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ISLAMABAD: This is the text of budget 2005-06 speech made by Minister of State for Finance, Omer Ayub Khan, in the National Assembly on Monday. Mr Speaker Budget is presented every year and God willing, till such time that this world exists, the budget of Pakistan will continue to be presented. Mr Speaker, this budget carries a historical significance. It is being presented at a stage when the international community is envisioning a new era of economic well-being. The awe-inspiring pace at which the Peoples Republic of China has grown and the positive change that has come about in the living standards of its citizens has sent out a message to the rest of the world that economic well-being of a few nations and the backwardness of the dominant majority is not a pre-determined fate. In future, the strength of a nation will be determined by the size of its market, the growth of its GDP and the quality, education, expertise and discipline of its workforce. Mr Speaker, in this newly emerging world, there would be no respect for underdeveloped nations and no one will pay any attention to their political voice. Sovereignty of only the well-off and developed nations will be protected. Therefore, we are today standing at a juncture where we must improve the economic development and well-being of Pakistan and its citizens. Rather, by developing rapidly in the shortest possible time, we can protect our sovereignty from external interference, domination and dictation. Mr Speaker, the freedom from IMF’s dictation and reaching of a growth rate of 8.4% is a part of our decisive struggle whose objective is the welfare of the people of Pakistan and making the sovereignty of Pakistan absolute. In the past due to irresponsible utilisation of foreign loans Pakistan faced serious problems. Irresponsible governments borrowed even to meet their administrative expenditure. Due to the personal interest of the Prime Minister Shaukat Aziz, the Government has recently got the Fiscal Responsibility Law unanimously passed by the Parliament under which the irresponsible use of borrowed money has been stopped. Under this law, every government will have to spend at least 4.5% of the GDP on the development of social sectors. Mr Speaker, there have been ups and downs in the economy of Pakistan. In 1999, there was talk about Pakistan’s default. Questions were raised about the existence of Pakistan. The country was given such names that just remembering them makes the heart bleed. Mr Speaker, during this phase of pain and sorrow, those who loved Pakistan took an oath that God willing that stage of embarrassment and dependence will never return. We will never allow that period to return to Pakistan. I am confident that every Pakistani will join in this determination. This is an issue in which there is no breach between the Government and the opposition. When it comes to protecting the honour and strength of Pakistan we are all one. Mr Speaker, with this resolve that we will never allow the Pakistani nation to be taunted about default, we, from the end of 1999 initiated a new economic struggle. President General Pervez Musharraf and Prime Minister Shaukat Aziz started once again to reassemble the bits and pieces and put Pakistan back on the track of economic restoration and development. Mr Speaker, with a solid commitment to the glory of the nation, the government has at every step demonstrated a sense of realism. During the last year in this very Chamber an announcement was made that God willing in financial year 2004-05 6.6% growth rate in GDP would be achieved. At that time Mr Shaukat Aziz in his capacity as the Finance Minister while referring to the challenges being faced by the nation said that achieving a growth rate of more than 8% of GDP is a challenge for us. He said that although our basic target is 6.6% but we will try our best to meet the challenge of 8% growth in GDP. With the blessings and bounty of Allah, the hard work of the people of Pakistan and the exemplary sincerity of leadership the world is today witnessing a miracle in Pakistan. Allah Almighty has within just one year given us the GDP growth rate of 8.4% on which the entire nation needs to be congratulated. With this not only have we become the one of the five best performing economies in Asia, rather we have become the second fastest growing economy in Asia. Mr Speaker, with the blessings and bounty of Allah the international community and the international financial institutions are convinced of our economic achievements. It is a different matter that this news could not reach some of our friends within the country or may be they do not have confidence on the abilities of their nation. All we can say about them is ‘It is flower who is ignorant, although the entire garden knows about it.’ Mr Speaker, during the first ten months of this year overseas Pakistanis remitted $3.45 billion to Pakistan. With the blessings of Allah this government has the honour of restoring the economy of this country putting it back on the track of fast growth and winning back the complete confidence of foreign investors and overseas Pakistanis. We are sure that any one who loves the dignity and independence of Pakistan will be all praise for this success. Mr Speaker, the agriculture sector has been facing a lot of difficulties. But this government, to boost the confidence of the farmers, increased the prices of wheat and cotton. Decisive steps were taken to improve the availability of seeds and fertiliser. Keeping in view the requirements, we had to import 238,000 tons of fertiliser which was supplied to the farmers at cheaper rate with the government providing a relief of Rs3.8 billion. As a result of steps taken during the last two years, additional income of Rs147 billion became available to the farmers. Mr Speaker, the pace of rapid economic growths in agriculture sector can be gauged by the fact that during 2004-05 the sector acquired agriculture loans worth Rs100 billion. During this year, we produced 31,663 tractors but still