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Monday, June 7, 2010

Federal Budget 2010-11

The government has earmarked about Rs3.887 billion for the Ministry of Defense (MoD) in the Federal Budget 2010/11 (July-June) to execute projects, officials said on Monday.

The allocation for projects includes communication satellite system development, Pak-China seismic network, and electronic complex for National Engineering and Scientific Commission (NESCOM), they said.

The Ministry of Defence would carry out 65 projects in the next financial year. Among these, the Space and Upper Atmospheric Research Commission (SUPARCO) has 22 running projects for which Rs2.324 billion have been allocated, for the 13 new schemes, Rs286.77 million have been allocated.

For projects other than SUPARCO, Rs1.276 billion have been earmarked. The National Economic Council (NEC) last Friday has already approved these projects.

SUPARCO new projects in fiscal 2010/11 include Establishment of Pak-China Seismic Network in Pakistan PMD Rs16.46 million; National Electronic Complex of Pakistan NESCOM Rs164.62 million; National Canien Center Tret Murree, Rawalpindi RV and F Dte. GHQ Rs24.7 million; and Rs8.23 million each for projects Development of Training area and Boundary Wall for Survey Training Institute Islamabad, Survey of Pakistan; Development/Expansion of five secondary and one primary FGEIs at Multan; and another scheme of Provision of Education Facilities-2 FG degree colleges (Boys and Girls).

Other new projects of the commission include Construction of Barracks for CPO/Sailors Maritime Security Agency (MSA) base Pasni Rs14.81 million; Establishment of MSA Digitized Operation Room at new HQ/MSA building Rs16.45 million; Construction of Flexible Carpeted Road at Base Gawadar

MSA Rs1.47 million; Construction of New Residential Accommodation at Various Office at Quetta Rs4.12 million; Renovation of Met Office and residential quarters including replacing of damaged roofs slabs of office building at met observatory Gilgit Rs3.29 million; Special repair of office building/residential quarters and construction of bachelor accommodation at Met observatory, Dir Rs3.82 million; Construction of Multistoried flats for DWC at Quetta SOP Rs12.35 million.

Under the SUPARCO ongoing projects, Rs800 million has been proposed for Pakistan Communication Satellite System (Paksat-IR); Pak Sat project (phase-I extension) Rs285.3 million; Satellite Bus Development Facility (Phase-I) Rs170.56 million; Designing and Development of Compact Antenna test Range (CATR) Rs197.67 million; Attitude and Orbital control system (AOCS) center Karachi Rs75.467 million; Development of Satellite Dynamic System Test Facility Karachi Rs83.309 million; Development of CFIs for Fly On-board Communication Satellite Pak-Sat-IR Rs97.58 million; Development of Various Laboratories for National Satellite Development Program (NSDP) Rs90.86 million.

Besides, Rs33.87 million has been earmarked for Development of Satellite Environmental Validation and Testing (EVT) Facility Lahore; Upgradation of Quality Assurance and Quality Control Labs at Karachi Rs26.34 million; Human Resource Development (Phase-II) for National Satellite Development Program at Karachi Rs41.82 million; Development of Flexible Bearing SUPARCO Plant at Karachi Rs25.85 million; Development of Composite Pressure Vessel, Karachi Rs6.93 million; Development of Large Dia Rocket Motor casing using managing steel Karachi 28.15 million; Know-How Development and Capacity Building and Satellite Engineering and Technology in Lahore Rs47.651 million.


The measures taken in the budget 2010-11 would result in increase in cost of doing business and cost of living and would also promote smuggling at the cost of organised sector of the economy, said trade and industry leaders.

After listening to the budget speech of Finance Minister Dr Hafeez Sheikh delivered in the Parliament on Saturday there was a general consensus among the business leaders that no worth mentioning relief, which may benefit the trade and industry or even the general public, has been announced in the new budget.

However, most of these leaders were of the view that actual facts would be unfolded after going through the entire text of the Finance Bill but still they felt that the real budget would come on October 1, 2010 when the government will introduce the Value Added Tax (VAT) across the board.

Salim Parekh, chairman Site Association of Industry, said that the speech of the finance minister was mostly based on historic facts and carried little budgetary content, which strongly indicated that the government was heavily relying upon the VAT, when all sort of exemptions would be withdrawn.

Undoubtedly, he said, there are some good measures such as freezing of government’s non-development expenditures other than salary bill but still it is a budget for three months because VAT is the main revenue collecting tool the government will use to increase the tax-to-GDP ratio.

Shabir Ahmed, chairman Pakistan Bedwear Exporters Association (PBEA) said that it was for the first time in so many years that the budget proposals were totally devoid of incentives to promote exports.

He said the proposals also lacked incentives for industrialisation and promotion of business activities in the country, which means employment would not be generated for the teaming unemployed youth.

Former chairman Korangi Association of Trade and Industry (Kati) Mian Zahid Husain said that cost of production would go up because of levy to the tune of Rs9 billion on POL products. However, reduction in customs duty on some items will bring the cost down.

A tax consultant Chamanlal Oad said that Rs10 increase per 5.09 MMBTU of natural gas will have a snowball impact on cost, particularly for those industries having captive power plants.

