Budget speech for fiscal year 2010-11
Allow me to submit the highlights of taxation proposals for the year 2010-11. The tax measures being proposed by the government are fair, just and equitable guided by the principle of 'ability to pay' set in context of a war economy.
No customs duty on any product will be increased. For twenty nine categories of products, customs duties will be simplified andreduced.57. In order to reduce the price of vegetable ghee and oil, reduction in duty on import of Crude Palm Oil is proposed fromRs.9,000/MT to Rs. 8,000/MT. This measure will provide relief to the general public.
To provide relief to the sick, concessionary import of 6additional medical raw materials and medicines is being proposed. The import of X-ray film is also proposed to be exempted from customs duty.
In order to address the energy crisis and to encourage use of Renewable Energy Resources, import of four dedicated items in use of these resources is proposed to be allowed at a concessionary rate of 5% import duty.
The government has already allowed duty free import of Energy Saving Lamps. In order to encourage local manufacturers of these lamps, five more inputs used in their production arc being proposed to be exempted from customs duty.
In order to reduce the manufacturing cost of soap and detergent, duty rates on their raw materials, Coconut Acid Oil and Sodium sulphate are proposed to be reduced from 15% to 10%.61. In order to encourage value addition and export of rice, its processing machines are proposed to be exempted from customs duty.62. Road Sweeping Lorries imported by civic bodies are being proposed to be allowed at concessionary rate of 5% duty.
The Government of Pakistan is committed to reform the existing system of General Sales Tax. The existing General Sates Tax (GST) has degenerated into an unfair tax, with multiple rates (between 16% and 25 %), exemptions and domestic zero rated facilities for vested groups and the privileged. It has also contributed greatly to the opportunities for corruption and rent seeking. The proposed GST reforms, will address both policy and administrative shortcomings of our current GST to remove all the deficiencies listed above.
The proposed GST reform:- Will eliminate multiple tax rates and replace it with a single lower rate of 15%.- Will not apply on health, education and food items consumed by the poor.- Will not apply to turnover less than Rs. 7.5 million per year where as the current threshold is Rs 5 million per year.
- Will be automated thus reducing possibilities of corruption andrefund delay.
- Will broaden the tax base instead of burdening the existing taxpayer thus introducing greater equity into the tax system.
We expect the proposed GST reform to be in place by October 1,2010 in consultation with all the provinces and other stakeholders.
Meanwhile as an interim measure the GST rates are proposed to be raised by 1 percentage point. Once the reform GST is in place the proposed single lower rate of 15 % will become effective. In addition, an accompanying relief measure of the GST reform will be the abolition of the current 1% Special Excise Duty presently levied on most items of imports and local manufacture. Federal Excise Duty.
FED incidence on all categories of cigarettes is proposed to be enhanced. It is also proposed to levy FED at Rs. 1 per filter rod of cigarettes. This levy is proposed to be adjustable by registered manufacturers which will also discourage illicit production of low quality and harmful cigarettes. It will generate additional revenue to cope with the health system costs of effects of smoking.
In order to fulfill Government's obligation under the 7th NFC Award, the rate of FED on natural gas is proposed to be increased to Rs. 10 per MMBTU.
To discourage consumption of electricity intensive appliances, levy of FED @ 10% ad valorem on air conditioners and deep freezersis proposed.
A number of relief measures in income tax have been proposed inthe Finance Bill. These are: Exemption limit for the salaried taxpayers to be enhanced from Rs 200,000 to Rs.300,000 benefiting approximately430,000 taxpayers.
- Exemption limit for non - salary income is also proposed to be raised from Rs. 100,000 to Rs.300,000 per year benefiting approximately 350,000 taxpayers.
- Rate of income tax collected along with monthly electricity bill from industrial and commercial consumers is proposed to be reduced from 10% to 5%. This will provide a relief of Rs.4.5 billion to the 66,000 taxpayers.
- Under the Prime Minister's Fiscal Relief Package to Khyber Pakhtunkhwa, FATA & PATA additional tax relief of about Rs. Two Billion have been provided to benefit 300,000 taxpayers of this province.
- Instead of monthly withholding tax statements, now only quarterly withholding statement will be required to be e-filed. A large number of taxpayers will benefit from reduction in this sizeable compliance requirement which will further bring down the cost of doing business in the country.
- Taxation on interest free/concessionary interest loans provided by an employer is proposed to be waived.71. In order to further facilitate taxpayers and to incentivize the foreign investment a number of steps are also proposed to be taken for improvement in Direct Taxes: rate of final withholding tax on non-specified payments to nonresidents is to be reduced from 30% to 20%
- Tax free payments to non-residents on profits on debt will be allowed 10% tax credit for balancing, modernization and replacement to all companies.
A five per cent tax credit is proposed to be allowed to acompany in the tax year of its enlistment.
