Campus Life Events   Events   Archives SZABIST holds Pre-Budget Seminar A pre-budget seminar was organized by the Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST) at its Islamabad Campus on May 19, 2010. The purpose of seminar was to assess the pre-budget situation and predict as well as suggest possibilities in the upcoming budget, which is being presented at a time when country is passing through acute financial crisis. The significance of Revenue Generation, Expenditure Management, Debt Management, Value Added Tax, Provincial Revenues and Post 18th Amendment Demand for Finances: Bases & Options and Provincial Finances were highlighted during the seminar. Mr. Sakib Sherani, Principal Economic Advisor, Ministry of Finance, Mr. Abdullah Yousuf, Former Chairman, FBR, Dr. Fazal Husain, Chief of Research, PIDE, Dr. Akhtar Hussain, Managing Director, Small Industries Development Board, Peshawar, Ms. Ayla Majid, Director Business Advisory Services, Khalid Majid Rehman Chartered Accountants, Dr. Eatzaz Ahmad, Professor of Economics, Quaid-i-Azam University, Mr. Mehmood Khalid, Pakistan Institute of Development Economics and Mr. Syed Asad Hussain, Head of Campus, SZABIST, Islamabad were present on the occasion. Various scholars, academicians and officials from Government and private sector attended the seminar. Mr. Sakib Sherani, Principal Economic Adivsor, Ministry of Finance Mr Sherani said 27 percent of our budget was going to debt financing and another 27 percent to defence. He informed that 45 to 60 percent electricity tariff was increased to overcome the deficit of energy sector but due to lower rain, worsened gas situation and increase of furnace oil prices in international market from 27000 to 54000 rupees a ton the Government could not recover the debt situation in energy sector. He said since 2007 Pakistan has faced many economic crises including micro economic problems, inflation, massive trade shock and global financial crises. He said due to 33 percent financing deficit and deteriorating security situation we lost 15 to 20 percent of exports which had placed huge burden on country's fiscal framework. He said there was a need to stop leakages in public sector procurement and losses in public sector organizations which were 330 billion and 250 billion rupees a year, respectively. Mr Sherani said that Government should be collecting tax from certain threshold but is not able to do so due to bad governance or administration. He emphasized better governance can make it good instead of giving more burdens on existing taxpayers. He said in two years many fast growing countries of the world had a contraction of GDP from 10 to 20 percent. He said that economy contracted in 2008-09, which impacted growth rate and, unemployment and poverty were increased. He said the Government was broadening the tax space through Value Added Tax. Mr. Abdullah Yousaf, Former Chairman, FBR Mr. Abdullah Yousaf said almost 22 percent of our economy is being contributed by agriculture sector. He said we have unequal distribution of taxes due to lack in policy or inability of system to collect taxes which have been levied. He said that tax gap is a difference between tax levied and tax actually collected and we collect only 50 percent of the total tax levied. He emphasized that there is a need to curtail loss on expenditures side, leakages and subsidiary to some large giants "white elephants" like PIA, Railways and WAPDA. He said the Federal Board of Revenue was the main institution to collect taxes but there was a need to increase capability by benefiting from technology instead of huge infrastructure. He explained that capability of online information of banking transactions taking place on each and every bank account should be electronically made available to the tax authorities. "It is duty of the government to collect taxes from everyone who is above certain threshold and there should be no exceptions", he added. Mr. Yousaf said that FBR should be able to access information of anybody's account and tax policy should have to be equitable irrespective of the source of income. He informed that manufacturing sector is contributing 18 percent to GDP and paying two third of the total tax amount while Agriculture has a big share of 22 percent in GDP but contributing less than 1 percent tax. Similarly, he said, Services contribution in GDP is 54 percent out of which 16 percent contributed by retailers and whole sellers, 12 percent from transport and only 28 percent paid by Services from 54 percent which is a huge gap. He said after 7th NFC Award it is a challenge for the Federal Government to honour those commitments and be within fiscal deficit limits. "I don't think relief is coming in current circumstances", he added. Mr. Mehmood Khalid, PIDE Mr. Mehmood Khalid focused his presentation on provincial budgets, shares and trends, budget allocations, grants and loans, financing of deficit, inter provincial transfers, provincial revenues, provincial expenditures and source of data. He said that Punjab is generating 18 rupees from 100 on its own resources while remaining amount is coming from the federal government. "Tax revenues are only 12.5 percent but expenditures are 70 percent and development