Budget 2013-14: Concluding Speech

Alongside is the text of concluding speech delivered by Senator Mohammad Ishaq Dar, Federal Minister for Finance, Revenue, Economic Affairs, Statistics and Privatisation, in the National Assembly on 22nd June 2013.

Bismillahir-Rehmanir-Rahim

Introductory remarks

Mr Speaker,

1. I am most grateful to the members of this august House for holding a very lively debate on the budget proposals for 2013-14. I am equally grateful to the Senate of Pakistan and its Standing Committee on Finance for participation in the debate on the budget and formulation of detailed recommendations for the consideration of the National Assembly.

Mr Speaker,

2. I am heartened to note that many speeches in both the houses, particularly those by the Leader of the Opposition and parliamentary leaders, were very well argued. Politics apart, elections have been held; the nation has given its verdict. Now we must all work together and play our role in strengthening Pakistan’s economy. This budget belongs to everyone and so does the economy. It is an established fact that our economy is afflicted by malice and that we have to cure it and make it become healthy again. Part of the medicine is precisely a unified view about the agenda of reforms that must transcend the political divide. Nothing would be more potent in rehabilitating our economy than an unequivocal signal that the direction we are giving the economy is based on national consensus.

Mr Speaker,

3. It is precisely with this aspect in view that I and my team, who have taken copious notes from every single speech, have evaluated all comments and suggestions with an open mind and wherever we have found merit we have decided to incorporate those in the final budgetary proposals. Time will not permit me to respond to all those comments and suggestions, but some of the observations that have constantly recurred during the debate must be responded to.

LABOUR AND MINIMUM WAGE RATE

Mr Speaker,

4. It has been said that the budget has offered nothing for the labourer. Indeed, the biggest welfare measure for labourer is to create more jobs for them. The budget speech has so many references to job creation that I would not like to waste the time of this House by referring to all of them. But let me note three important places where job creation has been alluded to. On Page- 12, Sub-Para-8, I have pointed out that jobs will be primarily created in the private sector but public sector will also play an effective role. For the private sector jobs, we are undertaking a whole range of measures that will create an enabling environment for private sector to begin to invest in the country, as our Investment/GDP ratio has faltered to an unacceptably low level of 14.2 percent. We are committing to take it to 20 percent over the medium term and that this policy initiative will alone create a very large number of jobs for our labourer and educated youth. In the public sector, despite presenting an austere budget we are taking the development budget from Rs 360 billion budgeted last year to Rs 540 billion in FY 2013-14, which is a 50 percent increase.

5. And while giving the details of the development expenditure, most notably in the context of investments in Highways and other national projects, on Page-20, it had been submitted that such a large program will create numerous job opportunities for the labourer.

6. Finally, on Pages-24 and 25, while discussing the measures planned for the promotion of industry and regional trade, it had been noted that under the present state of affairs, where the manufacturing sector during the last five year has shown anemic growth, the job opportunities required for absorbing our youth have not been created, and hence there is a need to give a fresh life to our industry and regional trade, as has already been emphasised upon by the Prime Minister Nawaz Sharif during his speech in this house.

7. It was also said that we have not announced any increase in the minimum wage rate. As we all know, after the 18th Constitutional Amendment, labour has been devolved to the provinces. It is not a very healthy situation that there is competition amongst provinces and federal government on the question of minimum wage rate. Our government wanted to see what the provincial governments are deciding in this respect. All provincial governments have announced their budgets and two of them, namely Punjab and Khyber Pakhtunkhwa, have decided to raise the minimum wage rate from Rs 9,000 to Rs 10,000. In this background, the federal government has also decided to increase the minimum wage rate in the federal areas from Rs 8000 to Rs 10000 with effect from 1st July 2013.

FARMERS

Mr Speaker

8. I now move to another repeated comment related to agriculture and farmer. It is stated that the budget does not have any mention of farmer. Here again, I would humbly submit that this is not based on a close scrutiny of the budgetary proposals. The central concern of our farmers is the availability of water, fertiliser, credit and good prices for their produce. And I have addressed all these four subjects in my speech.

9. In the context of development plan, the first sector highlighted was the water sector at Page-16. The extensive list of projects in the water sector – new canals in far-flung areas, lining of canals and water courses throughout Pakistan and numerous schemes for flood protection and drainage of water – are all aimed at bringing more cultivable land for farmers, providing more water, saving loss of water and protecting them from flooding. A huge amount of Rs 59 billion has been kept for this purpose.

10. We have increased the subsidies for fertiliser from Rs 10 billion during the outgoing financial year to Rs 30 billion in 2013-

14. We are also making arrangements for timely import of fertilisers.

11. The most notable thrust of our economic policy is to make credit available to private sector, which includes farmers also. Presently, there is hardly any significant amount of credit available to private sector, as government is taking away a lion’s share of it. We are taking measures to change all this and Insha Allah increasingly larger share of credit will be made available in the private sector and farmers will benefit from this expanded credit.

