements especially for a less developed country. A wise finance minister
has to keep an eye on all the factors of the economic development and spent the
public fund in the manner that is most beneficial to the nation.
Thursday, 6 October 2016
Fiscal Policy of Pakistan 2016-17
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