could not meet the demand for tractors. For meeting the rapidly increasing demand for tractors, we are allowing those companies who want to set up tractor manufacturing units in Pakistan to immediately import 2,500 tractors free of duty. We are importing and making available 200 bulldozers to Balochistan and 100 bulldozers to NWFP so that better utilisation can be made of the water resources and agricultural land. Keeping these facts in view, who can deny that the purchasing power of the farmers and cultivators has increased. These farmers and cultivators are the strength of Pakistan, to increase this strength we will walk hand and hand with the farmers and cultivators. Mr Speaker, the development funds allocated for water for agriculture have been increased by 64%. During 2004-05, Rs4 billon were allocated for lining canals and watercourses. As a result of lining of the watercourses, water would be available at the far reaches of the system and 25% additional land would be brought under cultivation. 11,000 people would get direct employment and 400,000 jobs would be created through the project of lining of watercourses. Next year 10,000 watercourses would be lined. Inshallah we will use each and every drop of the water resources of Pakistan in a productive manner and bring welfare to the farmers. The allocation for agriculture has been increased from Rs7 billion to Rs9.1 billion. Mr Speaker, the Mangla Dam is being raised, Gomal Zam, Kurram-Tangi, Mirani and Subz-kai dams are being constructed. Kachi, Greater Thal, Rainee and Pat Feeder Extension canals are being constructed. We spent Rs21 billion last year on the water project of WAPDA but this year the allocation on this account has been doubled to Rs43 billon. Pakistan needs large strategic dams to increase its water resources. Whenever the government announces, the required funds for these dams would be made available. We are proud that through the construction of new canals we will bring hundreds of thousands of acres of land under cultivation which would result in enviable increase in the agriculture production of the country and the income of the farmer. We are trying to settle the unpopulated areas of Pakistan and we are confident that every Pakistani who loves the development and welfare of Pakistan will stand by our side. Mr Speaker, the engineers of the Army have performed a feet in the reconstruction of Sukkur Barrage of which they can be proud of. Such a huge work was apparently not possible in such a small time. The engineers of the Army deserve to be congratulated and thanked on this account. The repair and reconstruction of Sukkur Barrage is basically the responsibility of the Sindh Government. However, keeping in view the interests of the farmers of Sindh, President Musharraf and Prime Minister Shaukat Aziz decided to get this work done by the federal government. As a result of the love of federal leadership for Sindh, a very big danger for Sindh and Pakistan was eliminated. Mr Speaker, the services sector performed an exceedingly satisfactory role in achieving the growth of 7.9%. It is not something of the distant past that mobile telephone was a status symbol. In one year the number of mobile phones has increased by 125%. The mobile connections in the country have exceeded 10 million. According to one estimate, up to June 2005 $3 billion have been invested in the telecom sector. Without doubt the people of Pakistan are for the first time witnessing in the country a revolution in telecommunication. For the facility of the people we are proud of this revolution. Mr Speaker, the income of the government has increased since the government has got out of business. Only in the telecom sector within one year the income of the government increased from Rs3.7 billion to Rs15.6 billion. On the other hand, the people shall be benefiting from the reduction of activation charges from Rs2,000 to Rs500. The facility which people used to get in years is now available to them within a matter of hours. This is a government which works for the benefit of the people. Those who worked for their loss have left. Mr Speaker, the services provide 52% of the economy and therefore have become the most important source of jobs and livelihood in the country. This year banking and insurance have grown at the rate of 21.76%. There is no previous example of this level of increase. By getting itself out of business, the government passed on benefits to itself and the people which could not have been even imagined a few years back. This can be explained by an example where in 1990 only 8% of the assets of the banks were held by the private sector; now 80% of the assets are with the private sector. The result is that in the first nine months of the financial year there was record increase of credit to the private sector which stood at Rs348 billon out of which Rs100 billon were given to the agriculture sector. Our policy is not to impose the economic domination of the government rather it is to increase the welfare of the people. It can be easily understood that the impact of un-paralleled growth in banking and insurance sectors is influencing the entire national economy. Economic activities are picking pace in all sectors of the economy and with every passing day new job opportunity are being created. Within the service sector, wholesale and retail trade increased by 12%. This year 270 companies related to export and import, 240 companies offering miscellaneous services and 117 telecom companies got themselves registered. A total of 2,697 companies started operating in the country. Out of these, 54 companies belong to 20 different countries. The entire world believes in the economic development of Pakistan. We hope that some of our internal friends will also have confidence in the people of their country and will take pride in the success of Pakistan. Mr Speaker, a special programme has been developed for 32 less developed districts of the country which will benefit 22,000,000 citizens. During the last four years, micro financing was developed on preferential