- 10% withholding tax as final charge on profit on debt (in debt instruments), and also for the investment in government securities (treasury bills and PIBs) to allow hassle free compliance bynonresidents. Number of taxation measures, aimed at rationalizing tax structure are proposed as below:
- It is proposed that income tax. be raised for the Association of Persons (AOPs) at a flat rate of 25% against the existing progressive rate averaging up to 20%. This step will encourage corporatization.
- Tax on short-term Capital Gains on stocks/ shares will be charged at 10% where shares arc held for a period less than six months and at 7.5% where they arc held for more than six months and less than 12 months. However, stocks held for over one year will not be subject to CGT.
- The withholding tax rate payable by commercial importers is proposed to be increased from 4% to 5%.- A withholding tax on banking transactions including withdrawal through demand draft, pay order, RTCs, CDRs etc. will be charged at0.3% where such transaction exceeds Rs.25000 in a day.
- Turnover tax on loss making companies and AOPs is proposed to be increased from 0.5% to 1%.
- Withholding tax on domestic air travel is proposed to be charged at 5% on gross value of the ticket.
I would now like to address the issue of compensation of government servants. The recommendations of the Pay and Pension Commission as adopted by the government would be implemented over the next three years.
The following decisions arc being announced for implementation with effect from 1st July 2010:
a. Federal Government employees will be allowed an ad hoc monthly allowance equal to 50 per cent of one month's basic pay. This benefit would not be available to such federal government employees who are already in receipt of a monthly allowance equal to onemonth's basic pay.
b. Medical allowance for employees in BS-1 to 15 would be doubled. For employees working in BPS-16 to 22, medical allowance will be allowed at 15% of monthly basic pay.
c. Pensioners who are retired after 2001 will be allowed 15%increase and those who retired prior to 2001 will be allowed 20%increase.
d. Pensioners who retired in BS 1 to 15 will be allowed medical allowance at 25% of pension drawn while those retired in BS 16 to 22will be allowed medical allowance at 20% of pension drawn.
e. The minimum monthly pension is proposed to be raised fromRs.2000 to Rs.3000.
f. The rate of family pension is proposed to be enhanced from 50%to 75%.g. A number of other minor allowances for employees in BS-1 to 16namely, night duty allowance, conveyance allowance for late sitting staff, daily allowance and special pay are proposed to be raised substantially.
I may now announce a new intervention which aims at employment generation for rural unskilled workers. Under this scheme the unskilled workers in rural areas would be guaranteed employment for one hundred days in a year. The main feature of this scheme would be carrying out of small local level works with a guaranteed daily wage equal to the minimum wage. A pilot scheme will be launched in 120union councils in 12 least developed districts, and others that have suffered the most due to the security situation. A training element will also be added to provide skills that would facilitate absorption into the labour market. An amount of Rs 5 billion shall be provided for this programme, which shall be financed from the savings to be made by freezing the non-salary component of the non-development expenditure of the civil government at the level of last year. As many as 200,000 households are expected to benefit from this scheme in FY 2010-11.
I would like to thank my Cabinet colleagues and members of this august house for their support in the finalization of this Budget. I would also like to thank all others who have tirelessly contributed in the preparation of this Budget.
Before I conclude, let me recap what I had stated at the beginning of my speech. I had said that in this budget we would attempt to lay down a direction for the economic management of the country. The intention was to present a way forward in which each of us as a citizen could participate and contribute to a common cause.
Our morale as a nation should be strengthened as our economy does not face the kind of stress being faced by many other economies. Policy action on many fronts is underway. The path of recovery is slowly taking hold but key structural issues present challenges to economic management. The Budget seeks to address these challenges to shape a more austere, efficient and fundamentally self reliant economy.
We will continue to chart a stable course for the economy, build efficiency in the way we do business, increase jobs for the under privileged and lay down policies that encourage investment opportunities for the entrepreneurs. Let there be no doubt in the minds of the people that there exists tremendous upside potential in the economy and the country. It is up to all of us to harness the potential to the best of our ability.
We have shown our ability to put aside our political differences and face difficult challenges in a spirit of harmony and togetherness. Continuing with this spirit we have the ability to carve out a golden future for our country. Government will continue to play the role of providing an enabling environment for all the citizens to fully engage in the process of economic development.
Let me conclude with the words of the father of the nation, Quaid-e-Azam Muhammad Ali Jinnah on the occasion of the creation of our nation which are perhaps equally relevant today: "Let us now plan to build and reconstruct and regenerate our great nation...It is in your hands. We have undoubtedly talents. Pakistan is blessed with enormous resources and potentialities. Providence has endowed us with all the wealth of nature and now it lies with man to make the best of it".
Madam Speaker, Even today our destiny is in our own hands! Let us as a nation united go forward and make it into a reality!
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