Above all, he said natural gas was also being used by CNG stations and power generation plants, which mean that this will push the cost of CNG consumed by vehicles and of electricity.

Fawad Ejaz Khan, former chairman Pakistan Leather Garment Exporters and Manufacturers Association (Plgmea) said though there was no mention of VAT in the budget but this means “we have a breathing space till October 1, when it will be imposed”.

He further said that as per the government plan the VAT will not carry any exemption, which implies that the export-oriented industry will also have to pay tax and then get refund.

He said this would once again open floodgates of corruption as was witnessed in the GST era, when ‘flying invoices’ were widely used for fraud and fake refund claims.

Abdul Majid Haji Mohammad, president Karachi Chamber of Commerce and Industry (KCCI) said the measures suggested in the new budget will result in pushing up the cost of production.

He complained that the suggestions given by the trade bodies with regard to Afghan Transit Trade (ATT) were totally ignored and the finance minister announced no measures to check rampant smuggling hurting the local industry.

He said the increase in GST rate from 16 to 17 per cent will push the cost of production and cost of living. Similarly one per cent increase in withholding tax will also surge prices.

Abdul Majid contradicted the finance minister’s assertion that deep freezers, refrigerators and air-conditioners are only used by rich people so there is increase in FED by 10 per cent. He said these were no more rich people items because lifestyle in urban dwelling has almost become similar and most of the basic needs of the people are also same.

IMF to be apprised of VAT delay causes

Finance Minister Dr Abdul Hafeez Shaikh said on Sunday that the government would inform the International Monetary Fund (IMF) about what he called ‘new dynamics’ which had led to a three-month delay in introducing the value added tax (VAT).
At a post-budget press conference, he said negotiations with the IMF would continue in the overall context of the economic reforms programme.

“We are a sovereign nation and take our decisions ourselves. However, we are confident of fulfilling our commitments with the IMF.”

“I see no fundamental difficulty in our dialogue with the fund because Pakistan is successfully moving towards fiscal sustainability under the IMF programme,” he said.

He said the IMF wanted the country to mobilise resources and make repayment of loans viable.

Planning Commission’s Deputy Chairman Dr Nadeemul Haque, a former IMF official, said the fund was only a lending body whose role was to bail out a country facing difficulties in balance of payments.

However, he said, the IMF executive board was empowered to decide about economic programmes of countries.

The finance minister said the increase in GST was an interim measure because ways had to be found to meet the revenue target after the deferment of VAT.

Dispelling a perception that the one per cent increase in GST would affect the prices of pulses and rice, he said the government had allocated Rs4.2 billion in the budget for the Utility Stores Corporation to provide subsidy to consumers on food items.

The minister said 2010-11 would mark the beginning of a new era with provinces getting the lion’s share of the development budget.

He said health, water, education and law and order were no more under the federal government.

He said the importance of federal budget would gradually decrease after appropriate division of resources among provinces.

He said the budget was one aspect of the government’s planned expenditure and revenue, while economic reform was an ongoing process.

He said the ceiling of exemption from income tax had been raised to give relief to the low-income group.

Dr Shaikh said the 50 per cent raise for government employees would apply to the running basic salary and all personnel on national pay-scales would benefit from it.

He said recommendations of the Pay and Pension Commission were under consideration.

APP adds: The finance minister said measures taken in the budget would help reduce inflation and deficit and improve economy.

He said current expenditures of the government had been frozen.

“Cut in the government’s current expenditures will have a positive impact on inflation.”

He said the decision to reduce customs duty on 29 items and not increase its rate would also help check inflation.

He said GST reforms would replace multiple tax rates with the rate of 15 per cent after three months.

The minister claimed that the uniform GST system would also help reduce inflation.

He said that earlier discussions on the issue had not been based on facts and the government wanted to reform the tax in consultation with provinces.

Replying to a question, he said the 50 per cent ad hoc relief announced for government employees would not apply to police, armed forces and judiciary because their salaries had earlier been increased by 100 per cent.

Dr Shaikh said the corporations would also be provided resources to give ad hoc relief to their employees.

He said it was now the responsibility of the provinces to bring the vulnerable segments of the society under the social safety net more efficiently and honestly. Dr Shaikh said that as a result of prudent policies adopted by the government over the past three years, the economy had started showing resilience despite severe challenges.

He said the government was quite confident of bringing inflation down to 9.5 per cent during the next financial year.

The minister said fiscal deficit would be brought down to four per cent and current account deficit to less than three per cent of the gross domestic product (GDP).

He said the country’s economic policies were being appreciated by international organisations.

“Pakistan’s international credit rating has been upgraded from CCC to B(-),” he said.

Dr Shaikh said tax on property sale deeds should be reduced to encourage people to declare the correct value of their assets.

The minister said that VAT would be definitely introduced, but after a consensus among all stakeholders.

He said the government had not imposed GST on edible items.

In order to reduce the prices of vegetable ghee and oil, a reduction in duty on import of crude palm oil had been proposed from Rs9,000 to Rs8,000 per ton, he said.

The minister said the government had to take special care of people living in conflict zones, like the Federally Administered Tribal Areas.

Dr Shaikh said that in the past governments used to announce prices of commodities in the budget, but now it was desirable that the rates were fixed by regulatory authorities like the PTA and Ogra.

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