basis. At this time, 500,000 families having availed micro financing for moving towards better days. During the next four years, the number of those who availed micro financing will increase to three million. Within one year, one million small micro loans will be made available. Khushhali Bank will by 2007 make 563,000 micro loans available. We are bringing people with limited income away from jobs towards small businesses so that their economic conditions can be improved and they can fulfill their dreams. Mr Speaker, under the Khushal Pakistan Programme next year Rs7.5 billion will be spent. Under this programme, clean drinking water, sanitation, electricity and farm to market metal roads will be provided on which in the initial two phases, local development projects totaling Rs5 billon are under implementation. A substantial increase has been made in the households that use electricity and gas. People having access to tap water have increased from 25% to 40%. Under Khushal Pakistan Programme, young people will get local jobs. The federal government is also initiating a basic health programme for women in all the provinces. The services of lady health workers will be provided in each district. The government is establishing an institution in the name of NTEVTA which will provide every year 300,000 young people with professional and technical training. For this purpose, training institute will operate at the level of district and tehsil and the trainees will receive stipend. Rs2.3 billion annually will be spent on NTEVTA and its training programme. Prime Minister’s programme of one village one product will be initiated. Through this programme, the village products will be given a boost nationally and internationally leading to increase in employment opportunities. Mr Speaker, for developing the SME sector, the government has established a Business Support Fund through which small business loans will be provided. Mr Speaker, the government has been constantly trying to provide relief to its employees. In 2001, pay scales and certain allowances were revised. After that in 2003 and again in 2004 15% provisional relief was provided. You will recall that at the time of the previous budget constitution of a pay and pension committee was announced. Alhamdolillah, the committee was set up and has submitted the draft of its report. In accordance with the recommendations of the Pay and Pension Committee and keeping in view the financial constraints of the government, this relief package is announced: 1. Total increase ranges between 23-29%. 2. 15% increase in pay scales. 3. 10% increase in pensions. 4. Government will spend Rs25.5 billion on the increase in pay and pension. 5. New pay scales and increases in allowances and pensions will be effective from 1st July 2005. The government has increased the limit of minimum wage from Rs2,500 to Rs3,000. Every salaried person will benefit from this relief. Similarly, the government has increased the limit of minimum pension from Rs700 to Rs1,000. A special scheme is being launched for widows and orphans who borrowed up to Rs100,000 from HBFC so that their loans can be liquidated. In addition, HBFC is bringing in a new package to ease financial distress of its longstanding defaulters. This is a government of the people and it will continue to reduce the difficulties of the people. Mr Speaker, the changes that are taking place can be gauged from the fact that primary school enrollment of children has increased from 71% to 86%. During the last four years, the rate of literacy has increased from 45% to 53% whereas the literate males have now become 65%. Inshallah very soon every child in Pakistan will go to school and our national genius will not be wasted. Mr Speaker, next year Rs12.4 billon will be spent by the federation on education. The investment of the federal government in education sector is constantly increasing. During 2004-05 from July to March, the federation and the four provinces spent Rs74.43 billion on education. As a result of this investment in education, the country will benefit from trained manpower which becomes the backbone of its economic growth. The youth is the most valuable asset of Pakistan. We will improve their present and future. Mr Speaker, with the blessings of Allah the Pakistan Railways now does not need subsidy. There will be a saving of Rs5 billion in the subsidy allocated for it in the current year. During 2005-06, Railway is being provided Rs9.8 billion for 12 development projects. We will restore the traditional and romantic glory of Pakistan Railway and will convert it into an institution of public service. Mr Speaker, Karachi has been connected with Gawadar Port through the Makran Coastal Highway and now the entire coastal region of Balochistan is ready for development. Projects are being implemented to connect Gawadar harbour with Quetta and other cities of the country and onwards with Peoples Republic of China, Afghanistan and Central Asia. Work is in progress on Peshawar-Islamabad and Faisalabad-Multan Motorways. Work on Lowari tunnel will be started and alternate route will be provided to Gilgit through Jalkad Chilas Road. Indus Highway is being made operational between Karachi and Peshawar. Once this highway is completed, the distance will be reduced by 400 kilometres. Rs20 billion have been allocated in the ADP for the National Highway Authority so that these important projects are completed well in time. The motorways that we build will not only connect the four provinces, but will also connect Pakistan with Central Asia and Middle East. Mr Speaker, the construction sector grew at a rate of 6.2%. The construction sector has become the main job provider for the technical and non-technical people. During 2004-05, 134 construction companies registered themselves with SECP. Once these companies become active, further jobs will be created. Mr Speaker, the private sector has invested $4 billion in textile industry and textile exports are touching the $10 billion mark. Karachi Textile City is being established. Garments cities are being