12. Finally, let me point out that in the context of building highways, on Page-18 of the budget speech, I have stated, and I quote:

“Both urban and rural populations need communications for their economics. Farmers will not be able to get good prices for their produce nor can urban producers be cost effective in the absence of communication links that can efficiently transport their products to target markets. Indeed, we must treat development of efficient communication as an important instrument of poverty reduction, since a significant number of poor people are disconnected with the places of economic opportunities and remain poor for lack of access to such places.”

13. Nothing testifies more poignantly the concern we have not just for the farmer in his capacity as a tiller of the land but also because of his poverty. In the above quote the whole communication effort of Rs 73 billion is linked to the welfare of farmers and the poor.

INCOME SUPPORT PROGRAMME

14. Some of the members from the other side of the isle have expressed concerns on the income support program. Even though the situation has been explained on many occasions, let me once again make it abundantly clear that the existing income support program is continuing and that during the year we have nearly doubled the allocation from the revised estimate of Rs 40 billion for this year to Rs 75 billion for 2013-14. However, we will carry out reforms to bring more transparency in its operations, expand its coverage and have already announced a 20 percent increase in the monthly cash support.

15. Let me also explain the reason why this program is not being referred to just BISP. It is because we are now talking about an umbrella Income Support Programme of which BISP will also be a part. The Prime Minister’s Youth programs, small loans, microfinance, housing finance support, education fee support and others will all be part of the larger income support programme.

IMF PROGRAMME

Mr Speaker,

16. One of the honourable members has questioned the wisdom for holding talks with the IMF. It is imperative that I spell out in some detail the logic behind our engagement with the Fund.

17. First, it should be known to all that IMF is here primarily to hold the Article-IV Consultations, which is a routine feature with all member countries. Post-Program Monitoring is also a part of this since the previous regime borrowed 200 percent of Pakistan’s Quota from the IMF. Consequently a Post-Programme Monitoring will be conducted regularly until the outstanding amount falls below the above threshold.

18. The time to amortise the IMF loans drawn by the previous regime is now upon us, and we are required to pay back a huge amount of $3 billion during 2013-14. Consequently, it has become imperative to engage the IMF and other IFIs so that we can amortise the loans obtained by the previous government (which have already been used up). But I must assure you that during this process, the national interest of Pakistan and its people will be the primary focus. We have never before, nor will we now, compromise on the national interest.

19. Somebody has said so beautifully:

TAXATION PROPOSALS

ONE PERCENT INCREASE IN GST RATE

20. The most debated tax proposal is the increase in the GST rate from 16 percent to 17 percent. I understand the feelings of the members and I am taking most sympathetic view of their observations. However, in order to truly appreciate the perspective in which such a measure was adopted it is important that I make some further remarks about the state of the economy we have inherited:

(1) First, in the current year, there is a revenue shortfall of Rs 374 billion in FBR collections. Against a budget estimate of Rs 2381 billion, we are expected to end the year, with difficulty, at Rs 2007 billion. Without exaggeration, this year must be a year in the FBR’s history that budget target has been missed with such a massive margin. Indeed, the additionality of one full year has been lost. It is for this reason that we are trying to make up for the lost revenue in the next financial year and an extraordinary increase has been budgeted for FBR revenues, that is say, Rs 2475 billion;

(2) On top of the revenue shortfall there is an overrun of Rs 602 billion in expenditures not counting the circular debt of Rs 503 billion of which Rs 326 billion I have announced to be paid during the current year;

(3) If we do not mobilise tax resources, none of the expenditures we have placed before the House can be postponed. The only way open to government, then, would be to print money. This would be extremely imprudent, as it would unleash explosive inflation that will hurt the poor more than the rich. I respect the views of the leader of the opposition when he said that his government was not ashamed of giving away Rs 1485 billion in tariff differential subsidy. If he is so proud of subsidising electricity through printing of money, why did he not make electricity free to all consumers? We are public representatives and every authority vested in us, is a trust to Allah and the people. If we resort to unlimited printing of money we are debasing the money held by others, and this essentially means decreasing the wealth of the people. Responsibility demands that we should be mindful of the size of resources available and limit our expenditures accordingly.