portion is 30 percent," he added. Mr. Khalid said that provincial grants are very much dependent on federation in resource transfer and in case of non-transfer they have to be borrowed. He said the public accounts cover those entries which are contribution of employees and national saving schemes. Dr. Syed Akhtar Hussain Shah, MD, SIDB Dr. Syed Akhtar Hussain said that transfer to provinces from federal government is five times out of divisible tools like income tax excise duty etc, sales tax, straight transfer, GST and services and in form of grants. He spoke on provincial revenues, 7th NFC award, after 18th amendment transferable ministries, case of Khyber Pakhtunkha, impact of out of the box strategy of revenue expansion (OBSRE) and possible strategies and options. He said the provincial own revenues depend on tax revenues (agriculture, property, land revenue, business etc) and non-tax revenues. He informed that receipt from non-tax revenue for 2009-10 was Rs. 3656 million. Ms. Ayla Majid, Director Business Advisory Services, Khalid Majid Rehman Chartered Accountants Ms. Ayla Majid briefed the audience on economic snapshots of the country, tax to GDP ratio (global scenario), FBR tax collection (direct and indirect taxation), history of value added tax and international VAT scenario. She said Value Added Tax is general tax applicable to all commercial activities (production and distribution), applicable on goods and provisions of services, consumption tax borne ultimately by the final consumer, charged as a percentage of price, collected fractionally via system of partial payments."VAT registration threshold supplies goods or services in excess of 7.5 million in a 12-month period", she added. Ms. Majid said in VAT taxpayers must register themselves as VAT person. She informed that registration procedure is quite detailed in VAT Bill 2010 and exemptions available under Sales Tax Act are much more compared in VAT 2010 Bill. She said the number of zero rate provisions that were available to number of industries had also been withdrawn in VAT and only 15 percent of the final price is collected, it is quite similar with sales tax. She said that zero rate of five industries (leather industry, carpet industry, sports goods industry, surgical equipment industry, textile industry) have been withdrawn and their entire supply cycle should be zero rated for time being till the time they have enough capacity to process refund efficiently. She recommended that for implementation of VAT, during legislation we should know the challenges of extreme poverty, low literacy rate, inadequate health and education facilities, need for infrastructure development, need for systems development, exploitation of indigenous resources, rising external and internal debt and low savings. She also suggested that implementation of VAT should be in phases and VAT imposition in line with the economic activity, purchasing power parity and inflation of the country. She opined that VAT Bill 2010 can be deferred till the time FBR's capacity is enhanced efficiently and it is able to accurately process refunds and claims. She said there is a need to implement state-of-the-art VAT tax management system and to create tax education awareness among public and stakeholders, and national VAT regime is essential. Dr. Eatzaz Ahmad, Professor of Economics, Quaid-i-Azam University Dr. Eatzaz Ahmad said that debt and budget deficit is as closely linked together as chicken and egg. On one hand, continuing large budget deficits necessitate borrowings, which in turn result in accumulation of debt. On the other hand, high level of debt needs to be serviced, which in turn results in budget deficit. He said that several studies have been undertaken following the debt crisis of 1990s, and most of these studies emphasize to trace the time paths of debts and make future debt projections, determine the causes of debt accumulation, analyze effectiveness of alternative policies in keeping debt sustainable, and explore the consequences of rising debt burden on socioeconomic indicators like per capita income, poverty, inflation, etc. He said that the explicit cost of debt in terms of interest and principal payments is straightforward and has been studied quite extensively in Pakistan. He said that the government should ensure that borrowed funds are used for development purpose. He added that there are various ways to impose the government budget constraint on the behavioral equations depending on the type of changes in the government resources that are to be analyzed. Syed Asad Hussain, Campus Head, SZABIST Islamabad Mr. Asad said that we always criticize the government and economists are always there for the analysis. He said there is a need to locate both sides of the coin, how the recipient look at the problems and what are the reservations of people sitting in the government who are also dealing with the IMF. He said the government can not make the decisions with complete freedom in such a depressive environment. He said, usually we forget about provinces that how they faced difficulty from federal government and what is their fiscal discipline. He said the provinces are paying higher interest rate, which is a reflection of their constraint.