set up both at Lahore and Karachi. The growth in the textile sector can be judged from 18% increase in the production of cotton yarn, 28.45% increase in the production of cotton and 45% increase in the production of ginned cotton. We have made a commitment that we will add value to the cotton of Pakistan and Pakistan will become the symbol of the best cloth in the world. Mr Speaker, the growth in industrial sector is a source of satisfaction for the entire country. During the last one year, the production of air conditioners increased by 462%, deep freezers by 55%, refrigerators by 19.79%, soaps and detergents by 21.86%. This increase reflects increasing purchasing power of an emerging middle class and its financial strength. Mr Speaker, I want to tell this honourable house that during 2004-05, 31,663 tractors, 1,637 trucks and 1,341 buses, 87,992 jeeps and cars and 342,678 motorcycles were produced and offered for sale. Mr Speaker, here this fact needs to be highlighted that motorcycles and small wagons are an essential part of the rural economy. A 50 to 61% growth indicates that the agriculture and rural society of Pakistan is gaining in purchasing power. Employment and income are increasing and poverty and unemployment are receding. Mr Speaker, even today the government of Pakistan is contributing Rs7.74 for every litre of diesel to give relief to the people. Similarly, on every litre of Kerosene Oil Rs8.24 are being contributed by the government. Had the government not given this relief to the people, the price per litre of Kerosene Oil instead of Rs36.24 would have been Rs28. To maintain the prices of petroleum products at a lower level, the government had to withstand a loss of Rs52 billion in its revenue. In our neighbouring country, the average price of diesel is Rs40.12 and of petrol Rs55.93, which on an average is Rs10 per litre more than the prices in Pakistan. Mr Speaker, we have within one year given 250,000 new household connection of gas whereas gas has been made available to 270 new towns and villages. 529 kilometres of pipeline were laid to make the gas available. Liquefied petroleum gas is being used in 1.81 million houses and it is expected that next year the households using this gas will increase to 2.1 million. Our Pakistan is a Pakistan on the road to progress. Mr Speaker, during the current financial year 9,300 villages were provided with electricity which is a record. Next year another 13,000 will be provided electricity. Rs15.58 billion has been allocated for projects of power sector under the National Development Programme. During 2005-06, work would start on Neelum Jhelum Hydro Electric Plant. This plant would produce 969 MW electricity. Through a long-term plan, action is being taken so that by 2010, 700MW of electricity should be produced through alternate sources. We are not just looking at tomorrow; we are looking at the next 100 years and planning for it so that Pakistan is always successful. For developing alternate sources of energy the Alternate Energy Board has been tasked. Mr Speaker, international economists know that as a result of economic development, some degree of inflation is produced. This year the widespread growth resulted in some inflation to which was added the inflation caused by the increasing prices of oil in international market from which it was very difficult to protect ourselves. State Bank of Pakistan had also eased the money supply to meet the requirements of economic growth. Some inflation was induced because of this as well. However, after taking into account all the factors, the government has initiated effective steps for controlling inflation. Mr Speaker, NFC Award provides the basis for distribution of national resources. Such distribution cannot be made frequently. Therefore, Prime Minister Shaukat Aziz has taken extreme caution in working out the details of NFC Award. He continued consultations with the Chief Ministers of the four provinces. As a result of which most of issues related to the Award have been agreed. Very soon the President will announce the Award in the light of which an equitable distribution of national resources will be adopted. Mr Speaker, we have previously achieved a growth level of more than 8% on a few occasions but we could not maintain it. This was because the collective political leadership viewed it as a success of the government and its own failure and they tried to dislodge the effort which resulted in growth of more than 8%. Mr Speaker, those who understand the subject of economics know that if the GDP of a country grows at the rate of 8% it doubles in 9 years. So if on this occasion we do not display narrow mindedness and blinkered vision and do not view it as a success of the government and failure of the opposition; rather, we demonstrate a selfless consensus on the development process, then during the next ten years we could also become a prosperous and developed country like South Korea or Malaysia. The destination is right in front of us, it is just that for reaching it we need a big heart and love for the people and the nation. Mr Speaker, we express our humility and helplessness before Allah. What is within our grasp is the effort, which we are making for this country. During the year that is moving towards conclusion Allah blessed us with rains. Our prayer is that during the year that is beginning we are also blessed with rains. However, keeping in view all factors, we have for the main crops set a target of 6.6% and for the agriculture sector as a whole a growth rate of 4.8%. The growth target for manufacturing sector has been set at 11% and for the services sector at 6.8%. After taking into account the targets of the three major sectors, we have set a GDP growth target of 7%. Come let us pray together that Allah in his bounty may bless us with still greater achievements and success. May God help us have a much higher production than the high production of this year and next year may His blessings be more bountiful. Amen Mr Speaker, now I will present before this House the Budget Estimates