(4) The one percent increase made in GST was in place a couple of years ago; and then GST was reduced from 17 percent to 16 percent. 17 percent GST is not a rate too out of line with those prevailing in other countries like ours. However, I assure you that as soon as our revenue position so permits, we will reduce this rate

TAX ANOMALIES FOR SALARIED TAXPAYERS

21. Several members and a section of the media have pointed that the tax proposal relating to revision in tax rates for salary income have led to an increased tax liability for low income groups, benefiting the middle income groups and higher tax liability for higher income groups. While the last two outcomes are in line with the intended reform, the first outcome is painful to low-income groups and is not consistent with our intended reform. I am convinced of the logic and have therefore decided to rationalise the tax slabs and make necessary adjustment in the proposal so that the tax liability of those having an income Rs 2.5 million or less will have the same tax liability as previously.

RENTAL INCOME

22. One of the reforms we brought in the income tax law was to move in the direction of eliminating different blocks of income into a unified definition of income. Rental income is one such differentiated block, taxed separately than other incomes. Presently it is taxed at a presumptive tax rate of 10 percent, which is full and final settlement of the tax liability. In this budget we proposed to raise the tax and to introduce several slabs going up to 17.5 percent. However, in the existing proposal the presumptive character was retained. With rising tax liability it will not be desirable to maintain the presumptive nature of the tax as it may give rise to unintended inequities. In the light of the recommendations given by the honourable members, it has now been decided to tax rental income at two withholding rates of 10 percent and 15 percent, which will be adjustable at the time of final assessment.

TAXATION PROPOSALS RELATING TO ACADEMICS

23. I am also grateful to those members who have given their recommendations on some proposals in the budget related to researchers, teachers and non-profit educational institutions. Two proposals affected them. First, the 75% rebate in tax liabilities of teachers and researchers was proposed to be withdrawn. We have revisited the proposal and found that it would not be appropriate to withdraw it in one go. Accordingly, it has been decided that the rebate will be reduced from 75% to 40%, so that the concession is not exploited. The second proposal related to withdrawal of a clause that accorded tax-free status to non-profit institutions was construed as a move toward taxing the surplus income of such institutions. There is no truth in this. All that is intended is that such institutions will now seek a one-time certification of their non-profit character from the Commissioner of income tax and afterward they will continue to enjoy the tax-free status.

TAX ON HAJJ OPERATORS

24. Another comment that has constantly reverberated the debate is the tax on Hajj operators, misleadingly believed to be a tax on Hajjis. Let me clarify that a tax on the income of the Hajj operators is already in place at the rate of Rs 2500 per haji served by the operator. This rate has been raised to Rs 3500 for 2013-14, which is in line with the rising earnings accrued to Hajj operators and has been worked out in consultation with them. It is unfair to construe this tax as a levy on Hajis. This tax is not levied on Hajis, but on the income of Hajj operators. It is an established principle of taxation that the incidence of direct taxes squarely falls on the taxpayer and no portion of it is shifted to others. Accordingly, it is misleading to suggest that this tax will be passed on to the Hajis.

ACCESS TO BANKING INFORMATION

25. Many members of Parliament have expressed doubts and apprehensions on the provision of banking information as contained in the proposed Section-165A of Income Tax Ordinance, 2001. It is very important to clarify this provision and allay the apprehensions of the members. In this regard, three submissions are placed before the House:

(1) First, the proposed move is completely in line with how the world is moving and it will be imprudent of us to ignore all that is happening around us. It is also needed to prevent any perceptions that our banking and taxation systems are not synchronised or that our banking system can be abused as a safe heaven for tax evasion;

(2) Second, the information accessed is not by an ordinary field officer of the tax department. It is only the Chairman and Members of the FBR, who can access the information;

(3) Finally, there is significant protection available in law against the possible abuse of this information by tax authorities. As provided in sub-section 4 of the proposed section, the information so obtained from a banking company is declared as information under Section-216 of the Income Tax Ordinance, 2001, which makes it confidential and prevents its dissemination by a public servant. Under Section-198, any violation of Section-216 is an offence punishable with fine and a prison term of up to 6 months. To further strengthen this punishment, it is now proposed to raise the fine to a minimum of Rs 500,000 and to increase the maximum punishment from 6 months to one year. With such heavy penalties no one should doubt that any public servant, that too at the level of the Board, will ever dare divulge this information for any purpose other than what it is intended for.

RELIEF FOR STATIONERY ITEMS, MILK AND DAIRY PRODUCTS, AND BICYCLES

26. Some honourable members have also objected to elimination of zero-rating status to stationary items, milk and dairy products, and bicycles. We have decided to accept their suggestion and restore their zero-rating status. Consequently, there should now be no change in prices of these times in the market.

INCREASE IN WITHHOLDING TAX ON CELLULAR USERS

27. In consultation with stakeholders it has been decided that the present rate of withholding tax on cellular users be increased from 10 percent to 15 percent, which is adjustable at the time of final assessment. This proposal has been accordingly incorporated in the budgetary proposals.