for 2005-06. The budget for the current year was Rs902.8 billion. After adding an increase of 21.7% the budget for 2005-06 is set at Rs1,098.5 billion. The deficit for 2004-05 was estimated at 3.2% and with Allah’s blessings there will be no upward revision in the estimate. However, it is our proposal that the development expenditure for the next year may be substantially increased so that the ongoing developmental activities can be given a significant boost. With this objective in view, we propose that for the next financial year the deficit level may be set at 3.8%. The salient features of the next financial year’s budget are as follows: 1. The development budget has been increased by 34.7%, which is the highest increase to date. 2. Current expenditures will increase by 18%. The main reasons for the increase are the relief that government is giving to the government servants. Additionally, increases are anticipated under the heads of interest charges and subsidy. 3. CBR revenue will increase by 17%. Last year, revenue through CBR was at Rs590 billion which will become Rs690 billion for the next year. 4. The people of Pakistan are always ready to sacrifice their lives and resources for defending the geographical and ideological frontiers of this sacred homeland. Keeping in view the national needs of defence, necessary allocation for defence has been made, despite which the defence expenditures will remain at 3.1% of GDP. 5. The resources passed on by the federation to the provinces will increase from Rs239 billion to Rs284 billion registering a 19% increase. 6. Poverty reduction expenditures will increase by 16.5%. Last year, Rs278 billion were allocated, while in the next year Rs324 billion will be spent on this account. Mr Speaker, for 2005-06, the National Economic Council has approved a development programme of Rs306 billion, which is unparalleled in the 58-year history of Pakistan. As a result of this programme, a network of development work will be spread all over the country and the destiny of the people will be changed. During 2005-06, completion of 353 projects will be facilitated. For the next year, the allocation for water will increase by 66.5%, for health by 68.6%, for education and professional training by 49.5%, for higher education by 28.6%, for IT by 35.6% and for science and technology by 60.8%. Rs92.2 billion will be spent on infrastructure so that inadequacies of infrastructure do not become a constraint in faster development. Rs73.1 billion will be spent on social sector. Rs38.7 billion will be spent on IT, science and technology, tourism, environment and law and justice. Keeping in view the peculiar requirements of the people of Pakistan, Prime Minister Shaukat Aziz has decided to start many developmental projects on priority basis. These development programmes include supply of clean drinking water, prevention of blindness, hepatitis control, and female health programme organised at the district level. Under PSDP, a Khushal Pakistan Fund will be set up for according special priority to the less developed districts for provision of professional training. The national engineering universities will be revamped. For making development funds available for development and according significance to public-private partnership an infrastructure fund is being established. Mr Speaker, among the challenges that Pakistan is facing, development of human resources, establishment of an effective economic framework, civil service reforms and access to justice are very prominent. Prime Minister Shaukat Aziz is taking special interest in access to Justice Programme on which implementation has started, however, additional resources will be made available to achieve the objectives of the programme so that the ordinary citizen can benefit from it. Reforms of Tax Administration Mr Speaker, the government has taken several initiatives in the past few years to reform our tax system. Resultantly we can today claim with confidence that the universal self-assessment, stands firmly established as part of income tax system with wide acceptance by taxpayers. We intend to expand this concept across full spectrum of tax operations. Following this policy, we have introduced the self-assessment concept into customs clearance. The customs cumbersome procedures involving 34 verifications and 62 steps, with average dwell time of over eight days, in which they had to repeatedly face different customs officials, has now been replaced by a modern, fully automated clearance system that has comprehensive risk-management which is based on self assessment. Similarly, we have brought about major changes in the traditional organisational structure of income tax administration. For facilitating taxpayers, Large Taxpayers Units and Medium Taxpayers Units have been established in big cities. Under our tax Reform Programme Regional Tax Offices and Taxpayer Facilitation Centres will soon be established through out the country. Mr. Speaker let me now have the honour to present to this house the tax proposals for the next fiscal year. Sir, while formulating budgetary proposals, we have endeavoured to simplify our tax system and make it transparent. It is also our desire that the prices of daily-use commodities remain at a level where standards of living rise. Sir, I would now invite your attention to proposals regarding customs duty. Mr. Speaker agriculture sector enjoys primary importance in our economy. Therefore we have proposed reduction in many tariff lines pertaining to agriculture. At the same time it has been ensured that such reductions do not adversely affect the existing protections available to our developing dairy, poultry and fish farming sectors. The Government has already reduced customs duty on phosphates. With increased demand for urea, it is proposed that 5% customs duty on urea also be withdrawn. It is expected that this would reduce domestic prices of agricultural products and help boost their exports. Expansion in agriculture sector has also increased the demand for tractors which cannot be met through domestic production. It is therefore proposed to reduce duty on tractors from 20% to 15%. This will provide substantive relief to our growers. Ginning industry has a vital role in the textile chain, therefore its machinery is proposed to be exempted from customs duty. Similarly duty on presses for ginning industry is also proposed to be withdrawn. To support development in the agriculture sector it is also proposed that import of agricultural machinery like bulldozers, angle dozers, graders and levelers be exempted from payment of Customs duty. Similarly to assist the poultry industry to offset recent setbacks, it is proposed to reduce customs duty on some raw materials, especially vitamins used in the poultry feed. Similarly poultry feed making and poultry meat processing machinery is also proposed to be exempted, which will not only benefit the poultry industry but also help stabilize prices of poultry products. Owing to persistent shortages in meat and other edibles, customs duty is proposed to be exempted or reduced, which will help bring down inflation. Mr. Speaker the plastic sector primarily depends upon the petroleum sector. Prices in the international market of petroleum sector have skyrocketed in the past year. As plastic goods come into daily use of the common man therefore it is proposed to reduce the customs duty on 55 plastic goods items. This measure will bring down prices in this sector and employment opportunities in the sector will not be adversely affected. Mr. Speaker it is proposed that to increase industrial production the custom duty on basic raw material may be reduced. Hence raw materials for chemical, pharmaceutical, textiles, furniture, confectionery and soap industry are being exempted from duty or are being reduced. Raw material, components, and subcomponents to manufacture home appliances like air conditioners, TV, washing machines, refrigerators, computer monitors, circuit breakers, energy saving lamps, composite doors and windows, are being proposed to be given reduction in customs duty. In addition, machinery and equipment for setting up, balancing, modernisation or replacement of industry are proposed to be kept at 5% duty, and duty on their parts is being brought to the same rate. To promote investment in production of capital and engineering machinery making industry we are proposing to rationalise their duty structure. For similar reasons, duty on raw material for zinc and chrome coating is proposed to be exempted. This will also provide relief to down-stream agriculture and automobile sector segments. Presently, machinery and equipment used in hotel and tourism industry carries concessionary duty of 5%, while other items used in such industry are not so entitled. It is proposed that 5% customs duty also be allowed to all other items on certification by Ministry of Tourism. Besides, duty on Machinery, equipment and parts used by Aviation Industry is proposed to be exempted. This relief package will promote investment and generate employment opportunities. Mr. Speaker this year, we propose to rationalise tariff on CBU car imports to reduce duty slabs to only 3 slabs, i.e., 50% duty on cars up to 1500 cc engine capacity, 65 % for 1501 to 1800 cc and 75% for capacity of more than 1800cc. Duty on tyres used in light trucks and in construction vehicles is proposed to be reduced to 20% and 10% respectively. Bicycle is a popular conveyance amongst the population. To reduce its cost, customs duty on all bicycle parts is proposed to be reduced from 35% to 25%. While doing so, care has been taken to ensure that local industry of cycle parts manufacturing is not affected. Pakistan faces increased traffic congestion, and heavy smoke emitting vehicles are adding to our environmental pollution. It is therefore proposed to zero-rate duty on CKD kits of CNG and Euro-II buses. There is already no duty on CNG kits for cars. Duty on CNG dispensers is also proposed to be reduced to 10%. This measure will stabilise fares in the transport sector. Local industry of man made fibres faces numerous difficulties due to smuggling, under invoicing and under declarations. It is therefore, proposed to reduce duty and raw materials used in production of man made fibres. This measure will help in growth of the industry. Sir, arrears of customs duty have accumulated over past years, and their recovery is hampered by penalties and fines imposed for non payment. It is proposed to amend law so that a tax defaulter who pays the principal amount of arrear adjudged against him before 31st July 2005 would not be required to pay the fine or penalty. This relief measure is likely to collect some of the long outstanding arrears amount. Last year, importers of plant and machinery for export sector were given option to import tax free machinery for which L/Cs were to be opened up to 12th June 2004. It is proposed that arrival of this machinery may be allowed up to 30th June 2005. Last year the condition of pledging indemnity bonds for customs duty concession was discontinued. However, a number of previous cases are pending with the industry. To save the industry from hardship, the pending cases have been proposed to be settled without submission of installation certificates. Our exporters face a tough competition in terms of cost and quality due to lack of conducive environment at home. To facilitate exporters, we are making suitable changes in the DTRE Scheme. Similarly, it is proposed to extend temporary importation scheme under SRO 410 up to 30th June 2006. Duty collected on raw materials to manufacture carpets, textile, leather, surgical and sports goods is refunded in the shape of drawback which is a long standing problem. To remedy the situation, it is proposed to zero rate their major raw materials at import stage from Customs duty. In the absence of passage of Gwadar Port Authority Bill, 2004, there is a strong need for granting exemption to infrastructure projects at Gwadar for its early completion. It is therefore, proposed that provisional exemption of customs duty may be extended to the imports meant for