28. As announced in the budget speech, the facility for the payment of tuition fees for higher education, which was earlier available for Balochistan, FATA, and Gilgit-Baltistan, has been extended to all Rural Sindh and all three Divisions of Southern Punjab, that is to say, Multan, Bahawalpur and D.G. Khan. Now on the advice of the honourable members, this facility is being further extended to include the Malakand, Kohistan, and Dera Ismail Khan areas of Khyber Pakhtunkhwa.

29. I must also mention here, an important point relating to the Secret Service Fund. As had been explained in the Budget Speech, we have taken a historical step by eliminating the Secret Service Fund with effect from 11th June 2013. Now only national security related agencies will have the right to spend under the head of Secret Service. As a result of this measure, any unjustified use of this facility will not be possible. Through the Finance Bill 2013, these reforms are being included in the Auditor General’s Ordinance 2001, so that no organisation other than national security-related agencies can use the Secret Fund.

SECURITY OF OUR STRATEGIC ASSETS

Mr Speaker

30. As the budget debate was taking place, many things happened in Pakistan, including the unfortunate incidents in the province of Balochistan. Inevitably, members had to speak on those events alongside their views on the budget. Unfortunately, in reaction and exuberance to these events, some of us went over board and have made some unwarranted comments. One such comment was related to our strategic assets so dearly nurtured and evolved by our nation. I think it is extremely important for us to restrain our emotions, no matter how charged we may be, within the bounds of national security and we must draw some red-lines that must not be crossed under any circumstances. Casting aspersions on strategic program and expressing views that would be potentially used against us by others is inconsistent with prudential behaviour.

31. It is in this backdrop that I am constrained to reflect on the security arrangements designed for our strategic assets both as a Cabinet Minister and a member of the Command and Control Authority, the highest decision making body responsible for our strategic program. To this end, I would like to make the following submissions:

(1) At the outset let me make it abundantly clear that Pakistan has a most responsible program of strategic assets fully compliant with all internationally accepted standards of safety and security;

(2) The program that evolved in separate units until 1999 was brought under a unified command called National Command Authority, headed by the Prime Minister of Pakistan. A Special Projects Division (SPD) co-ordinates the individual programmes and weaves them together in a single national program. A Strategic Forces Command is responsible for the security of the programme;

(3) A rigorous Regulatory Regime regulates all matters related to nuclear safety and security, including physical protection of materials and facilities, fissile material control and accounting, transport security, prevention of illicit trafficking and border controls;

(4) A comprehensive Export Control Regime provides laws that are at par with standards followed by the Nuclear Suppliers Group (NSG), the Missile Technology Control Regime (MTRC) and the Australia Group.

(5) The essential elements of the security regime are:

(i) A well trained, well equipped and dedicated security force of 25,000 personnel;

(ii) A Special Response Force;

(iii) A Special Escort Force;

(iv) A Marine Force for shore-based facilities;

(v) Counter Intelligence Teams;

(vi) Personnel Reliability Programs;

(vii) Modern technological equipment;

(viii) Ground and aerial mobility for rapid response;

(ix) A dedicated SPD Training Academy for security training.

32. We are ever vigilant and never complacent. We remain alive to unthinkable scenarios and our alert systems are constantly maintained at the highest level and kept under constant review.

Mr Speaker,

33. This is a program, which in the 65 years of the country’s history has proved that our whole nation stands in cohesion and unity behind its development and progress. As we all know, this program is not associated with any particular individual, any one political party, any specific ideology, or any single establishment. This is, in fact, our heritage; and it is our decided national consensus that under no circumstance and under no challenge will we ever disassociate ourselves from it or shy away from doing all that is necessary to protect and safeguard it. Thus, why would we make such common heritage and symbol of national unity, a subject of suspicion or apprehension?

34. I am confident that what I have stated above will give comfort to our people and raise their confidence on the safety and security of our strategic program. I want to also send an unequivocal message to others that Pakistan is a highly responsible member of the international community and fully dedicated to ensuring that its strategic assets remain safe and secure and completely out of reach of anybody inside or outside of Pakistan.

CONCLUDING REMARKS

Mr Speaker,

35. All the amendments which I have just mentioned have been submitted to National Assembly Secretariat.

36. Before concluding my discussion on the budget, let me once again thank you for the highest standards of impartiality you have set and the impeccable manner in which you have conducted the proceedings of the Assembly.

37. I also thank the members of both Houses of the Parliament for their spirited participation in the budget debate.

38. Finally, let me thank the officials of the Ministry of Finance and Federal Board of Revenue, as well as all officers and staff associated with secretariats of the two houses, who have worked tirelessly for the preparation and presentation of the budget. Thank you, Pakistan Painda Bad.