projects such as hotels, power generating plants and water treatment plants subject to certain conditions. Importers whose warehoused goods have not been got cleared within the required time and who get them cleared by 30th June 2005 on payment of duty and taxes, the 1% penal surcharge would be waived. As part of its commitment to simplify and modernize the tax statutes, the government is replacing the existing Central Excise Act of 1944 with the new Federal Excise Act, 2005, so that complexities of the archaic legislation may be eradicated. It will also simplify and cut short lengthy procedures. Textile industry is the backbone of our exports sector. This sector also provides wide spread employment to our labour, skilled workers and to our professionals. Important ingredients used in our textile sector, such as cotton, yarn, cloth and garments are exported. To facilitate this sector it is proposed that we may extend GST zero-rating to entire chain of textile sector. Apart from textile sector, similar zero rating scheme is proposed to be allowed for carpet, leather, surgical goods and sports goods industries. Import and supply of plant, machinery and equipment is presently chargeable to sales tax at zero percent whereas parts thereof are chargeable to sales tax at standard rate. It is, therefore, proposed that import and supply of raw materials and parts used in manufacturing of plant and machinery may be zero-rated for sales tax purposes. Certain consumer items of daily use like soap and detergents are chargeable to sales tax as well as excise duty. This raises cost of these items. It is accordingly proposed to withdraw excise duty on soap and detergents. With a view to liquidate the swollen stock of past adjudged arrears it is proposed to grant a ‘one-time’ waiver of additional tax and penalty, if taxpayers voluntarily deposit the amount of principal sales tax. In such case no fine or additional tax shall be charged on such amounts. Environmental pollution is a serious problem. It is Government policy to encourage the use of Compressed Natural Gas (CNG) so as to reduce environmental pollution. It is accordingly proposed to grant sales tax exemption on import and supply of CNG to Euro 2 equipped buses. With a view to encourage greater penetration of telecommunication services, particularly to our rural areas, it is proposed to reduce activation charges of mobile telephone connections from the present Rs1000/- to Rs500/- per connection. It is the Government’s policy to allow small and medium enterprises to grow without encumbrance of sales tax. It is therefore proposed to withdraw levy of sales tax from services rendered by laundries, dry cleaners and marriage halls. Services occupy centre stage of the economy and their share in the GDP of Pakistan has surpassed that of agriculture and industry. As the existing Excise Legislation is being rationalised, there is also need to bring more services within its ambit. Therefore, it is proposed to levy excise duty @ 7.5% on fees and commission charged by banks for services for letters of credit, guarantees, brooking and foreign currency dealings; and also levy excise duty @ 7.5% on charges received on account of lease management fee, documentation fee and processing fee at the time of executing lease agreements. However lease money and mark-up will be exempt. In order to promote export sector the Government is introducing zero rate scheme which is also applicable to their inputs of utilities. However, the Government is aware of the fact that it will thereby lose tax revenue from textile, leather, carpet, surgical goods and sports goods sector on account of local supplies. Therefore, where retail annual sale exceeds rupees fifty lac in case of cloth, garments, leather goods, carpets, sports goods and surgical goods sectors, it is proposed to levy 3% tax inclusive of 1% income tax which will be final tax. As part of the drive to tax the service sector more effectively, it is proposed to charge the existing excise duty of 15% on actual transaction value of payphone cards and prepaid calling cards, instead of the charges billed by PTCL. The proposed measure would not bring additional burden to consumers and call charges would also remain the same, because the price at which such cards are sold to consumers have an in-built component of excise duty. Similarly, Wireless Local Loop (WWL) is also a phone service like Mobile Phones. Therefore it is proposed that WWL be subjected to a 15% excise duty. The cigarette manufacturers from organized sector have proposed an increase in retail prices. Accordingly, excise duty thresholds on cigarettes are being slightly adjusted upwards. Mr. Speaker, now I take up the proposals relating to income tax. The salaried class needs our special attention. Our present regime is two tiered. The standard tax rates range between 7.5% to 35%. To simplify and rationalize raw, it is proposed that tax rates for salaried persons may be reduced to lie between 3.5% to 30%. In order to further facilitate salaried taxpayers, it is proposed that if their source of income is only salary, then they need not file income tax return or employer’s certificate if their employer has filed mandatory tax deduction statement of his employees. Sir, teachers & researchers also need special encouragement. Therefore, the existing tax reduction limit of 50% for them is proposed to be enhanced to 75%. We are also mindful of our senior citizens. They are presently allowed tax rebate at 50% subject to upper income limit of Rs300,000/- This upper limit of income is proposed to be enhanced to Rs400,000/-. It is proposed that perks carrying zero marginal cost to the employers be exempted from tax. This will benefit teachers, hospital employees, hotel employees, employees of transport companies and of educational institutions. Limit of contribution towards approved pension fund for claiming tax credit is being enhanced from Rs200,000 to Rs500,000/-. Taxpayers are allowed tax credit on donations made by them to non-profit organisations. In order to encourage philanthropy, it is proposed to convert this credit into straight deduction from income for tax purposes in case of donations made to specific welfare institutions. The profit on investment up to Rs150,000 in National Saving Schemes is exempt from withholding tax whereas 10% tax is withheld on investments in TFCs. It is proposed to bring the investors in TFCs at par with them, and to allow similar exemption from withholding tax for investments up to Rs150,000 in TFCs. In order to provide an incentive for investment in IPOs, the limit of investment for claiming tax credit is proposed to be enhanced from Rs.100,000 to Rs.150,000. Mr. Speaker the corporate sector has prime importance in the country’s economy. The Government aims to strengthen and revitalise this sector. We had announced in 2002 the gradual reduction in corporate tax rates. These rates are therefore proposed to be further reduced for tax year 2006 to the following levels:- Banking companies 38%, Public Companies 35%, Private Companies 37% Further more, we propose to exempt capital gain of insurance companies. To encourage enlistment, a reduction of 1% in tax is proposed for companies enlisted on stock exchange during next year. The concept of Group Relief introduced last year for industrial sector is proposed to be extended to the service sector as well and concessions in case of amalgamations be expanded. Mr. Speaker, small and medium enterprises (SME) are an established vehicle to play a major role in creating employment. It is our proposal that those SMEs that transform into companies, a reduced corporate rate of 20% be applied to them, and no turnover tax be payable by them. The maximum value of passenger transport vehicle (not plying for hire) for the purpose of depreciation allowance is Rs. 1 million. It is proposed that this maximum limit be removed. Currently, withholding tax is deducted @ 3% of the value of the condemned ship imported for the purpose of breaking. This industry was once a thriving sector providing livelihood to thousands of people. With passage of time, ship-breaking activity has come to a standstill. In order to revive this industry, it is proposed that rate of withholding tax be reduced to 1%. It is our proposal that large trading companies be exempted from Presumptive Taxation so that more of them are attracted to make investment in Pakistan. Mr. Speaker, it is admitted that our tax to GDP ratio needs to be improved. This can only be possible by expanding the tax net. During the last few years comprehensive initiatives have been launched to broaden the tax network. To further strengthen these initiatives it is proposed that: On cash withdrawals from banks of amounts exceeding Rs25,000, withholding tax at 0.1% be deducted. Mr. Speaker, I would like to assure that the banks will not be asked for transaction details of their clients in this respect. However, the taxpayers will be entitled to adjustment of this tax. At present imported cars are subjected to 6% withholding tax. It is proposed that sale of locally manufactured new cars be also subjected to withholding tax at the same rate. However, that tax would be adjustable. Sales Tax regime has been rationalised by zero-rating imports and supplies consumed by textile, carpets, leather, surgical and sports goods’ export sectors. As a package deal their tax rate is being revised upward by 0.25%. Sir, the Government is committed to simplify tax laws and procedures and to automate them. It is therefore proposed that taxpayers be allowed to file various returns and statements electronically. It is further proposed to divest first level Appellate Authorities of the power to set aside or remand a case. The Minimum wages in Pakistan are regulated through an Act promulgated in 1969. The minimum wage of un-skilled workers was fixed lastly by the Federal Government in October 2001. The Labour Policy announced in 2002 envisages revision of minimum wages after every three years in consultation with National Tripartite Minimum Wage Council. This is therefore the appropriate time to revise it from Rs2500/- per month to Rs3000/- per month with effect from 1st January 1, 2005. The same is so being proposed. This increase will be 20% over previous minimum wage levels. Old-Age pension is granted to the insured persons of industrial, commercial and other organisations. The employers as well as employees are contributing to the Fund being managed by the Old-Age Benefit Institution. At present these workers are getting minimum pension of Rs700/- per month which was increased in November 2001. The President of Pakistan while addressing the First Convention of Workers, Employers Bilateral Council of Pakistan, also announced to increase the minimum old age pension, which is therefore being proposed to be increased from Rs.700/- to Rs.1000/- per month with effect from 1st January, 2005. This increase is over 40%. In the end, Mr.
Speaker, let me mention that the policy initiatives that we took last
year have not only paid rich dividends but also stimulated growth. Our
policies have brought about a healthy change in the tax environment and
resulted in significantly reducing costs of doing business in terms of
time as well as money. I would also like to assure this August House
that it is our endeavour to continue to rationalize and simplify our tax
structures with the objective of providing relief to the deserving
segments and to promote economic activity which will bring us returns in
the short as well as the long term. Khushal Pakistan Fund is going to be instituted under the PSDP Fund. Around ten thousand watercourses would be cemented the next year. Any country’s strength depends on how bigger it is, what is its annual GDP rate and how much educationally skilled and disciplined its manpower is. Subsidized flour will be supplied at Utility Stores Electrification schemes will be completed in 1300 more villages in the country in FY 2005-06. Wapda will spend Rs. 43 billion on water resources. Duty also relieved on
some plastic products. Rs
37.10 bln allocated for power sector projects in next fiscal |
